Exam #1

What is an immediate good?

A good that is used to make a final good such as paper to make a greeting card.

Effects of a tariff - Domestic sellers

Better off

Free Trade

Domestic price = World price

Domestic price < World price

Export the good Country has a comparative advantage

Net exports

Foreign purchases of

Effects of a tariff - Domestic market

Moves it closer to its equilibrium without trade

Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States?

The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government The costs of overfishing and other overly intensive uses of resources

GDP includes goods and services current produced and not goods produced in the past

True

"The industry is vital for national security"

When there are legitimate concerns over national security (National-security argument)

quota

a limit on the quantity of imports

When a binding price floor is imposed on a market, a. price no longer serves as a rationing device b. the quantity demanded at the price floor exceeds the quantity that would have been demanded without the price floor. c. all sellers benefit. d. all of the above are correct

a.

Assume, for Taiwan, that the domestic price of soybeans without international trade is lower than the world price of soybeans. This suggests that, in the production of soybeans, a. Taiwan has a comparative advantage over other countries and Taiwan will import soybeans b. Taiwan has a comparative advantage over other countries and Taiwan will export soybeans. c. other countries have the comparative advantage over Taiwan, and Taiwan will import soybeans. d. other countries have the comparative advantage over Taiwan, and Taiwan will export soybeans

b.

Rent-control law dictate a. the exact rent that landlords must charge tenants. b. a maximum rent that landlords may charge tenants. c. a minimum rent that landlords may charge tenants. d. both a minimum and maximum rent that landlords may charge tenants.

b.

In analyzing international trade, we often focus on a country whose economy is small relative to the rest of the world. We do so

because then we can assume that world prices of goods are unaffected by that country's participation in international trade.

Price controls a. always produce a fair outcome b. always produce and efficient outcome c. can generate inequities of their own. d. all of the above are correct.

c.

Which of the following is not correct? a. economists have two roles: scientist and policy adviser b. as scientists, economists develop and test theories to explain the world around them c. economic policies rarely have effects that their architects did not intend or anticipate d. as policy advisers, economists use their theories to help change the world for the better.

c.

The principle of comparative advantage asserts that

countries can become better off by specializing in what they do best.

When a country allows trade and becomes an importer of a good,

domestic producers become worse off, and domestic consumers become better off.

When a country allows trade and becomes an exporter of a good,

domestic producers gain and domestic consumers lose.

When a country allows international trade and becomes an exporter of a good,

domestic producers of the good become better off. domestic consumers of the good become worse off. the gains of the winners exceed the losses of the losers. All of the above are correct.

For any country, if the world price of copper is higher than the domestic price of copper without trade, that country should

export copper, since that country has a comparative advantage in copper.

When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,

producer surplus increases and total surplus decreases in the market for that good.

Zelzar has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. Which groups in Zelzar are better off as a result of the new free-trade policy?

producers of steel and consumers of insense

For any country that allows free trade,

the domestic price is equal to the world price

If a country is an exporter of a good, then it must be the case that

the world price is greater than its domestic price.

Suppose Brazil has a comparative advantage over other countries in producing almonds, but other countries have an absolute advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil

will export almonds.

By comparing the world price of pecans to India's domestic price of pecans, we can determine whether India

will export pecans (assuming trade is allowed). will import pecans (assuming trade is allowed). has a comparative advantage in producing pecans. All of the above are correct.

- tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import

A major difference between tariffs and import quotas is that: - tariffs create deadweight losses, but import quotas do not - tariffs help domestic consumers, and import quotas help domestic producers - tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import - All of the above are correct

All transactions have a

Buyer and seller

The market for soybeans in Canada consists solely of domestic buyers of soybeans and domestic sellers of soybeans if

Canada forbids international trade in soybeans

The market for soybeans in Canada consists solely of domestic buyers of soybeans and domestic sellers of soybeans if

Canada forbids international trade in soybeans.

