Econ-Chapter 4

Question 1

Trade

Answer 1

Occurs when goods, services, or resources are exchanged , sometimes using money as a medium of exchange.

Question 2

Barter

Answer 2

Trade without money

Question 3

When people trade voluntarily, they do so , so that they will be

Answer 3

Better off

Question 4

Incentives to Trade

Answer 4

People differ in tastes, people differ in abilities, and more highly populated markets give rise to better use of resources though specialization.

Question 5

Comparative Advantage

Answer 5

An individual has this at producing one good if he or she has a lower opportunity cost of producing the good, in terms of other goods sacrificed.

Question 6

How is trade advantageous ?

Answer 6

When the external cost of trading for a good is lower than the internal cost of producing the good.

Question 7

What is trade limited by

Answer 7

Transaction costs

Question 8

Transaction Costs

Answer 8

Arise due to the sacrifice that must be made to search out, negotiate, and complete an exchange.

Question 9

Less expensive resources means that the supply of the goods that producers make rises which ..

Answer 9

lowers the costs and results in more being sold, expanding the value for consumers and producers.

Question 10

Mercantilism

Answer 10

Aimed at keeping as much money in the country as possible-not letting it escape. obsessed with abalone of trade

Question 11

Balance of Trade

Answer 11

The dollar value of exported goods and services minus the dollar value of imported goods and services.

Question 12

Trade Surplus

Answer 12

Positive balance of trade

Question 13

Trade deficit

Answer 13

A negative balance of trade

Question 14

The current Account

Answer 14

The monetary value of the flow of goods and services.

Question 15

The capital account

Answer 15

Those dollars either purchase US goods and services -resulting in an eventual balance of the current account- or they purchase financial instruments, the stocks and bonds of US companies and/or governments, which adds to the monetary value of this.

Question 16

Balance of payments

Answer 16

The sum of the current account and the capital account, is always zero.

Question 17

Exchange rate

Answer 17

The price of one country’s currency in terms of another country’s currency.

Question 18

The exchange rate depends on..

Answer 18

The supply and demand for each currency

Question 19

The demand for dollars is determined by

Answer 19

How many US goods, services, and financial instruments the rest of the world wants
Wether people expect the dollar to gain or lose value in the future- in terms of other currencies.

Question 20

Supply of dollars is determined by

Answer 20

• How many of the rest of the world’s good, services, and financial instruments that people holding dollars wish to have
• Wether people expect the dollar to gain or lose value-in terms of other currencies
• The central bank-the US Federal Reserve Bank (the fed) creating or destroying money

Question 21

Dollar has appreciated

Answer 21

Gained in value, compared to the peso

Question 22

An appreciation of the dollar makes it less profitable to export and

Answer 22

More profitable to import

Question 23

Modern day mercantilists are sometimes called

Answer 23

Protectionists

Question 24

Tariffs

Answer 24

Taxes on imports, sometimes more than 100% of the imports price

Question 25

quotas

Answer 25

restrictions on the quantity of imports that citizens can purchase

Question 26

subsidies

Answer 26

paying domestic firms to produce. unless foreign governments retaliate, foreign industries can’t compete.

Question 27

Export Subsidies

Answer 27

paying domestic firms for each unit they export

Question 28

Domestic content restrictions

Answer 28

Laws that say a product made in the country must be primarily made using resources from the country

Question 29

anti-competitive manufacturing specifications

Answer 29

requiring that a particular imported product be manufactured with inputs that are difficult to acquire except in the importing country

Question 30

economic problem

Answer 30

allocating society’s scare resources to their best uses

Question 31

Protectionists may accept imports under some limited conditions

Answer 31

• the good is impossible to produce domestically in sufficient quantities
• exporting is good
• the exporter has wages and other regulations similar to ours
• imported good will not greatly harm any domestic industry

Question 32

the worst foreign source to import from

Answer 32

produce a good that we produce domestically
never import from us
have zero wages
clearly harm a domestic industry