international trade
Economists use the phrase __ to refer to the positive gains enjoyed by both buyers and sellers when they trade.
"trade creates wealth"
Some economists say the United States should not even try to produce its own clothing because:
- the labor and capital that the U.S. uses to produce expensive goods could be used to produce other goods that the U.S. can produce more efficiently. - other countries can produce clothing much more inexpensively than the United States.
Brazil and Colombia can both produce either bananas or coffee. Brazil can produce either 16 pounds of coffee and 0 pounds of bananas or 64 pounds of bananas and 0 pounds of coffee. Colombia can produce either 20 pounds of coffee and 0 pounds of bananas or 40 pounds of bananas and 0 pounds of coffee. The opportunity cost of producing 1 pound of bananas for brazil is ________ pounds of coffee
0.25 Country: Brazil. 64lb bananas 15lb coffee Columbia 40lb bananas 20 coffee
Kate has a 20-square-foot plot of land in her backyard that she uses to grow tomatoes and lettuce. Every square foot of land can produce either 5 tomatoes or 3 heads of lettuce each summer. Her neighbor, Jim, has a 30-square-foot plot of land that has a lot more shade than Kate's, which is better for lettuce but worse for tomatoes. Every square foot of Jim's land can produce either 3 tomatoes or 6 heads of lettuce. Propose terms of trade that will benefit both Kate and Jim: 1 head of lettuce = X tomatoes
0.5T < X < 1.67T
Both the United States and India produce two goods: tractors and rice. The United States can produce either 8 tractors or 16 pounds of rice. India can produce either 4 tractors or 20 pounds of rice. Suppose that both countries open up to trade, and the United States and India decide to trade 1 tractor for 3 pounds of rice (1T = 3R) and that India needs 3 tractors. India's gains from trade are ______. The United States' gains from trade are ______.
1 tractor and 1 pound of rice; 1 tractor and 1 pound of rice
Consider the market for butter shown in the graph. The quota rent is $______.
15
Brazil and Colombia can both produce either bananas or coffee. Brazil can produce either 16 pounds of coffee and 0 pounds of bananas or 64 pounds of bananas and 0 pounds of coffee. Colombia can produce either 20 pounds of coffee and 0 pounds of bananas or 40 pounds of bananas and 0 pounds of coffee. The opportunity cost of producing 1 pound of coffee for Colombia is ______ pounds of bananas.
2
Consider the market for cotton shown in the graph. As the graph indicates, in the absence of international trade, the domestic price of cotton would be $1 per pound. If the market is opened to international trade, the price would decrease to the world price of $0.40 per pound. Suppose domestic producers dislike the low price of $0.40 per pound and would prefer that it increase to $0.60 per pound. With the quota in place, ______ tons would be produced domestically.
300
Both the United States and India produce two goods: tractors and rice. The United States can produce either 8 tractors or 16 pounds of rice. India can produce either 4 tractors or 20 pounds of rice. Suppose the United States and India do not trade with each other, production is characterized by constant opportunity costs, and each country uses half of its resources for tractor production and half for rice production. The United States will produce Blank______. India will produce Blank______. Multiple choice question.
4 tractors and 8 pounds of rice; 2 tractors and 10 pounds of rice
Consider a hypothetical market for salt in Canada. Suppose the world price of salt is $40 per ton. With a $20 tariff, Blank______ tons of salt will be imported into Canada.
40
Consider the market for cotton shown in the graph. As the graph indicates, in the absence of international trade, the domestic price of cotton would be $1 per pound. If the market is opened to international trade, the price would decrease to the world price of $0.40 per pound. Suppose domestic producers dislike the low price of $0.40 per pound and would prefer that it increase to $0.80 per pound. With the quota in place, ______ tons would be produced domestically.
400
Consider the domestic market for oil shown in the graph. Suppose the world price of oil is $60 per barrel. With a tariff of $20 per barrel, the tariff revenue collected by the government is $______ million. ______ is generated by the tariff.
