Week 5: International Trade

Europeans purchase wine produced in California and Argentina to have greater choice. The benefit of international trade applies in this case is

increased variety of goods

Comparative advantage is defined as having a ________ relative opportunity cost than another producer

lower

The US, a high-cost producer of oil, imports roughly half of the oil needed to produce the nation's gasoline. The benefit of international trade applies in this case is

lower-cost goods

The value of the next best forgone alternative is the ________ cost

opportunity

When using the _____________ model, the domestic country is a price ticket and its consumption and production don't affect the world price

small-country

When calculating producer surplus for an individual firm, _______ the firm's willingness to accept from the market price

subtract

A tax/fee that must be paid on goods imported from other countries is a

tariff

The effect of one trade barrier, a ______, is an increase in the price consumers pay, since it forces importers to raise their prices

tariff

When the US imposes a _____ on 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

tariff

Specialization

the choice of good that the low-relative-cost producer will focus on

World price

the price of a good, service or resource that prevails in the world market for that good

Consumer surplus can be thought of as the ______ that trade creates for consumers in a market

wealth

If you were willing to sell your used car for $3,000, but someone paid you $3,500 for it, you received producer surplus of ______

$500

By expanding markets, international trade benefits a country in important ways including:

1. goods that are relatively more expensive can be produced for less from foreign producers, increasing consumers' purchasing power and making their income go further 2. goods they can produce at lower relative cost can now be sold at higher prices in foreign markets, increasing income for producers in the process

Which of the following describes domestic price?

1. it is the same as world price in the small market if the country is open to trade 2. the price of a good or service or resource that prevails in a domestic market

Some economists say the US shouldn't even try to produce its own clothing because

1. other countries can produce clothing much more inexpensively than the US 2. the labor and capital that the US uses to produce expensive goods could be used to produce other goods that the US can produce more efficiently

One type of price control, a price __(A)__ raises the market price and causes consumers to buy __(B)__ output. Producers receive a __(C)__ price for their products, so they can be better off overall. However, with fewer market transactions, total surplus in the market __(D)__

A. floor B. less C. higher D. decreases

The model and concepts used to develop the economies of _____(A)___ ________ are similar to those used to illustrate the effects of ______ ___(B)___ _______

A. international trade B. trade between individuals

Tariffs that create __(A)__ deadweight loses tend to be preferable to those that create __(B)__ deadweight loss because they generate the tariff revenue governments need without overally distorting the economy

A. small B. large

Comparative advantage refers to:

Being the lowest relative opportunity cost producer of a good.

specialization is based on whether one country can produce more of a good than another country and not on comparative advantage

FALSE [producers tend to specialize in the good for which they have a comparative advantage and trade for the rest]

One major theme in economics is that trade creates wealth

TRUE

Tariff revenue is the product of the tariff rate and the quantity of goods imported

TRUE

When a tariff is eliminated, we would expect the price to decrease and the quantity traded to increase

TRUE

Japan doesn't have a huge reserves for neodymium and has to import the metal from China. The benefit of international trade that applies in this case is

access to scarce resources

As long as the terms of trade

are between both countries' opportunity cost, both benefit

Before international travel via ships, many island countries existed in a state of self-sufficiency known as

autarky

When a country is opening up for trade, resources in the economy flow:

away from the goods for which producers don't have a comparative advantage

Any policy that is designed to reduce the competitiveness of foreign producers that wish to sell their goods/services in the domestic market is a:

barrier to trade

Suppose the US specializes in lumber and Canada in steel. When trade,

both countries will likely consume more lumber and steel

A producer has a ______ advantage in the production of a good or a service if his/her relative opportunity cost of production is lower than the opportunity cost of the other producers

comparative

Specialization is based on ______ advantage, not necessarily on whether one country can produce more of a good than another country

comparative

_______ advantage is the foundation of establishing the benefits of trade

comparative

Given the option of being self-sufficient or trading with others, as long as a _______ _________ exists, there will be potential for trade to make both parties better off

comparative advantage

Gains from trade can be measured by,

comparing the levels of consumption available before and after the trade

International trade involves exchanging

currencies

Terms of trade

depends on the opportunity costs of the buyers and sellers

The price of a good, service, or resource that prevails in the domestic markets is the _______ price

domestic

A negative of the total welfare/wealth, that trade creates for consumers and producers in a market is known as ______ surplus

economic [consumer + producer surplus]

Goods and services that are manufactured domestically but sold abroad are called

exports

In 2014, the US imposed tariffs on 9 different steel-producing countries because:

forms from theses countries were "dumping" their products on the US market

_____ trade is between nations that is free from barriers such as regulations, tariffs or quotas

free

comparative advantage

identifies the producer that has the low relative opportunity cost for a specific good in the market

A quota is a numerical limit on the amount of a good that can be ___

imported

Without _______, our standard of living would be lower and we would enjoy fewer goods and less variety

imports

Specialization is based on relative _______ cost, not necessarily on whether one country can produce more of a good than another country

opportunity

When people specialize according to their comparative advantages:

overall production rises

When countries don't specialize, they usually

produce some of each good

When a tariff is imposed on imports, the price in the market:

rises by full amount of tariff

Deadweight loss is the:

the value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium

The dollar value of a quota rent is equal to the sizeof quota:

times the difference between the quota price and the world price [(quota price - world price)*quota price]

When two people specialize, _____

total production between two people increases

Because people and businesses sometimes oppose international trade, governments create ______ barriers

trade

When the international community has issues with a country threatening its neighbors or the international community at large (ex. North Korea, Iran, and Russia), countries often impose ______ sanctions on the offending country

trade

In many of the examples of specialization and trade it is sometimes that one country is getting a better deal than another but:

we don't know the overall increase in the wealth or well-being, generated by the trade

When trade occurs, ______ is created

wealth

_____ _______ is/are genrally found by comparing charges in consumer and producer surplus

welfare effects

The price of a good, service or resource that prevails in the world market is the ______ ______

world price

If terms of trade are the same as your opportunity cost, you will receive _______ gains from the trade

zero