ECON1 Final Exam Study Guide

Suppose that, a country with a closed economy opens itself to international trade and becomes a net exporter. In that case, the producers of that good will be ____ and the consumers of that good will be ____ when the economy goes from closed to open for trade.

better off; worse off

Quota

A legal limit on the quantity of a good that may be imported.

Tariff

A tax imposed on an imported good.

Under autarky, what is the relationship between CPC and PPC?

CPC is the same as PPC.

In general, which domestic groups benefit from free trade?

Domestic producers of exported goods and domestic consumers of imported goods.

The key difference between quota and tariff is ____________.

Tariff can create additional revenue for the government.

When does a trade deficit occur?

When the value of imports exceeds the value of exports for a given period.

Straight-line PPC

constant opportunity cost; complete specialization is achieved

A trade surplus occurs when

exports exceed imports.

When a U.S. citizen takes Air Canada to fly to France for vacation, this involves ________.

imports for the United States and exports for Canada and France.

Bow-shaped PPC

increasing opportunity cost; complete specialization will generally not be achieved

For an economy with increasing opportunity cost, if currently the opportunity cost of producing a good domestically is lower than the opportunity cost of purchasing it in the world market, the economy _______.

is producing too little of the good right now and should increase its domestic production.

The production possibility curve (PPC) shows the ______ production of one good for _______ production level of the other good.

maximum; every possible

If the price of a good in a closed economy is lower than the world price, then with an open economy this country will be a ______ of that good.

net exporter

One means of enforcing a quota is to require importers to ________.

obtain a license

If domestic opportunity cost is higher than international opportunity cost,

produce less domestically.

If domestic opportunity cost is lower than international opportunity cost,

produce more domestically.

Capital inflows are

purchases of domestic assets by foreigners.

Suppose the automobile industry can import 10% of the total quantity demanded of cars in the U.S. This is an example of a(n) ________.

quota

Autarky is a situation in which a country is economically

self-sufficient

In general, a nation can enjoy a higher standard of living by ______ than by being self-sufficient

specialization and trading

The slope of the line tangent to a point on an economy's PPC equals

the opportunity cost of producing one more unit of the good measured on the horizontal axis.

A country's trade balance equals

the value of exports minus the value of imports.

Protectionism is

the view that free trade is injurious and should be restricted by reducing imports (quotas, tariffs)

If the United States has a $300 billion net capital inflow, then there must be a:

trade deficit of $300 billion.

A country's economic welfare most directly depends on

what its citizens consume.

Net exports plus net capital inflows equal

zero.