40; Deadweight loss
Assume the country of South Africa was closed to international trade, and existed in a state of autarky. In the market for gasoline, equilibrium will occur at a price of ______ rand per liter and ______ million liters of gasoline traded.
5; 40
Consider a hypothetical market for salt in Canada. If the world price of salt is $40 per ton and Canada allows free trade, Blank______ tons of salt would be imported to Canada. Suppose the Canadian government imposes a tariff of $20 per ton on salt. The new price would be equal to Blank______.
60; $60/ton
The United States and India both produce two goods: tractors and rice. The United States can produce either 8 tractors or 16 pounds of rice. India can produce either 4 tractors or 20 pounds of rice. Suppose that, currently, both the United States and India spend half of their resources producing tractors and half of their resources producing rice. There will be ______ tractors and ______ pounds of rice produced in total.
6; 18
The United States and India both produce two goods: tractors and rice. The United States can produce either 8 tractors or 16 pounds of rice. India can produce either 4 tractors or 20 pounds of rice.
8 tractors; 20 pounds of rice
The United States and India both produce two goods: tractors and rice. The United States can produce either 8 tractors or 16 pounds of rice. India can produce either 4 tractors or 20 pounds of rice. If the United States and India specialize completely in the good for which each has a comparative advantage, then there will be ______ and ______ produced in total. Multiple choice question. 8
8 tractors; 20 pounds of rice
Consider the domestic market for oil shown in the graph. Suppose the world price of oil is $40 per barrel. With a tariff of $40 per barrel, the tariff revenue collected by the government is $______ million. ______ is generated by the tariff.
80; Deadweight loss
Consider the market for pineapples in Costa Rica shown below where pineapples are in abundant supply. Suppose a lack of transportation means Cost Rica cannot trade with other countries. The consumer surplus for domestic pineapple consumers is represented by area(s) ______. In the absence of international trade, the producer surplus for domestic pineapple producers is represented by area(s) ______. Multiple choice question.
A + B + C; E + F
Consider the market for bottled water in France. France is the world's largest importer of bottled water, accounting for about one-quarter of global water imports. Given this situation, assume the world price of bottled water is below the domestic price in the French economy, as shown in the graph. Suppose France does not trade with other countries. The area that represents the consumer surplus in the absence of international trade is ______. The area that represents the producer surplus in the absence of international trade is ______. Multiple choice question.
A; B + E
____________ is a state that exists whenever an entity can survive or continue its activities without external assistance or international trade. (Hint: This term is usually applied to political states or their economic systems.)
Autarky
Specialization is based on whether one country can produce more of a good than another country and not on comparative advantage.
F
Kate has a 20-square-foot plot of land in her backyard that she uses to grow tomatoes and lettuce. Every square foot of land can produce either 5 tomatoes or 3 heads of lettuce each summer. Her neighbor, Jim, has a 30-square-foot plot of land that has a lot more shade than Kate's, which is better for lettuce but worse for tomatoes. Every square foot of Jim's land can produce either 3 tomatoes or 6 heads of lettuce. If Kate and Jim decide to specialize, ______ should produce lettuce and ______ should produce tomatoes.
Jim; Kate
______________ is based on relative opportunity cost not necessarily on whether one country can produce more of a good than another country. (Insert one word per blank)
Specialization
Airline passengers who fly on aircraft benefit from the specialization and trade that occurs between plane manufacturers since airlines can offer more routes at lower prices.
T
As of 2018, more than 15% of all goods and services consumed in the United States were produced abroad.
T
Increased access to trade cause more scope for income growth in the country.
T
Tariff revenue is the product of the tariff rate and the quantity of goods imported.
T
When a tariff is eliminated, we would expect the price to decrease and the quantity traded to increase.
T
__ is/are generally found by comparing changes in consumer and producer surplus.
Welfare effects
In an economy of two goods,:
a country cannot have the comparative advantage in both goods.
which of the following scenarios is an example of specialization
a country produces products for which it has a comparative advantage
in a small country model a tariff will cause...
a decrease in consumer surplus, an increase in producer surplus, government revenue, and a deadweight loss that decreases social welfare
in the small country model a quota will cause
a decrease in consumer surplus, an increase in producer surplus, quota rent increase and deadweight loss that reduced social welfare
The market price will be highest and the quantity traded lowest:
a domestic market in autarky.
production possibilities frontier (PPF)
a graph that shows the possible combinations of two different goods and services that can be produced with fixed resources and technology. The PPF shows the production combinations that are both attainable and efficient.
