Macroeconomics Ch 20 Reading

Which goods are considered labor-intensive? - Winter coats - Broccoli - Bicycles - Wool

- Winter coats - Bicycles

How do trade barriers tend to affect the price, sales, and availability of a product?

Quotas increase the price of imported products.

What type of tariff is applied to an import, with the purpose of raising money for the federal government?

Revenue tariff

A tax on an imported good is known as a(n) ______.

tariff

With a(n) ______, a product can go on being imported in large quantities, but with a(n) ______ all imports are prohibited once the quota has been filled.

tariff; import quota

Government trade barriers ______ gains from specialization.

reduce

A(n) ______ is a tax on imports, with the primary purpose of raising money for the federal government.

revenue tariff

A(n) ______ tariff is used to generate money for the government, while a(n) ______ tariff shields domestic producers from foreign competition.

revenue; protective

A trading possibilities line reveals the amounts of two products a nation can obtain by ______.

specializing in one product and trading for the other

Over short periods of time, the distribution of resources, technology, and product distinctiveness among nations is relatively ______.

stable

A trade ______ occurs when exports exceed imports.

surplus

The exchange ratio at which two countries trade their products is called the ______ of trade.

terms

By what measurement was Canada the most important trading partner for the United States in 2018?

total volume of trade

The benefits that ______ create for protected industries and their workers come at the expense of much greater losses for the entire economy.

trade barriers

Economic inefficiency, reduced consumption, and reduced standards of living are three results of ______.

trade protectionism

Although protective tariffs are usually not high enough to stop the importation of foreign goods, they put ______ producers at a competitive disadvantage in domestic markets.

foreign

The world economy can achieve a more efficient allocation of resources and a higher level of material well-being with ______ trade based on ______ advantage.

free; comparative

A voluntary export restriction (VER) is a trade policy by which a nation agrees to limit ______.

how much of a specific good that it will export to a particular country

A limit on the amount of a good that can be imported into a country is known as a(n) ______.

import quota

The primary effect of ______ opportunity costs is less-than-complete specialization.

increasing

Tariffs end up ________ the output in inefficient industries while _________ the output in efficient industries

increasing; decreasing

Because China has abundant low-wage workers, it can efficiently produce ______ - intensive goods.

labor

When a large amount of land is required for the affordable production of something, that product is said to be ______.

land-intensive

The principle of comparative advantage says that total output will be greatest when each good is produced by the country that has the ______ for that good.

lowest domestic opportunity cost

Economizing requires that any particular good be produced by the nation having the ______ domestic opportunity cost, or the ______ advantage for that good.

lowest; comparative

The idea that protective tariffs are needed to preserve industries that produce the materials essential for national defense is called the ______ argument.

military self-sufficiency

Specialization and trade allow two countries to create a new exchange ratio and supplement their own domestic production possibilities. In the end, they will likely produce ______ they would if they were self-sufficient.

more than

A licensing requirement that specifies unreasonable standards pertaining to product quality and safety is called a(n) ______.

nontariff barrier

The principle of comparative advantage says that total output will be greatest when each good is produced by the country that has the lowest domestic ____________ ____ for that good.

opportunity cost

What is a tariff?

A tax on an imported good

Suppose the opportunity cost for 1 ton of beef is 1 ton of vegetables in the United States, and the opportunity cost for 1 ton of beef is 2 tons of vegetables in Mexico. What possible terms of trade would allow both countries to gain from trade?

- 1 ton of beef for 1.5 tons of vegetables. - 1 ton of beef for 1.25 tons of vegetables.

Dumping occurs in which of the following situations?

- A firm charges a price to a foreign market that is lower than its production costs. - A firm charges a lower price to a foreign market than what it would charge in its home market.

Which statements about tariffs and quotas are true?

- A quota transfers revenue to foreign producers. - A tariff generates revenue for the domestic government. - A quota does not generate revenue for the government.

The outcomes of international specialization and trade are equivalent to which of the following?

- An increase in the quantity of resources - An improvement in the quality of resources - The discovery of improved production techniques

What resources are important for a country to produce capital-intensive goods?

- An industrially advanced economy - Large amounts of capital

Protective Tariff

- Applied to foreign products that compete with domestic production - Intended to place foreign producers at a disadvantage

Which products are capital-intensive goods? - Clothing - Automobiles - Machinery - Chemicals

- Automobiles - Machinery - Chemicals

How can a nation expand its production possibilities boundary (curve)?