Before trade (above world price)

Consumer surplus Producer surplus

Total benefits of

Consumer surplus Producer surplus

Before the tariff

Consumer surplus Producer surplus Government tax revenue = 0

Before trade (below world price)

Consumer surplus Producer surplus

With a tariff

Consumer surplus - smaller Producer surplus - bigger Government tax revenue Total surplus - smaller

When a country allows trade and becomes an exporter of a good,

Consumer surplus decreases and Producer surplus increases

Effects of a tariff - Domestic QD

Decrease

Compare domestic price with world price

Determine who has comparative advantage

Equilibrium price and quantity

Determined on the domestic market

"New industries need temporary trade restriction to help them get started"

Difficult to implement in practice Temporary policy - hard to remove Protection is not necessary for an infant industry to grow (Infant-industry argument)

The equilibrium without trade

Domestic buyers and sellers

Domestic equilibrium price before trade (above world price)

Domestic price drops to = world price Domestic QS < QD Difference = imports

Domestic equilibrium price before trade (below world price)

Domestic price rises to = world price Domestic QS > QD Difference = exports

When a country allows trade and becomes an exporter of a good

Domestic producers of the good are better off (sellers hate low price) Domestic consumers are worse off (Buyers want low price) Trade raises the economic well-being of a nation (Gains of the winners exceed the losses of the losers) Trade can make everyone better off

When a country allows trade and becomes an importer of a good

Domestic producers of the good are worse off Domestic consumers are better off Trade raises the economic well-being of a nation (Gains of the winners exceed the losses of the losers) Trade can make everyone better off

Assume, for England, that the domestic price of wine without international trade is lower than the world price of wine. This suggests that, in the production of wine,

England has a comparative advantage over other countries and England will export wine.

For any country, if the world price of zinc is higher than the domestic price of zinc without trade, that country should

Export zinc, since that country has a comparative advantage in zinc

"Trade with other countries destroys domestic jobs"

Free trade creates jobs at the same time that it destroys them (Jobs argument)

What are the 4 components of GDP?

Government , consumption , investment and net exports

Historically economists have agreed that free trade does all the following except

Helps all citizens

After trade (above world price)

Higher consumer surplus Smaller producer surplus Higher total surplus

Domestic price > World price

Import the good World has a comparative advantage

Effects of a tariff - Domestic QS

Increase

"Free trade is desirable only if all countries play by the same rules"

Increase in total surplus for the country (Unfair-competition argument)

Other benefits of international trade

Increased variety of goods Lower costs through economies of scale Increased competition Enhanced flow of ideas

"Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run." This observation helps to explain why many economists are skeptical about the

Infant-industry argument

Suppose Ireland exports beer to China and imports pineapples from the United States. This situation suggests that

Ireland has a comparative advantage relative to China in producing beer, and the United States has a comparative advantage relative to Ireland in producing pineapples.

What does GDP exclude?

Items produced and sold illicitly, such as drugs, produced and consumer at home (gardens, mowing your own lawn)

Assume, for Japan, that the domestic price of automobiles without international trade is lower than the world price of automobiles. This suggests that, in the production of automobiles,

Japan has a comparative advantage over other countries and Japan will export automobiles.

Suppose Japan exports cars to Russia and imports wine from France. This situation suggests

Japan has a comparative advantage relative to Russia in producing cars, and France has a comparative advantage relative to Japan in producing wine.

Suppose Japan exports televisions to the United States and imports sugar from Argentina. This situation suggests

Japan has a comparative advantage relative to the United States in producing televisions, and Argentina has a comparative advantage relative to Japan in producing sugar.

What are some things GDP includes?

Market value of housing services,rental housing , rent, (owner-occupied)housing

Assume, for Mexico, that the domestic price of oranges without international trade is lower than the world price of oranges. This suggests that, in the production of oranges,

Mexico has a comparative advantage over other countries and Mexico will export oranges.

In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that

Moldova is a price taker.

Domestic price

Opportunity cost of the good

When you specialize and trade according to comparative advantage, you compare what you can do relative to _______________ and choose to produce the output that has the _______ opportunity cost

Other things you could do; lowest

Allow for international trade

Price and quantity sold - domestic market? Who will gain from free trade, who will lose, and will the gains exceed the losses? Should a tariff be part of the new trade policy?

