Defenitions
Comparative Advantage
is that as long as the relative opportunity costs of producing goods differ among countries, then there potential gains from trade
According to the principle of 1 , as long as the relative 2 of producing goods (what must be given up in one good in order to get another good) differ among countries, there are potential 3 .
1) comparative advantage
2) opportunity costs
3) gains from trade
When a country runs a trade deficit, it does so by:
A. borrowing from foreign countries or selling assets to them.
B. borrowing from foreign countries or buying assets from them.
C. lending to foreign countries or selling assets to them.
D. lending to foreign countries or buying assets from them.
A. borrowing from foreign countries or selling assets to them.
Opportunity Cost
is what must be given up in one good in order to get another good
Three insights into the terms of trade are:
1) competition
2) smaller countries
3) larger countries
4) economies of scale
A nation's comparative advantage in the production of an item is determined by:
A. which country has already specialized in the production of the item.
B. the total and marginal costs of producing the item.
C. the opportunity cost of producing the item relative to a trading partner's opportunity cost.
D. wage rates and other input costs.
C. the opportunity cost of producing the item relative to a trading partner's opportunity cost.
The Convergence Hypothesis
is the tendency of economic forces to eliminate transferable comparative advantage
Economists and 1 differ in their views on 2 .
1) laypeople
2) trade
At one time, most of the cars produced in Mexico were sold in Mexico. Today, however, Mexico both exports and imports cars. How can comparative advantage explain these data?
A. It cannot; comparative advantage predicts that a country either exports a product or imports it, not both.
B. The pattern is not due to comparative advantage but to government restrictions on production.
C. Mexico has a comparative disadvantage in automobiles.
D. Mexico specializes in the production of high-end cars, which it exports, and imports low-end cars that can be produced at lower cost elsewhere.
D. Mexico specializes in the production of high-end cars, which it exports, and imports low-end cars that can be produced at lower cost elsewhere.
Exchange Rates
is the rate at which one country's currency can be traded for another's
The 1 in the form of 2 tend to be widespread and not easily recognized, while the 3 lost tend to be concentrated and 4 .
1) gains from trade
2) low consumer prices
3) costs in jobs
4) readily identifiable
In considering the distribution of the gains from trade:
A. Smaller countries usually get a larger proportion of the gains from trade.
B. Larger countries usually get a larger proportion of the gains from trade.
C. The gains are generally split equally between small and large countries.
D. No statement can be made about the general nature of the split.
A. Smaller countries usually get a larger proportion of the gains from trade.
Resource Curse
the paradox that countries with an abundance of resources tend to have lower economic growth and more unemployment than countries with fewer natural resources
The 1 has 2 based on its 3 , its institutions, and its language, among other things.
1) United States
2) comparative advantages
3) skilled workforce
Why are the gains from trade often difficult to recognize?
A. The United States does not keep accurate records of employment.
B. The gains are spread out over a wide variety of goods and consumers.
C. There are no gains from trade.
D. The gains are in services, which are difficult to measure.
B. The gains are spread out over a wide variety of goods and consumers.