CHAPTER 33: INTERNATIONAL TRADE by Fuatino

Japan's main import is______, because_____?

oil, it has limited natural resources

When the United States government restricts the quantity of an imported good, what does it place o that product?

A quota

What is absolute advantage? What is comparative advantage?

Absolute advantage is when one country is able to produce more of a good than another. Comparative advantage is when a country has a lower opportunity cost to produce the good than another.

How does comparative advantage lead to gains from trade?

By each country specializing in what it does est, the total amount of production increases and all parties can gain from trade.

Used to be called an Absolute Advantage, which is the Law that nations can conduct trade when their cost and price structures differ?

Comparative advantage

Under what conditions does comparative advantage lead to gains from trade?

Comparative advantage leads to gains from trade when countries specialize and produce mainly what they do best.

Countries will be net ____ of products when they have a(n) ________ of resources?

Exporters, abundance

Saudi Arabia has huge oil reserves, but relies on the United States for oil rigs to extract the oil. Which of the following terms best describes the relationship between the two nations?

Interdependence

Which of the following situations best exemplifies relationship between nations that results from one country's concentration of a specific?

Japan imports steel to build cars.

Which of the following statements best explains why China imports many items despite being the world's largest exporter?

Other nations are able to produce some products more cheaply than China

A process that can increase efficiency and output is which of t he following in economic terminology?

Specialization

What is splitting up the value chain?

Splitting up the value chain involves different countries undertaking different stages of production for a good.

Why are aircraft one of the United States' greatest exports?

The US has a great deal of technological knowledge.

Why does the United States not have an absolute advantage in coffee?

The climate in the United States is not ideal for growing coffee, so countries closer to the equator tend to have a greater absolute advantage.

What are the two main sources of economic gains from intra-industry trade?

The division of labor leads to improvements in sill, and economies of scale.

What factors does Paul Krugman identify that supported the expansion of international trade in the 1800s?

The improvements in transportation that came with steamships and railroads and created international markets.

Are the gains from international trade more likely to be relatively more important to large or small countries?

They are more likely to be relatively more important to small countries, where absolute advantage is smaller and it would be difficult to produce everything the population wants or needs domestically.

Are differences in geography behind the differences in absolute advantages?

To a certain extent, yes. Greater natural resources or access to the sesa can lead to absolute advantage for certain goods.

What is intra-industry trade?

Trade that takes place within a specific industry

Compute the opportunity costs of producing sweaters and wine in both France and Tunisia. Who has the lowest opportunity cost of producing sweaters and who has the lowest opportunity cost of producing wine? Explain what is means to have a lower opportunity cost.

Tunisia has the lower opportunity cost for producing sweaters, because it only has to give up 2/3 of a bottle of wine for each sweater, whereas France has to give up 1 bottle of wine for each sweater. France has the lower opportunity cost of producing wine, because it only has to give up one sweater per bottle of wine, whereas Tunisia has to give up 1 1/2 sweaters. The opportunity cost of a goo is what you have to give up to get it.

You just overheard your friend say the following: " Poor countries like Malawi have no absolute advantages. They have poor soil, low investments in formal education and hence low-skill workers, no capital, and no natural sources to speak of. Because they have no advantage, they cannot benefit from trade." How would you respond?

While a country has an absolute advantage in producing a good over another country only if it uses fewer resources to produce that good, a country can have a comparative advantage when a good can be produced at a lower cost in terms of other goods. Perhaps Malwai could have a comparative advantage if the opportunity cost of production of a particular good is low, even if the country is at absolute disadvantage. Countries, including Malawi, can benefit from specializing in their comparative advantages and trading.

Is it possible to have a comparative advantage in the produce of a good but not to have an absolute advantage? Explain.

Yes. Comparative advantage is defined by what you have to give up to produce a good. If the opportunity cost of production is low, a country will still have a comparative advantage even when at an absolute disadvantage.

In economic terms, Ecuador has ________ compared to the US when it comes to bananas?

an absolute advantage

When a nation concentrates on a certain production activity based on a specific resources, which of the following terms best describes the situation?

specialization

Which of the following terms describes a circumstance in which a nation produces a good for which its resources are well suited?

specialization