Tariff on imports

Raises domestic price above world price by the amount of a tariff

Effects of a tariff - Quantity of Imports

Reduces

Q4-Q3 + Q2-Q1

Refer to Figure 9-15. A result of the tariff is that , relative to the free-trade situation, the quantity of saddles imported decreases by:

A+B

Refer to Figure 9-15. Consumer surplus with the tariff is:

Q3-Q2

Refer to Figure 9-15. With the tariff, the quantity of saddles imported is:

P1 and Q4

Refer to Figure 9-15. With trade and without a tariff, the price and domestic quantity demanded are:

E

Refer to Fire 9-15. The amount of government revenue created by the tariff is:

Effects of a tariff - Price

Rises by the amount of the tariff

After trade (below world price)

Smaller consumer surplus Higher producer surplus Higher total surplus

Consumption is

Spending by households on goods and services with the exception of new houses. Goods include...food clothing , srrvices...haircuts health care

Government purchases is

Spending on goods and services by local, state and federal governments

Tariff

Tax on goods produced abroad and sold domestically Tax on an imported good

Assume the nation of Teeveeland does not trade with the rest of the world. By comparing the world price of televisions to the price of televisions in Teeveeland, we can determine whether

Teeveeland has a comparative advantage in producing televisions.

Market prices

The amount people are willing to pay for different goods .they reflect the value of those goods.

A+B+C+D+F

The figure illustrates the market for coffee in Guatemala. Refer to Figure 9-1. In the absence of trade, total surplus in Guatemala is represented by the area:

increased by the area B+D+G

The figure illustrates the market for coffee in Guatemala. Refer to Figure 9-1. When trade in coffee is allowed, producer surplus in Guatemala is:

When a country allows trade and becomes an importer of steel,

The gains of the domestic consumers of steel exceed the losses of the domestic producers of steel

When a country allows trade and becomes an exporter of a good, which of the following is not a consequence?

The losses of domestic consumers of the good exceed the gains of domestic producers of the good.

When a country allows trade and becomes an importer of bottled water, which of the following is not a consequence?

The losses of domestic producers of bottled water exceed the gains of domestic consumers of bottled water.

World Price

The price of a good that prevails in the world market for that good

Investment is

The purchase of all goods that will be used in the future to produce more goods and services. Examples -capital equipment, inventories and structures. (Purchased goods)

When a nation first begins to trade with other countries and the nation becomes an exporter of soybeans,

This is an indication that the world price of soybeans exceeds the nation's domestic price of soybeans in the absence of trade This is an indication that the nation has a comparative advantage in producing soybeans The nation's consumers of soybeans become worse off and the nation's producers of soybeans become better off

"Trade restrictions can be useful when we bargain with our trading partners"

Threats may not work (Protection-as-a-bargaining-chip argument)

GDP is the market value of all final goods and services produced in a country in a given time period.

True

False

True or False: A tariff on a product increases the domestic quantity demanded.

Turkey is an importer of wheat. The world price of a bushel of wheat is $7. Turkey imposes a $3-per-bushel tariff on wheat. Turkey is a price-taker in the wheat market. As a result of the tariff,

Turkish customers of wheat become worse off and Turkish producers of wheat become better off

Assume, for Vietnam, that the domestic price of textiles without international trade is lower than the world price of textiles. This suggests that, in the production of textiles,

Vietnam has a comparative advantage over other countries and Vietnam will export textiles.

A product's inclusion in one category does not necessarily imply that it is excluded from other categories.

When a good is sent across national boundaries or when a service is provided by a company in one country for a company in another country, the value of that good or service is included in the exports category for the country in which the good or service originated and in the imports category for the country that receives the good or service. For example, when Maria buys a new BMW, the value of the BMW is added to the exports category for Germany and the imports category for the United States. Furthermore, because the BMW is bought in the United States, it is also included in the consumption category, as mentioned previously. (Note: The net effect on U.S. GDP is the value added by the U.S. retailer.)

Which of the following is not an important question for economic policy raised by the experience of the textile industry?

Which argument for restricting free trade is politically feasible?