The market has the largest possible number of suppliers and the most competition in the case of:
a market with free trade.
small country model
a model of international trade in which the production or consumption of a good service or resource in the domestic country is small relative to global markets. because the domestic country is small relative to world markets it is a price taker and its consumption and production do not affect the world price. thus the country adopts the world price for any good service or resource as the domestic price
quota
a numerical limit on the amount of a good that can be imported. sometimes called an import quota - quotas reduce imports and increase the domestic price of a good or service
autarky
a situation in which a country is closed to any international trade - before international travel via ships, many island countries existed in a state of autarky; they simply had no access to many products that were commonplace in other parts of the world.
When a domestic country is small relative to world markets, is a price taker, and its consumption and production do not affect the world price, it can be studied using:
a small-country model.
tariff
a tax or fee that must be paid on goods imported from other countries - when the united states imposes a tariff on foreign steel, any foreign producers that want to sell their steel in the US have to pay an extra fee making it more expensive for them to sell their products
determine the benefit of trade: he United States has become a prime location for producers of semiconductors, whose products are then exported to nations around the world. This choice to produce in the United States is largely due to the access to the high-skilled workforce that is required for this type of production.
access to scarce resources
a major advantage of trade is
an increase in consumption relative to production possibilities
if policy makers enact a quota on a product in a country open to trade, they will see
an increase in price and a decrease in imports
if policy makers enact a tariff on a product in a country open to trade, we would see
an increase in product's price and a decrease in imports
barrier to trade
any policy that is designed to reduce the competitiveness of foreign producers that wish to sell their goods or services in the domestic market, thereby reducing the imports of foreign goods and services
A situation in which a country is closed to any international trade due to self-sufficiency is referred to as:
autarky.
When a country is opening up to trade, resources in the economy flow:
away from the goods for which producers do not have a comparative advantage. toward the goods for which producers have a comparative advantage.
Because people and businesses sometimes oppose international trade, governments create trade ________________
barriers
Suppose the U.S. specializes in producing lumber and its neighbor Canada specializes in producing steel. When they trade with each other:
both countries will likely consume more lumber and steel.
When calculating producer surplus for the market,:
calculate the area above the supply curve and below the equilibrium price from zero to the quantity traded.
Consider the two production possibilities frontiers (PPFs) shown in the graphs. If the two countries do not specialize, Country A would likely ______.
choose point MA
As long as there are differences in opportunity costs, there are ___________ advantages and there will be potential for trade to make both parties better off.
comparative
If you are relatively better at something, then you are said to have a(n) ____________ advantage in that activity.
comparative
Specialization is based on _______________ advantage not necessarily on whether one country can produce more of a good than another country.
comparative
The producer with the lowest relative opportunity cost has a(n) _________ advantage and should specialize in the production of that good.
comparative
Trade between people in different countries is driven by ____________ advantage
comparative
When a country has a(n) _____________ advantage in the production of a good or service, it can benefit by specializing in the production of that good or service and trading for other goods.
comparative
________________ advantage is the foundation of establishing the benefits of trade.
comparative
a producer has an ____________ advantage in the production of a good or a service if his or her relative opportunity cost of production is lower than the opportunity cost of other producers.
comparative
Given the option of being self-sufficient or trading with others as long as a(n) __________ __________ exists, there will be potential for trade to make both parties better off.
comparative advantage
economic welfare effects are analyzed by a comparison of changes in
consumer and producer surplus
When there are barriers to trade,:
consumers suffer producers gain and total wealth decreases.
