ECON 101- CHAPTER 8 EXAM QUESTIONS AND CORRECT ANSWERS LATEST UPDATE (RATED A+)
What are Imports? - Answers Goods and services purchased from other countries
What are Exports? - Answers Goods and services sold to other countries
What is Globalization? - Answers the phenomenon of growing economi...
What are Imports? - Answers Goods and services purchased from other countries
What are Exports? - Answers Goods and services sold to other countries
What is Globalization? - Answers the phenomenon of growing economic linkages among countries
The growth of international trade and other international linkages
What is the Ricardian model of international trade? - Answers analyzes international trade under the
assumption that opportunity costs are constant
It assumes that opportunity costs are constant
Shows that trade between two countries makes both countries better off than they would be if they
were in autarky-that is, there are gains from international trade
What is a Autarky? - Answers is a situation in which a country does not trade with other countries
What is Factor intensity? - Answers The factor intensity of production of a good is a measure of which
factor is used in relatively greater quantities than other factors in production
Goods differ in their factor intensity and countries tend to export goods that are intensive in the factors
that they have in abundance
Ex: oil refining is capital intensive because it requires a lot more capital than labor
Auto-seat production is labor intensive because it requires a lot more labor than capital
What is the Heckscher-Ohlin Model? - Answers a country has a good comparative advantage in a good
whose production is intensive in the factors that are abundantly available in that country
Ex: a country that has a lot of capital will have an advantage in capital intensive labor, while a country
that has a lot of labor will have a comparative advantage in labor intensive industries
Shows how comparative advantage can arise from differences in factor endowments: goods differ in
factor intensity, and countries tend to export goods that are intensive in the factors they have in
abundance
What is the Domestic demand curve? - Answers Shows the quantity demanded of a good at a given price
reflects the demand of consumers in that country
What is the domestic supply curve? - Answers shows how the quantity of a good supplied at a given
price by domestic producers depends on the price of that good
, reflects the supply of producers in that country
What is the world price? - Answers The World price of a good is the price at which that good can be
bought or sold abroad
When a market is open to international trade, the domestic price is driven to equal the world price
What are Exporting industries? - Answers produce goods and services that are sold abroad
What are Importing competing industries? - Answers produce goods and services that are also imported
What is free trade? - Answers An economy has free trade when the government does not attempt either
to reduce or to increase the levels of exports and imports that occur naturally as a result of supply and
demand
What is trade protection? - Answers Policies that limit imports (simply known as protection)
Many governments engage in trade protection of import-competing industries even though most
economists advocate for free trade
What is a tariff, and what does it do? - Answers a tax levied on imports
It raises the domestic price above the world price, leading to a fall in trade and domestic consumption,
and a rise in domestic production
It hurts consumers, and benefits domestic producers, and generates government revenue
As a result of a tariff, total surplus falls
Leads to deadweight loss
What is an import quota, and what does it do? - Answers is a legal limit on the quantity of a good that
can be imported
Has the same effects as a tariff(hurts consumers, benefits domestic producers), except that revenues-
the quota rents-accrue to the license-holder, not the domestic government
What are International trade agreements? - Answers treaties in which a country promises to engage in
less trade protection against the exports of other countries in return for a promise by other countries to
do the same for its own exports
Countries engage in international trade agreements to further trade liberalization
What is NAFTA? - Answers a trade agreement between the US, Canada, and Mexico
What is the European Union (EU)? - Answers a customs union among 27 European nations
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