Module 8

domestic demand curve

a demand curve that shows how the quantity of a good demanded by domestic consumers depends on the price of that good.

autarky

a situation in which a country does not trade with other countries. Exporters can profit from producing the good domestically and selling it in foreign countries.

If a country engages in free trade, the government

does not attempt to increase or decrease the levels of imports and exports that occur naturally as a result of demand and supply.

Over the past 40 years in the United States, as a percentage of gross domestic product:

exports and imports have grown.

If a nation imports a good when the economy is opened to trade, the domestic price of the good will ________ and domestic consumption will ________.

fall; rise

If a country's price in the absence of trade is lower than the price with trade, then the domestic quantity supplied with trade is ________ the domestic quantity demanded.

greater than

Compared with autarky, international trade leads to ________ domestic production in exporting industries and ________ domestic production in import-competing industries.

higher; lower

A direct restriction on the quantity of an import is called a(n):

import quota.

If the world price of cotton is less than the autarky price in the U.S.:

importers will find it profitable to buy cotton in foreign markets and sell it in the U.S. → This is an illustration of trade based on comparative advantage.

Policies that limit _______ are trade protection policies.

imports → The purpose of trade protection is to limit imports. You'll get it next time!

The effect of international trade on U.S. factor markets is to:

increase the wage of highly educated workers.

A primary concern of globalization is:

increasing income inequality between more educated and less educated workers. → Today, many manufactured goods are imported to the U.S. from very low-wage countries.

The calculation of comparative advantage is based on knowing

opportunity costs of production. → A country will have a comparative advantage in producing those goods for which it has the lowest opportunity cost.

Globalization results in:

outsourcing The primary concerns caused by globalization are income inequality and outsourcing.

Restrictions on free international trade designed to protect domestic industries from competitive market forces that originate beyond the borders of the country are:

protectionist policies.

A(n) ____ is a tax levied on imports.

tariff → Taxes on imported goods and services are tariffs.

Under conditions of autarky:

the quantity produced domestically will be equal to the quantity consumed domestically.

The effect of an import quota is similar to that of a tariff because

they both result in higher prices. → Tariffs and quotas both increase the world price.