In economics we state that trade
creates wealth
International trade involves exchanging:
currencies
When Congress failed to renew the ethanol tariff in 2012, we expected ethanol prices to __________ and output to __________
decrease increase
In the small-country model, the ________________ price equals the world price if the country is open to trade
domestic
With a quota,:
domestic producers gain because they sell more at higher prices.
When a country opens its markets to international trade, if the world price is greater than the domestic equilibrium price,:
domestic producers make more output to sell abroad so total output increases.
When a country opens its markets to international trade, if the world price is greater than the domestic equilibrium price:
domestic quantity supplied will rise so total output increases.
Consider the market for pineapples in Costa Rica shown below where pineapples are in abundant supply. suppose that Costa Rica opens its market to international trade and that the world price, Pw, is greater than the domestic price, Pe. The consumer surplus for domestic pineapple consumers ______, while the producer surplus for domestic pineapple producers ______.
falls; rises
In 2014, the United States imposed tariffs on nine different steel-producing countries because:
firms from these countries were selling their steel in the United States at a price below their average cost.
price takers
firms that take or accept the market price and have no ability to influence that price
When a country opens its markets to international trade, if the world price is more than the domestic equilibrium price,:
foreign quantity demanded rises so total output increases.
Consider the market for bananas in Guatemala shown below where bananas are in abundant supply. The net benefit to Guatemala of ______ can be represented as the area ______.
free trade; D
The benefit or wealth that accrues to a buyer or a seller as a result of trading one good service or resource for another is the: ___________. - the wealth or additional well being created by trade does not have to be monetary
gains from trade
suppose germany gives up the production of 50 bikes to make 1 car and spain gives up the production of 75 bikes to make 1 car. which country has the comparative advantage in making cars?
germany, produces output at the lowest opportunity cost
imports (M)
goods, services, or resources produced abroad and sold domestically. ex: In the United States, clothing is often produces at a higher cost than in other countries. as a result, clothing is part of U.S imports
exports (X)
goods, services, or resources produced domestically and sold abroad ex: in the United States, many agricultural products are produced at a lower cost than in other countries. as a result, agricultural products are part of U.S exports.
If the government sets a tariff too __________,(high/low) there will be so few imports that the government won't collect much money.
high
Barriers to trade reduce the amount of output that can be supplied by foreign companies and, as a result, cause prices in the market to be ______ than they would otherwise be. This results in consumers buying ______ output.
higher; less
Before the 16th Amendment and the passage of the federal income tax, the majority of revenue for federal government came from:
import tariffs
Now suppose South Africa opens up to trade, as in the small-country model. South Africa will ______ gasoline at a price ______.
import; between 4 and 5 rand per liter
When a country opens up to trade, domestic industries that make products that can be:
imported will contract and industries that have products to export will expand.
A barrier to trade reduces the______________ of foreign goods and services.
imports
The goods and services made in other countries that we purchase are called _______
imports
The term small in the "small-country model" refers to a nation's
inability to affect world prices
Europeans purchase wine produced in California and Argentina to have more choice. The benefit of international trade that applies in this case is:
increased variety of goods.
determine the benefit of trade: . In large grocery stores in the United States, consumers can buy noodles from Asia, soups from France, pickled herring from Scandinavia, and beer from Germany.
increased variety of products
determine the benefit of trade: While many developed nations have at least one domestic car manufacturer, consumers in these nations also have access to cars produced in other nations.
increased variety of products
The model and concepts used to develop the economics of ____________ are similar to those used to illustrate the effects of:
international trade; trade between individuals.
if a country has comparative advantage in a product it means
it has the lowest domestic cost of production
Any time the terms of trade change and move closer to a country's opportunity cost, that country is going to benefit ____________ from trade than it did before.
less
In the 1980s, to avoid having tariffs or import quotas applied to their products, Japanese auto manufacturers agreed to:
limit the number of cars they shipped to the U.S. to fewer cars than they wanted to sell.
