Absolute Advantage
What is it called when a country can produce more of a good with better quality than another country?
Absolute advantage
What is it called when a country produces goods at the lowest opportunity cost?
Comparative advantage
What type of trade allows goods to move without restrictions?
Free trade
What is exchanged when Americans buy goods from another country?
Dollars for foreign currency
What currency was dominant before the U.S. dollar?
British pound
What two key factors are needed for a country to have an absolute advantage?
Raw materials and labor
What concept is central to comparative advantage?
Opportunity cost
What is one major benefit of free trade?
Lower prices / higher quality goods
What does it mean when the dollar is strong?
It has greater buying power
What is the main global reserve currency today?
U.S. dollar
What happens when a country produces more than it needs domestically?
It can trade in foreign markets
What should countries do with goods they cannot produce efficiently?
import them
What is a tax placed on imports called?
Tariff
What happens when the dollar is weak?
It buys less foreign goods
About what percent of global reserves are held in U.S. dollars?
About 60%
What is one reason countries like China may have an advantage in production?
Low labor costs
What risk occurs when a country focuses too much on one product?
Overspecialization / dependence on imports
What is a complete restriction of trade with a country called?
Embargo
What is the term for how much foreign currency one dollar can buy?
Exchange rate
What system did the U.S. abandon in 1971?
Gold standard
What is one major ethical concern when outsourcing production?
Worker rights / human rights violations
What is one negative effect of focusing only on comparative advantage?
Depletion of natural resources OR limited job diversity
What is one downside of trade barriers?
Higher prices / fewer goods available
If the dollar is strong, what happens to imports from countries like China?
Imports increase (Americans buy more foreign goods)
What type of money is used today that is not backed by gold?
Fiat money