Economics | International Trade Notes

Economics | International Trade Notes When does trading occur? -CORRECT ANSWER- When consumers in the US buy goods from other nations (imports) and businesses in the US sell goods to other nations (exports). What are the benefits of world trade? -CORRECT ANSWER- • Jobs • Profits • Variety of goods and services. What affects the importing and exporting a nation does? -CORRECT ANSWER- Absolute and comparative advantage. What is absolute advantage? -CORRECT ANSWER- When a nation can produce much more of a good or a service than another nation; nation has more factors of production. Nations tend to produce more of products in which an absolute advantage exists. What is comparative advantage? -CORRECT ANSWER- When a nation can produce a good or service at a lower opportunity cost. Nations still tend to produce more of these products. Nations benefit when each country concentrates on production of a product in which it is efficient in. What do consumers desire? -CORRECT ANSWER- Imports (goods from other nations). What do businesses and governments desire? -CORRECT ANSWER- Exports (selling goods to other nations). How do exports pay for imports? -CORRECT ANSWER- 1. Businesses in the US sell goods to other nations (exports). 2. With the revenues, businesses pay workers. 3. Workers use their income to buy imports. How do we finance international trade? -CORRECT ANSWER- By exchanging one type of currency (money) for another. What happens in foreign exchange markets? -CORRECT ANSWER- Deal in buying and selling foreign currency for businesses and governments. What are fixed exchange rates? -CORRECT ANSWER- When governments set the value of their currency to a single standard, then establishes equivalents between its currency and other nations. What is the advantage of a fixed exchange rate? -CORRECT ANSWER- Control and stability promoted in trade (exports). What are flexible exchange rates? -CORRECT ANSWER- When the forces of supply and demand (of goods/services bought with a certain currency) set the price of various currencies. Political instability can also affect prices. How does exchange rate affect balance of trade? -CORRECT ANSWER- When currency rate of a certain nation falls, exports usually increase (making that nation's goods cheaper) creating a positive balance of trade. What happens when currency rate increases? -CORRECT ANSWER- Exports fall. What are the restrictions on world trade? -CORRECT ANSWER- • Tariffs • Quotas • Embargo What are tariffs? -CORRECT ANSWER- Taxes on imports. What are revenue tariffs? -CORRECT ANSWER- Tariffs used to raise income without restricting imports. What are protective tariffs? -C