Comparative advantage is defined as having a(n) _________ relative opportunity cost than another producer.
lower
When a country opens its markets to international trade, if the world price is ____________ (lower/higher) than the domestic equilibrium price, quantity supplied from foreign producers will rise.
lower
Determine the benefit of trade: The United States has long been the world's largest exporter of wheat. The access to vast, fertile, and highly productive soil combined with high-technology farming practices have made the United States a very cost-efficient producer of agricultural goods.
lower priced goods
determine the benefit of trade: Today most television sets bought in the United Stated are made in China; however, this was not the case twenty years ago.
lower priced goods
The United States, a high-cost producer of oil, imports roughly half of the oil needed to produce the nation's gasoline. The benefit of international trade that applies in this case is:
lower-cost goods.
The country that benefits ____________ from trade is the one that trades at or near the other country's opportunity cost.
more
In the context of international trade, the competitive equilibrium is the free-trade equilibrium with:
no barriers to trade.
As long as the terms of trade are between both countries' ___________ costs, trade will benefit both countries
opportunity
If the terms of trade are the same as your ___________ cost, you will receive no gains from the trade.
opportunity
The potential benefits that you miss when you choose one thing over another is known as ____________ ____________
opportunity cost
with a quota:
part of the loss to consumers is captured as quota rents by those who own the rights to the quota.
Consider the two production possibilities frontiers (PPFs) shown in the graphs. If the two countries do specialize, Country A would likely ______, while Country B would likely ______.
produce at point CA; produce at point WB
In the 1980s, the U.S. government established a type of import _____________ called a voluntary export restriction in the market.
quota
Sugar is significantly more expensive in the United States than it is in Mexico and Canada because of the sugar ______________
quota
a ________ is designed to protect or encourage the growth of a specific industry.
quota
the be binding a ____________ must be set at a quantity that is lower than the amount of imports that are sold under free trade.
quota
there is a ___________ on sugar imports in the United States.
quota
_________ __________ is the income earned by whoever has the right to import the good at the world price and sell it in the domestic market at the higher quota price.
quota rent
The effect of a tariff is to:
reduce imports and increase the domestic price.
Imposing trade restrictions seems attractive to some people, but the end result will be __________ international trade and as a result ________________ global wealth is created
reduced reduced
a quota:
reduces imports and domestic consumption while increasing prices and domestic output.
in a small country model, if a country opens itself to trade
resources flow to goods and services with comparative advantage
When a tariff is imposed on imports, the price in the market ______ by the full amount of the tariff.
rises
Consider the market for bottled water in France. France is the world's largest importer of bottled water, accounting for about one-quarter of global water imports. Given this situation, assume the world price of bottled water is below the domestic price in the French economy, as shown in the graph. Suppose France can import water from other countries. The consumer surplus ______, while the producer surplus ______.
rises; falls
The practice of "dumping" describes:
selling products in a foreign market at a price below average cost.
The model and concepts used to develop the economics of international trade are:
similar to those used to illustrate the effects of trade between two individuals.
when using the _____________ -country model, the country adopts the world price for any good service or resource as the domestic price. (Use only one word.)
small
when two people ____________ in the goods they produce, total production between the two people increases.
specialize
Comparative advantage identifies the producer that has the low relative opportunity cost for a specific good in the market. The low-relative-cost producer _________________ in producing that good
specializes
comparative advantage identifies the producer that has the low relative opportunity cost for a specific good in the market. the low relative cost producer ______________ in producing that good. the price or _________ of trade that the good will trade for depends on the ____________ cost of the buyers and sellers and determine how much each party _____________ from the trade.
specializes terms opportunity gains
Quotas can have unintended consequences, such as:
substituting less expensive goods for the good that has a quota.
