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International Economics EOC Review

Terms in this set (62)

absolute advantage
When a country can produce more of a product.
comparative advantage
When a country can produce a product at a lower opportunity cost. This is why countries trade.
balance of trade
Refers to the ratio of a country's exports and imports. Countries that export more than they import have a favorable balance of trade. Countries that import more have a negative balance of trade.
balance of payments
Refers to the ratio of the money made on exports and paid for imports.
trade barrier
Something put in place to restrict or prevent trade
tariff
Tax on imported goods
quota
Limit on the amount of a good that can come into a country
embargo
Total ban on trade with a country
standard
Certain requirements that must be met to be able to trade
subsidy
Government payment to companies meant to increase the competitiveness of domestic industries
trading bloc
Groups of countries that have made agreements to reduce trade barriers
NAFTA (North Atlantic Free Trade Agreement)
Agreement of Canada, US, and Mexico to eliminate trade barriers.
EU (European Union)
Agreement between European countries to reduce trade barriers. They also share a currency.
ASEAN (Association of Southeast Asian Nations)
Agreement between Asian nations to reduce trade barriers and promote peace in their region.
Tarzan has the comparative advantage in shoes
If Jane can create 10 pairs of shoes or 5 umbrellas and Tarzan can create 4 pairs of shoes or 1 umbrella, who has the comparative advantage in shoes?
Jane has the comparative advantage in umbrellas
If Jane can create 10 pairs of shoes or 5 umbrellas and Tarzan can create 4 pairs of shoes or 1 umbrella, who has the comparative advantage in umbrellas?
Jane has the absolute advantage in shoes
If Jane can create 10 pairs of shoes or 5 umbrellas and Tarzan can create 4 pairs of shoes or 1 umbrella, who has the absolute advantage in shoes?
Jane has the absolute advantage in umbrellas
If Jane can create 10 pairs of shoes or 5 umbrellas and Tarzan can create 4 pairs of shoes or 1 umbrella, who has the absolute advantage in umbrellas?
Tarzan has the comparative advantage in umbrellas
If Jane can create 9 pairs of shoes or 3 umbrellas and Tarzan can create 8 pairs of shoes or 4 umbrella, who has the comparative advantage in umbrellas?
Jane has the comparative advantage in shoes
If Jane can create 9 pairs of shoes or 3 umbrellas and Tarzan can create 8 pairs of shoes or 4 umbrella, who has the comparative advantage in shoes?
Joe has the comparative advantage in ASAD
Joe can make 5 ASAD graphs or 10 Phillips Curves.
Robert can make 2 ASAD graphs or 8 Phillips Curves. Who has the comparative advantage in ASAD?
Robert has the comparative advantage in Phillips Curve
Joe can make 5 ASAD graphs or 10 Phillips Curves.
Robert can make 2 ASAD graphs or 8 Phillips Curves. Who has the comparative advantage in Phillips Curve?
Joe has the Absolute Advantage in ASAD
Joe can make 5 ASAD graphs or 10 Phillips Curves.
Robert can make 2 ASAD graphs or 8 Phillips Curves. Who has the absolute advantage in ASAD?
Joe has the absolute advantage in Phillips Curve
Joe can make 5 ASAD graphs or 10 Phillips Curves.
Robert can make 2 ASAD graphs or 8 Phillips Curves. Who has the absolute advantage in Phillips Curve?
Robert has the comparative advantage in ASAD
Joe can make 1 ASAD graphs or 5 Phillips Curves.
Robert can make 2 ASAD graphs or 6 Phillips Curves. Who has the comparative advantage in ASAD?
Joe has the comparative advantage in Phillips Curve
Joe can make 1 ASAD graphs or 5 Phillips Curves.
Robert can make 2 ASAD graphs or 6 Phillips Curves. Who has the comparative advantage in phillips curve?
What could cause the value of the US dollar to appreciate in relationship to the Euro?
Increased demand for US products
Which group(s) of people benefit the most from the appreciation of currency?
consumers
Which group(s) of people lose the most from the depreciation of currency?
Foreign producers shipping to US
Which term is used to describe how much one nation's currency is worth compared to another's currency?
Exchange rate
What is the advantage of a weak dollar?
American exports increase
What is a floating exchange rate?
When a currency's value is not connected to another currency, based on supply & demand
What is purchasing power?
The amount of goods and services that can be purchased with a unit of money
Why do people support protectionist trade policies?
Subsidies for American producers
What would happen to trade if the US dollar appreciated in value?
Trade deficit
What would cause the US dollar to appreciate?
Increased demand for US goods
What is the purpose of NAFTA?
To reduce trade barriers between US, Canada, & Mexico
Which trade barrier is used to punish a country by refusing to trade with them due to political reasons?
Embargo
What is the effect of trade barriers?
Protect domestic(infant) industry and allows producers to make a higher profit
The European Union is a trading bloc that has established a common currency among many of its nations.
True
Citizens of a country with an appreciating currency find it harder to buy imports.
False
When an American company imports Japanese computers, it must pay in Japanese currency.
True
When countries specialize and trade the total amount of production increases.
True
What is a trade surplus?
Exports more than imports
What is a tariff?
Tax on imports
What are the characteristics of the North American Free Trade Agreement?
Reduces trade barriers between Canada, Mexico, and the United States.
What is the effect of a tariff?
More sales for domestic (American) industries, less for foreign companies
What are the characteristics of the European Union?
Common currency, border-free travel
What is a standard?
Requirements for imports due to safety concerns
What is an embargo?
Government prohibits trade due to political concerns.
Which term is used to describe when different countries exchange goods?
International trade
What is a subsidy?
Government payments to aid domestic industry
What is a quota?
Limits imports
What are the goals of a trading bloc?
Eliminates trade barriers, common currency, border-free travel
What is the purpose of protectionist trade policies?
Protects American (domestic) industry
What is the effect of trade barriers?
Increases prices
How are NAFTA, EU, and ASEAN similar?
Decreases trade barriers
Why do some people support free trade?
Lowers prices
Why do some people support protectionism?
Protects domestic jobs
Spain exports $400 million and imports $600 million worth of goods each year. This country has a large tourism industry which adds another $400 million in revenue each year. What is Spain's balance of trade?
$200 million trade surplus
Two countries want to produce the same products in order to increase their GDP. What should each country do in order to be effective and increase production?
Specialize in the production of the good in which they have a comparative advantage and trade for the other.
If it costs $2.00 lb. to produce butter in the U.S. and $3.50 lb. to produce butter in France, which country has absolute advantage?
U.S.
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