- By developing more resources - By improving technology

How does a world market encourage countries to make the most economical use of their resources?

- Countries with a high opportunity cost for a product are more likely to concentrate on producing other types of goods instead. - Countries with the lowest domestic opportunity cost for each product have a comparative advantage.

According to the diversification-for-stability argument, why should some nations impose protective tariffs and import quotas?

- Diversification of their industries would increase domestic stability. - Their economies are unusually disrupted by fluctuations in world supply and demand. - Their economies are highly specialized and depend on international trade for their income.

Which statements summarize the case for free trade based on the theory of comparative advantage?

- Each trading nation will realize the advantages of geographic and human specialization. - Each nation should exchange the goods it produces at lower opportunity costs for goods that have higher opportunity costs. - Each trading nation can obtain a larger real income from the fixed supplies of resources available to it.

Which of the following statements are true about the economic basis of trade?

- Efficient production of various goods requires different technologies or combinations of resources. - Products are differentiated as to quality and other nonprice attributes. - The distribution of natural, human, and capital resources among nations is uneven.

What happens when government trade barriers prevent nations from trading freely?

- Gains from specialization are reduced or eliminated. - Nations must dedicate more resources to high-cost uses.

In addition to the benefits of human and geographical specialization, what are some side benefits to free trade?

- It encourages innovation. - It promotes competition.

How does free trade tend to benefit society?

- It reduces animosity among nations that trade with each other. - It spurs economic growth by encouraging business to innovate. - It encourages businesses to use low-cost production techniques.

How do import quotas affect sales of a product? - Sales of domestic goods increase. - The price of imports increases. - The availability of imports increases. - The price of domestically produced goods rises.

- Sales of domestic goods increase. - The price of imports increases. - The price of domestically produced goods rises.

What are the basic reasons why nations trade with each other?

- Some people prefer to buy imported merchandise. - Expertise varies among the nations. - Nations do not have the same resources to develop.

According to various studies, how do trade protections, such as tariffs and quotas, tend to affect domestic society?

- The cost to consumers and society exceeds the gains to producers and the government. - Some trade protections increase government revenues.

If a production possibilities curve shows that the United States has an opportunity-cost ratio of 1 ton of vegetables for 1 ton of beef, what does that mean?

- The country can increase its output of beef from 0 tons to 30 tons by sacrificing 30 tons of vegetables. - The slope of the production possibilities curve is 1.

How do nations benefit from international trade?

- They can enhance their resource productivity. - They can acquire more goods and services. - They can specialize their production.

How do tariffs affect a nation's economy?

- They cause a shift in resources in the wrong direction. - They reduce efficiency and the world's real output.

How do export subsidies affect international trade?

- They reduce production costs for the domestic producer. - They enable domestic businesses to sell more goods globally. - They enable domestic producers to charge a lower price, becoming more competitive.

Which of these are examples of labor-intensive goods?

- Toys - Textiles - Electronics

Which of these are nontariff barriers? - Unnecessary bureaucratic paperwork or policies used to restrict imports - Extremely difficult, complex licensing requirements - Virtually unattainable standards for imports - A tax on imports, which raises money for the federal government

- Unnecessary bureaucratic paperwork or policies used to restrict imports - Extremely difficult, complex licensing requirements - Virtually unattainable standards for imports

Revenue Tariff

- Usually applied to products not being produced domestically - Intended to generate money for the government

Suppose that in the United States, the opportunity cost for 1 ton of beef is 1 ton of vegetables. Which of these prices would make it worthwhile for the United States to trade its beef internationally?

1 ton of beef for 2 tons of vegetables

What are the four direct effects of a tariff?

1. A decline in imports 2. Increased domestic production 3. Tariff revenue 4. A decline in consumption

Why are beef and wool considered to be land-intensive goods?

A large amount of land is required to produce them.

Through free trade based on the principle of comparative advantage, what can the world economy achieve?

A more efficient allocation of resources

What is the main economic difference between a tariff and a quota?

A tariff generates revenue for the domestic government.

What type of graphic shows the amounts of two products a nation can obtain by specializing in one product and trading for the other?

A trading possibilities line

Match the products with the countries where they would most likely be important to the economy. A) Textiles and toys B) Vegetables C) Beef and Wool D) Cars and Airplanes

A) Textiles and toys - China (labor intensive) B) Vegetables - Mexico (land intensive) C) Beef and Wool - Australia (land intensive) D) Cars and Airplanes - Germany (capital intensive)

Match each type of good with the resources typically required to produce it.