Graphically, total economic surplus is the entire area between the ______________ and _____________ curves for a good from a quantity of zero to the quantity traded.
supply and demand
Consider the market for bananas in Guatemala shown below where bananas are in abundant supply. Producers generally ______, while consumers generally ______.
support exports; oppose exports
____________ revenue equals a tariff times the quantity imported. (Use one word for the blank.)
tariff
comparative advantage
the ability to produce a good or service at a lower relative opportunity cost than that of another producer - due to differences in available resources and technology, the opportunity cost of producing a good for one country may be different from that of another - a country has a comparative advantage in the production of a good or service if its domestic opportunity cost of production is lower than the domestic opportunity cost of other countries - the opportunity cost of producing a good or service can be found by solving for the cost of one good i terms of another.
absolute advantage
the ability to produce more output, given similar resources than another producer
consumer surplus
the difference between the maximum price consumers are willing and able to pay for a good or service and the price they actually pay. consumer surplus also can be thought of as the wealth and trade creates for consumers in a market. consumer surplus is measured in dollars. graphically, consumer surplus is the area below the demand curve and above the equilibrium price from zero to the quantity traded - if you are ready to pay as much as $40 for a new pair of jeans and you then find out that they are on sale for $30 you'll enjoy $10 in consumer surplus if you purchase the jeans
producer surplus
the difference between the price producers receive for a good or service and the min price they are willing and able to accept. producer surplus also can be thought of as the wealth that trade creates for producers in a market.. is measured in dollars. graphically, producer surplus is the area below the equilibrium price and above the supply curve from zero to the quantity traded - if you were willing to sell your used car for as little as $2000 but someone paid you 42500 for it you enjoy producer surplus of $500
welfare effects
the effects that a change in market conditions usually price has on the welfare or economic well being of market participants. welfare effects are generally found by comparing changes in consumer and producer surplus - although there is some benefit, tariffs reduce overall economic welfare
quota rent
the income earned by whoever has the right to import the good at the world price and sell it in the domestic market at the higher quota price. The dollar value of a quota rent is equal to the size of the quota times the difference between the quota price and the world price. - quota rent = (quota price - world price) x quota size
With a quota,:
the loss to society is represented by the deadweight loss.
specialization
the practice of producing a single good or service rather than producing multiple goods or services. - if the United States specializes in producing cars while it neighbors Canada specializes in producing lumber, it is likely that both countries will be able to consume more cars and lumber when they trade with each other
domestic price
the price of a good service or resource that prevails in the domestic market. in the small country model, the domestic price equals the world price if the country is open to trade
world price
the price of a good service or resource that prevails in the world market
terms of trade
the price of one good, service, or resource in terms of another - Colombia and brazil decide that colombia will sell 1 ton of coffee to brazil in exchange for 5 tons of bananas. the 5 tons of bananas for 1 ton of coffee are the terms of trade
tariff revenue
the revenue collected fro, the imposition of a tariff on goods services or resources tariff revenue (TR) = tariff x Qi where Oi is the quantity imported
economic surplus
the sum of consumer and producer surplus it is a measure of the total welfare or wealth that trade created for consumers and producers in a market. also known as social welfare or total surplus
deadweight loss
the value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium
opportunity cost
the value of the next best forgone alternative; the value of the opportunity that you gave up when you chose one activity, or opportunity, instead of another. Opportunity cost exist because of scarcity.
When two people specialize,:
total production between the two people increases.
Because people and businesses sometimes oppose international trade, governments create _______________ barriers
trade
One of the major themes in economics is that ___________ creates wealth
trade
People in different countries ___________ to increase the diversity of their choices.
trade
The model and concepts used to develop the economics of international ____________ are similar to those used to illustrate the effects of trade between two individuals.
trade
______________ restrictions can also lead to retaliatory tariffs by the exporting country.
trade
without ____________ (use one word for the blank), our standard of living would be lower and we would enjoy fewer goods and less variety.
trade
because ___________ creates wealth, the threat of limiting __________ can be an incentive to change behavior.
trade trade
free trade
trade between nations that is free from barriers such as regulations, tariffs, or quotas
In the small-country model, each country has a(n) _______________ -sloping supply of a product and ______________ cost is not constant
upward opportunity
In the 1980s, the U.S. government established a type of import quota called a:
voluntary export restriction.
Specialization is based on_____________ advantge
comparative
If countries do not have access to certain resources that they want then they engage in trade.
T
In the small-country model,:
opportunity cost is not constant.
when trade occurs, ___________ is created
wealth
The effects that a change in market conditions, usually price, has on the welfare or economic well-being of market participants are ___________ effects
welfare
