Econch7
What is comparative advantage?
Country's ability to produce a given produce relatively more efficiently that another country; production at a lower opportunity cost.
What is absolute advantage?
Country's ability to produce more of a product than can another country
Which economic came up with the concept of comparative advantage?
David Ricardo
What is balance of payments?
Difference between money paid to and received from other nations to trade. Balance on current account includes goods and services, merchandise trade balance counts only goods.
What is E-Commerce?
Electronic business or exchange conducted over the internet.
What is flexible exchange rate?
Exchange rate is set by supply and demand.
Explain a trade surplus.
Exports exceed imports (positive).
Where is currency traded between people of different nations?
Foreign Exchange Markets
Why would nations engage in free trade?
Free trade increases worldwide material standards of living
How has the internet effected the way companies do business?
It assists with many levels of current business transactions as well as creating new online business opportunities that are global in nature.
Import Quotas
Limit on the amount of a product that can be legally imported into a country. the US limits the amount of Japanese cars that can be sold in the US.
what are the costs of erecting trade barriers?
May be hard to enforce Increased process of foreign products American producers may be less efficient or products are of poor quality. Foreign nations may retaliate with their own barriers New and better technology may slow down.
What is meant by a weak dollar?
Means the dollar is exchanging for less than it has in the past.
what are the arguments against free trade? (disadvantages)
People lose jobs to out sourcing. Infant businesses don't survive. Nations may become dependent on each other. Reduce national security Other nations treat workers badly Dumping of products may occur
Standards
Policy prohibits the sale of any product that does not meet specific guidelines. Ag products must meet US import requirements relating to grade, size. Quality, and maturity.
Subsides
Policy reduces costs for producers, often to promote exports to other countries. US farmers are allowed to obtain irrigation water from federal dam projects at very low prices to grow rice.
What is the job of the World Trade Organization (WTO)?
They administer trade agreements and settle disputes between member nations.
What are trading blocks and trade agreements?
They are both results of cooperation between at least two countries to reduce trade barriers and tariffs and to trade with each other.
What is the purpose of the European Union (US)?
To break trade barriers between Canada, US, and Mexico.
Match up the following terms: Weak dollar, strong dollar, appreciate, depreciate
weak dollar: depreciate, Strong dollar: appreciate
What is meant by a strong dollar?
A strong dollar means the dollar is currently exchanging for more foreign currency than it did in the past.
Who is hurt by a strong dollar?
American owned businesses are hurt.
Who benefits by a strong dollar?
Americans who buy imports, tourists, and businesses are helped.
Why do individuals, businesses, and governments trade good and services?
Because both parties expect to gain
What are the benefits of erecting trade barriers?
Helps infant industries earn a non profit American companies increase sales of these products. Protests American Jobs Encourage growth of new industries at home.
What is an exchange rate?
How much the primary form of currency in one nation is worth in comparison to the primary form of currency in another nation.
Explain trade deficit.
Imports exceed exports
What are the arguments for free trade? (advantages)
Increase output of goods and services Encourage countries to specialize Lowers costs through economics of scale Lowers prices for consumers Improves a quality through competition Higher standard of living More competition
Why do specialization and trade lead to increased efficiency, production, consumption, and satisfaction?
Specialization leads to more efficient use of resources. Countries benefit by producing goods they can make most cheaply and buying those goods that other countries can make cheaply.
What is the purpose of the Association of Southeast Asian Nations (ASEAN).
Supports local manufacturing of the 10 member nations located in south east Asia. Reduce barriers between southeast Asian nations?
What is a fixed exchange rate?
System under which the values of currencies are fixed in relation to one another. The exchange rate system in effect until 1971.
Give some examples of Trade Barriers.
Tarriffs, Embargoes, Import quotas, Standards, subsides.
Tarriffs
Tax on imported goods and services.
Explain why it is best that the US trade for bananas.
The US should trade for bananas because the opportunity cost of producing is too high. We don't have the climate to grow bananas. Our resources such as land and cost of production is too high.
What does the production possibilities frontier PPF model illustrate?
The chart show the opportunity cost or trade offs between the two products. From there we can see who can produce what at lowest opportunity cost, showing who has comparative advantage.
What is a balance of trade?
The rate at which a nation trades with other nations.
Who is hurt by a weak dollar?
US consumers, investors, and foreign exporters are hurt.
Who benefits by a weak dollar?
US producers, foreign consumers, and US exporters are helped.
What is a free trade?
Unhindered flow of goods and services.
Embargoes
When a country, or several countries, impose economic sanctions against a nation by refusing to trade with it. The US has no trade with with the people or businesses from Cuba.
What are trade barriers?
When the government intervenes to regulate trade in an effort to help their nation's own businesses increase jobs, help the national economy, or even to publish another nation economically.
How is the WTO different from a trade agreement?
World Trade Organization overseas trade agreements.
Would comparative or absolute advantage most likely result in trade?
comparative advantage