A. Labor Intensive - An abundant, inexpensive workforce B. Land Intensive - Vast amounts of land C. Capital Intensive - An industrialized economy with plentiful equipment and buildings

Which product is a capital-intensive good? A. Textiles B. Electronics C. Airplanes D. Wool

Airplanes

What is likely to happen because of a "trade war" when nations retaliate against tariffs and quotas?

An overall decrease in trade

In 2018, which country was the most important trading partner of the United States by volume of trade?

Canada

What type of products are most often made in countries that have industrially advanced economies and large amounts of capital?

Capital-intensive goods

Which country has an abundant labor force suited to produce labor-intensive goods? A. China B. Denmark C. Australia D. United States

China

Which three countries led the world in exports in 2018?

China, United States, and Germany

What is the key determinant in whether a country can gain from specialization in international trade?

Comparative advantage

Suppose two countries, A and B, both produce automobiles with the same amount of labor, raw materials and other necessary inputs. However, country A simply cannot produce as many units of output as country B. Which of the following must be true?

Country B has an absolute advantage in producing automobiles.

What ploy do firms sometimes use in an attempt to drive out competing businesses in a foreign country?

Dump their goods

What do economists call it when government provides money to producers of exports in an effort to make the domestic producer more competitive in world markets?

Export subsidy

True or false: Import quotas are less effective at slowing international commerce than tariffs.

False

True or false: The diversification for stability argument for protection is a valid one for the U.S.

False

What is it called when two countries each specialize in a product, exchange them, and end up obtaining more of both products than they would have accomplished on their own?

Gains from trade

What type of trade barrier completely prohibits imports once a certain limit has been reached?

Import quota

Which argument against free trade becomes particularly popular when the economy goes into a recession?

Increased domestic employment

Wheat, wool, and meat are examples of what type of goods?

Land-intensive

What is the main effect of increasing opportunity costs?

Less-than-complete specialization

What do critics say is a flaw in the military self-sufficiency argument for protective tariffs to encourage domestic production of goods needed for national security?

Many industries can claim they make contributions to national security and deserve protection.

Suppose the opportunity cost of 1 ton of vegetables is 0.5 tons of beef in Mexico, and the opportunity cost of 1 ton of vegetables is 1 ton of beef in the United States. In regard to producing vegetables, what would be the most economical use of the world's resources?

Mexico is the low-cost producer. It should produce vegetables.

In a model compiled to show the economic relationship between two nations, what can be used to determine whether each country has an absolute advantage or comparative advantage?

Production possibilities curves

What factors are most likely to affect the stability of a nation's success in producing and selling its goods?

Technology Product distinctiveness Distribution of resources

What tends to happen to a nation that increases its participation in an open economy with an international sector?

The country produces more of its most profitable goods.

What is the exchange ratio at which two countries trade their products?

The terms of trade

According to the infant industry argument, why should recently established domestic firms be protected from competition from imports?

They have not had time to become efficient enough to compete against mature foreign companies.

Why do nations sometimes agree to voluntary export restrictions?

To avoid more restrictive trade policies

According to the infant industry argument, why is import protection needed?

Trade barriers allow protected industries the time to become efficient and competitive.

True or false: National economies will evolve in terms of the distribution of resources, quality of resources and technologies.

True

Which country leads the world in the combined volume of exports and imports, as measured in dollars?

United States

When does a trade surplus occur?

When exports exceed imports

When does a trade deficit occur?

When imports exceed exports

A country has a(n) ______ advantage when it has a greater output per worker than another country but a(n) ______ advantage when it produces at a lower opportunity cost than another country.

absolute; comparative

Over time, changes in a country's labor force, capital stocks, technologies, and natural resources can affect its ___________ __________.

comparative advantage

Specialization on the basis of ______ leads to more efficient allocation of world resources.

comparative advantage

Tariffs and/or quotas tend to impose ______ on domestic consumers, and ______ to the producers of the protected goods in the importing economy.

costs; gains

The four direct effects of tariffs are: a decline in consumption, increased domestic production, tariff revenue, and a(n) ______.

decline in imports

A trade ______ occurs when imports exceed exports.

deficit

If a firm charges a foreign market a lower price than it charges the domestic market, that firm is said to be ______ its product.

dumping