Effects of a tariff - Domestic buyers

Worse off

If the United States threatens to impose a tariff on German cars if Germany does not remove agricultural subsidies, the United States will be

Worse off if Germany doesn't give in to the threat

A negative externality a. is an adverse impact on a bystander b. causes the product in a market to be under-produced c. is an adverse impact on market participants. d. is present in markets where the good or service does not have any impact on bystanders

a.

A positive externality occurs when a. Jack receives a benefit from John's consumption of a certain good. b. Jack receives personal benefits from high own consumption of a certain good. c. Jack's benefit exceeds John's benefit when they each consume the same good d. jack received a loss from John's consumption of a certain good

a.

Because there are positive externalities from high education, a. private markets will under-supply college classes b. price markets will over-supply college students c. the government intervention cannot improve the market for college classes

a.

Consumer surplus in a market can be represented by the a. area below the demand curve about above the price b. distance from the demand curve to the horizontal axis c. distance from the demand curve to the vertical axis d. area below the demand carve and about the horizontal axis.

a.

Efficiency is attained when a. total surplus is maximized b. producer surplus is maximized c. all resources are being used d. consumer surplus is maximized and producer surplus is minimized

a.

Producer Surplus directly measures a. the well-being of sellers b. production costs. c. excess demand d. unsold inventories

a.

The goal of industrial policy should be that a. industries yielding the largest positive externalities should receive the biggest subsidies. b. any industry that produces negative externalities should be heavily taxed. c. any production process that produces negative externalities should be shut down. d. all industries that produce positive externalities should be equally subsidized.

a.

Total surplus in a market is equal to a. consumer surplus + producer surplus b. value to buyers- amount paid by buyers c. amount received by sellers-costs of sellers d. producer surplus- consumer surplus

a.

When Lisa drives to work every morning, she drives on a congested highway. What Lisa does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Lias's highway trip a. increases the social cost above the private cost. b. lower the social cost below the private cost c. increases the social value above the private benefit d. decreases the social value below the private benefit

a.

Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons? a. consumer surplus increases b. consumer surplus decreases c. consumer surplus is not affected by this change in market forces d. we would have to know whether the demand for lemons is elastic or inelastic to make this determination

b

A legal minimum on the price at which a good can be sold is called a price a. subsidy b. floor c. support d. ceiling

b.

In analyzing international trade, we often focus on a country whose economy is small relative to the rest of the world. We do so a. because it is impossible to analyze the gains and losses from international trade without making this assumption b. because then we can assume that world prices of goods are unaffected by that country's participation in international trade. c. in order to rule out the possibility of tariffs or quotas. d. all of the above are correct

b.

The world price of a ton of steel is $1000. Before Russia allowed trade in steel, the price of a ton of steel there was $650. Once Russia allowed trade in steel with other countries, Russia began a. exporting steel and the price per ton in Russian remained at $650 b. exporting steel and the price per ton increased to $1000. c. importing steel and the price per ton in Russia remained at $650 d. importing steel and the price per ton in Russia increased to $1000.

b.

Which of the following is the most accurate statement? a. protection is necessary in order for young industries to grown up and be successful b. protection is not necessary for an industry to grow c. protection is necessary because if young industries are not protected, they may suffer losses. d. protection may not always be necessary for infant industries, but it has proven to be useful in most cases.

b.

Honey producers provide a positive externality to orchards because a. the honey producers get more honey. b. the orchard owner frequently gets stung by the honey producer's bees c. the orchard owner does not have to purchase bees to pollinate his flowers d. the honey producers have to rent access to the orchard grounds

c

Producer surplus equals the a. value to buyers - amount paid by buyers b. value to buyers - the cost to sellers c. amount received by sellers - the cost to sellers d. amount received by sellers - the amount paid by buyers

c

ABC company incurs a cost of 50 cents to produce a dozen eggs, why XYZ company incurs a cost of 70 cents to produce a dozen eggs. Which of the following price increases would cause both companies to experience an increase in producer surplus? a. The price of a dozen eggs increase for 40 to 55 cents b. The price of a dozen eggs increase from 55 to 70 cents c. The price of a dozen eggs increases from 55 to 75 cents d. All of these price increases would cause both companies to experience a loss in producer surplus.

c.

