ch 5 macroeconomics

Which of the following is a source of comparative advantage?

differences in factor endowments

According to the Heckscher-Ohlin model, a country has a comparative advantage in producing a good:

if that good's production is intensive in factors that are abundant in that country.

is a legal limit on the quantity of a good that can be imported.

import quota

produce goods and services that are also imported.

import-competing industries

Goods and services purchased from other countries are

imports

International trade causes wages in exporting industries to:

increase

Assume that the United States imposes an import quota on Columbian coffee. Relative to the equilibrium world price that would prevail in the absence of import quotas, it is likely that the equilibrium price of coffee in the United States will _____ and the equilibrium price of coffee in Columbia will _____.

increase, decrease

If the United States exports software and imports oil, the price of resources used to develop software will _____ and the price of resources used to produce oil will _____.

increase, decrease

By 2012, _____ percent of U.S. imports came from China.

14

is a situation in which a country does not trade with other countries.

Autarky

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

the domestic demand curve

shows how the quantity of a good supplied by domestic producers depends on the price of that good.

the domestic supply curve

If a market begins to engage in international trade, we can assume that:

producers in the importing industry may be worse off.

If a nation exports a good when the economy is opened to trade, relative to the autarky price, the domestic price of the good will _____ and domestic consumption will _____.

rise, fall

of a good is the price at which that good can be bought or sold abroad.

the world price

Mexico produces lettuce but can also import it. If Mexico imports some lettuce:

the world price is lower than the domestic price.

Suppose that in autarky, Saudi Arabia produces 200 million barrels of oil and 3 million cars; similarly, that the United States produces 300 million barrels of oil and 2.5 million cars. True or False: Without trade, both Saudi Arabia and the United State can only produce more oil if they produce fewer cars.

true

True or False: The European Union is a 27-member trade organization in Europe that levies tariffs at the same rate on all goods imported to member nations. This is _____.

true

The United States must give up the production of 500 bicycles to produce 20 additional tractors. The opportunity cost of producing 5 tractors is _____ bicycles.

125

is the phenomenon of growing economic linkages among countries.

Globalization

a country has a comparative advantage in a good whose production is intensive in the factors that are abundantly available in that country.

Heckscher-Ohlin model

Honduras exports clothing to the United States, and the United States exports bulldozers to Honduras. Proponents of the Heckscher-Ohlin model would explain this pattern of trade by stating that:

Honduras has a relatively large endowment of factors of production for making clothing, while the United States has a relatively large endowment of factors of production for making bulldozers.

is the phenomenon of extremely high levels of international trade.

Hyperglobalization

are treaties in which a country promises to engage in less trade protection against the exports of other countries in return for a promise by other countries to do the same for its own exports.

International trade agreements

takes place when businesses hire people in another country to perform various tasks.

Offshore outsourcing

these are all? differences in climate, differences in factor endowments, differences in technology

Sources of comparative advantage

is a customs union among 28 European nations.

The European Union, or EU,

is a a trade agreement among the United States, Canada, and Mexico.

The North American Free Trade Agreement, or NAFTA,

analyzes international trade under the assumption that opportunity costs are constant.

The Ricardian model of international trade

oversees international trade agreements and rules on disputes between countries over those agreements.

The World Trade Organization, or WTO,

provides a framework for trade negotiations and resolves disputes among members.

The World Trade Organization:

of production of a good is a measure of which factor is used in relatively greater quantities than other factors in production.

The factor intensity

The main difference between a tariff and an import quota is that:

a tariff generates tax revenue, while an import quota generates rents to the license holders.

Suppose that, in fact, Saudi Arabia consumes 300 million barrels of oil and 4 million cars and the United States consumes 500 million barrels of oil and 6 million cars. a)How many barrels of oil does the United States import? b)How many cars does the United States export? c)Suppose a car costs $10,000 on the world market. How much, then, does a barrel of oil cost on the world market?

a) 50 million barrels b) 4 million barrels c) $80 Since the United States does not produce oil they must have imported 500 million barrels of oil from Saudi Arabia. Since Saudi Arabia does not produce cars they must have imported 4 million cars from the United States. That is the United States and Saudi Arabia exchange 4 million cars and 500 million barrels of oil. Which implies each car trades for 125 barrels of oil (500 million barrels /4 million = 125). If a car costs $10,000 on the world market, then a barrel of oil costs $80 ($10,000/125 = $80)

If the world price is less than the autarky price and the domestic country imports the good, the domestic price of the good will:

decrease

Comparative advantage arises from:

differences in climate, factor endowments, and technology.

produce goods and services that are sold abroad.

exporting industries

goods and services sold to other countries are

exports

absolute advantage is the source of the potential gains from specialization and trade

false

The Heckscher-Ohlin model predicts that trade:

increases the wages of workers in exporting industries.

Which of the following is a concern caused by globalization?

increasing income inequality between more educated and less educated workers

According to the Heckscher-Ohlin model, Brazil will have a comparative advantage in oranges if the factors _____ in the production of oranges are _____.

intensive, abundant

The job creation argument for protection against free trade:

is that keeping out foreign imports allows the goods and services to be produced by domestic workers.

In a Ricardian model of international trade, the production possibility frontiers are _____, indicating that the opportunity cost of increasing the production of one item relative to another _____.

straight lines; is constant

is a tax levied on imports.

tariff