An example of normative analysis is studying a. how market forces produce equilibrium b. surpluses and shortages c. whether equilibrium outcomes are socially desirable d. income distributions

c.

Consumer surplus is the a. amount of a good consumers get without paying anything b. amount a consumer pays minus the amount the consumer is willing to pay. c. amount a consumer is willing to pay minus the amount the consumer actually pays. d. valus of a good to a consumer

c.

When externalities exist, buyers and sellers a. neglect the external effects of their actions, but the market equilibrium is still efficient. b. do not neglect the external effects of their actions, and the market equilibrium is efficient. c. neglect the external effects of their actions, and the market equilibrium is not efficient d. do not neglect the external effects of their actions, and the market equilibrium is not efficient

c.

When, in our analysis of the gains and losses from international trade, we assume that a country is small, we are in effect assuming that the country

cannot affect world prices by trading with other countries.

What is the fundamental basis for trade among nations?

comparative advantage

Patterns of trade among nations are primarily determined by

comparative advantage.

Trade among nations is ultimately based on

comparative advantage.

When a country allows trade and becomes an importer of a good,

consumer surplus decreases and producer surplus increases

Suppose Iceland goes from being an isolated country to being an importer of coats. As a result,

consumer surplus increases for consumers of coats in Iceland.

Which of the following is not a commonly-advanced argument for trade restrictions? a. the jobs argument b. the national-security argument c. the infant-industry argument d. the efficiency argument

d

A patent is used to a. disseminate information b. offset the negative effects of taxes. c. protect inventors for as long as they live. d. assign property rights.

d.

A positive externality a. causes the product to be overproduced b. provides an additional benefit to market participants. c. benefits consumers because it results in a lower equilibrium price d. is a benefit to a market bystander

d.

A positive externality arises when a person engages in an activity that has a. an adverse effect on a bystander who is not compensated by the person who causes the effect. b. an adverse effect on a bystander who is compensated by the person who causes the effect c. a beneficial effect on a bystander who pays the person who causes the effect d. a beneficial effect on a bystander who does not pay the person who causes the effect.

d.

Denise values a stainless steel dishwasher for her new house at $500. The actual price of the dishwasher is $650. Denise a. buys the dishwasher, and on her purchase she experiences a consumer surplus of $150 b. buys the dishwasher, and on her purchase she experiences a consumer surplus of -$150. c. does not buy the dishwasher, and on her purchase she experiences a consumer surplus of $150 d. does not by the dishwasher, and on her purchase she experiences a consumer surplus of $0.

d.

Sarah buys a new MP3 player for $135. she received consumer surplus of $25 on her purchase id her willingness to pay is a. $25 b. $110 c. $135 d. $160

d.

The General Agreement on Tariffs and Trade (GATT) was initiated in response to a. an increase in exports of low-priced goods from developing countries to developed countries. b. the replacement of manufacturing jobs with service jobs in developed countries c. economic dislocations caused by the North American Free Trade Agreement (NAFTA) in the 1990's. d. high tariffs imposed during the Great Depression in the 1930s.

d.

The nation of Fastbrooke forbids international trade. In fastbrooke, you can exchange 1 television for 3 computers. In other countries, you can exchange 1 television for 2 computers. These facts indicate that a. other countries have an absolute advantage, relative to fastbrooke, in producing televisions. b. Fastbrooke has a comparative advantage, relative to other countries, in producing televisions. c. if Fastbrooke were to allow trade, it would import computers d. the world price of computers exceeds the price of computers in fastbrooke

d.

The price of sugar that prevails in international markets is called the a. export price of sugar b. import price of sugar. c. competitive-advantage price of sugar. d. world price of sugar

d.

Unlike minimum wage lows, wage subsidies a. discourage firms from hiring the working poor. b. cause unemployment c. help only wealthy workers d. raise the living standards of the working poor without creating unemployment

d.

When a country allows international trade and becomes an exported of a good, a. domestic producers of the good become better off. b. domestic consumers of the good becomes worse off c. the gains of the winners exceed the losses of the losers. d. all of the above are correct

d.

Which of the following statements is not correct? a. a patent is a way for the government to encourage the production of a good with technology spillovers. b. a tax is a way for the government to reduce the production of a good with a negative externality. c. a tax that accurately reflects social costs produces the socially optimal outcome d. government policies cannot improve upon private market outcomes.

d.

An important factor in the decline of the U.S. textile industry over the past 100 or so years is

foreign competitors that can produce quality textile goods at low cost.

If the world price of apples is higher than Argentina's domestic price of apples without trade, then Argentina

has a comparative advantage in apples.

If the world price of coffee is higher than Colombia's domestic price of coffee without trade, then Colombia

has a comparative advantage in coffee and should export coffee.

A country has a comparative advantage in a product if the world price is

higher than that country's domestic price without trade.

Suppose the nation of Canada forbids international trade. In Canada, you can obtain a hockey stick by trading 5 baseball bats. In other countries, you can obtain a hockey stick by trading 8 baseball bats. These facts indicate that

if Canada were to allow trade, it would export hockey sticks.

The nation of Wheatland forbids international trade. In Wheatland, you can buy 1 pound of corn for 3 pounds of fish. In other countries, you can buy 1 pound of corn for 2 pounds of fish. These facts indicate that

if Wheatland were to allow trade, it would import corn.

The problem with the protection-as-a-bargaining-chip argument for trade restrictions is

if it fails the country faces a choice between two bad options

For any country, if the world price of copper is lower than the domestic price of copper without trade, that country should

import copper.

When a U.S. company purchases and imports electronic parts from China to use to produce MP3 players within the United States, this purchase increases the_______________component of GDP while also_____________net exports by the same amount. Therefore, the purchase of electronic parts from China causes ______________ in US GDP.

investment, decreasing, no overall change

When, in our analysis of the gains and losses from international trade, we assume that a particular country is small, we are

making an assumption that is not necessary to analyze the gains and losses from international trade.

Assume, for Colombia, that the domestic price of coffee without international trade is higher than the world price of coffee. This suggests that

other countries have a comparative advantage over Colombia in producing coffee.

Assume, for England, that the domestic price of wine without international trade is higher than the world price of wine. This suggests that, in the production of wine,

other countries have a comparative advantage over England and England will import wine.

Assume for Guatemala that the domestic price of coffee without international trade is higher than the world price of coffee. This suggests that

other countries have a comparative advantage over Guatemala in the production of coffee, and Guatemala will import coffee.

Assume, for Mexico, that the domestic price of beets without international trade is higher than the world price of beets. This suggests that, in the production of beets,

other countries have a comparative advantage over Mexico and Mexico will import beets.

Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles,

other countries have a comparative advantage over Vietnam and Vietnam will import textiles.

When the nation of Duxembourg allows trade and becomes an importer of software,

residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg rises.

When the nation of Worldova allows trade and becomes an exporter of silk,

residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova rises.

If the world price of coffee is lower than ColombiIf the world price of coffee is lower than Colombia's domestic price of coffee without trade, then Colombiaa's domestic price of coffee without trade, then Colombia

should import coffee.

A tax on an imported good is called a

tariff.

A tariff is a

tax on Imported goods

A tariff is a

tax on an imported good.

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price,

the country will be an exporter of the good.

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price,

the country will be an importer of the good.

Trade raises the economic well-being of a nation in the sense that

the gains of the winners exceed the losses of the losers.

When a country allows international trade and becomes an importer of a good,

the gains of the winners exceed the losses of the losers.

When a country allows trade and becomes an importer of a good,

the gains of the winners exceed the losses of the losers.

When a nation first begins to trade with other countries and the nation becomes an importer of corn,

the nation's consumers of corn become better off and the nation's producers of corn become worse off.

A logical starting point from which the study of international trade begins is

the principle of comparative advantage.

On the other hand, when Kevin's employer assigns him to provide consulting services to an Australian firm that's opening a manufacturing facility in China

the value of the consulting services is added to the exports category for the United States and the imports and consumption categories for China

The nation of Isolani forbids international trade. In Isolani, you can exchange 1 car for 5 motorcycles. In other countries, you can exchange 1 car for 4 motorcycles. These facts indicate that

the world price of motorcycles exceeds the price of motorcycles in Isolani.

Spain allows trade with the rest of the world. We know that Spain has a comparative advantage in producing olive oil if we know that

the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other countries were not allowed.

Which of the following tools and concepts is useful in the analysis of international trade?

total surplus domestic supply equilibrium price All of the above are correct.

Trade enhances the economic well-being of a nation in the sense that

trade results in an increase in total surplus.

Suppose Brazil has an absolute advantage over other countries in producing almonds, but other countries have a comparative advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil

will import almonds.

Suppose Jamaica has an absolute advantage over other countries in producing sugar, but other countries have a comparative advantage over Jamaica in producing sugar. If trade in sugar is allowed, Jamaica

will import sugar.

Which of the following is not an advantage of a multilateral approach to free trade over a unilateral approach?

...

What is the fundamental basis for trade among nations?

Comparative advantage

The nation of Farmland forbids international trade. In Farmland, you can exchange 1 pound of beef for 2 pounds of pepper. In other countries, you can exchange 1 pound of beef for 4 pounds of pepper. These facts indicate that

Farmland has a comparative advantage, relative to other countries, in producing beef.

Which of the following statements is true?

Free trade benefits a country both when it exports and when it imports.

GDP is the market value

Of all final goods and services produced within a country in a given period of time

Assume, for England, that the domestic price of wine without international trade is higher than the world price of wine. This suggests that, in the production of wine,

Other countries have a comparative advantage over England and England will import wine.

Seasonal adjustment

Produces more goods and services during a particular time of year. Example Christmas

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

Real GDP is not influenced by price changes, but nominal GDP is.

Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil. This situation suggests

Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative advantage over Russia in producing coffee.

What 2 things does GDP measure?

Total income of everyone in the economy Total expenditure on the economy's output of goods and services

With which of the Ten Principles of Economics is the study of international trade most closely connected?

Trade can make everyone better off.

Government purchases

consist of any purchase by a state, local, or federal government. Therefore, when the Federal Aviation Administration expands the runways at Philadelphia International Airport, that is considered part of government purchases

Consumption

consists of expenditures by individuals on goods and services, such as the haircut that Maria pays for and the BMW that Maria buys (see the imports explanation in this problem as well).

Investment

consists of spending on capital goods, household purchases of new housing, and (net) additions to inventories. Because Rajiv uses the tools in his plumbing business, that purchase is considered investment spending.

When a country allows trade and becomes an exporter of a good,

consumer surplus decreases and producer surplus increases

When a country allows trade and becomes an importer of a good,

consumer surplus increases and producer surplus decreases.

Costa Rica allows trade with the rest of the world. We can determine whether Costa Rica has a comparative advantage in producing pharmaceuticals if we

know whether Costa Rica imports or exports pharmaceuticals. compare the world price of pharmaceuticals to the price of pharmaceuticals that would prevail in Costa Rica if trade with the rest of the world were not allowed. compare the quantity of pharmaceuticals consumed in Costa Rica with the quantity of pharmaceuticals that would be consumed in Costa Rica if trade with the rest of the world were not allowed. All of the above are correct.

Suppose Iceland goes from being an isolated country to being an exporter of coats. As a result,

producer surplus increases for producers of coats in Iceland.

When a country allows trade and becomes an importer of coal,

the gains of the domestic consumers of coal exceed the losses of the domestic producers of coal.

When a country allows trade and becomes an exporter of a good,

the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good.

The gross domestic product (GDP) of the United States is defined as __________________ all ______________________ ___________________ in a given period of time.

the market value of, final goods and services produced, within the United States

When a nation first begins to trade with other countries and the nation becomes an exporter of soybeans,

this is an indication that the world price of soybeans exceeds the nation's domestic price of soybeans in the absence of trade. this is an indication that the nation has a comparative advantage in producing soybeans. the nation's consumers of soybeans become worse off and the nation's producers of soybeans become better off. All of the above are correct.

The price of sugar that prevails in international markets is called the

world price of sugar.

The price of a good that prevails in a world market is called the

world price.