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Chapter 16
International Trade and Foreign Exchange
31
Economics
12th Grade
11/18/2012

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Cards

Term
What is comparative advantage?
Definition
the ability to produce a product relatively more efficiently or at a lower opportunity cost
Term
What is absolute advantage?
Definition
when a country can produce more of a product than another country
Term
What is specialization?
Definition
when people produce things they do best and exchange those products for the things that other people do best
Term
What is a tariff?
Definition
tax placed on an imported good. tariffs and quotas are the main ways to restrict international trade. tariffs can protect jobs
Term
What is a revenue tariff?
Definition
a tariff placed on imported goods to raise revenue. If the tariff on imported mechanical pencils were 40 cents, the price of the imports would be 75 cents, or 25 cents less than the American made ones. As long asthe two products are identical, consumers would prefer the imported one because its iless expensive, so the tariff would raise revenue rather than protect domestic producers from foreign competition.
Term
What is a quota?
Definition
a limit placed on the quantities of a product that can be imported
Term
What is a dumping?
Definition
Term
What is the most favored nation clause?
Definition
trade law allowing anotehr country to enjoy the same tariff reductions the Untied STates negotiates with any third country
Term
What is the world trade organization?
Definition
international agency that administers trade agreements, settles trade disputes between governments, organizes trade negotiations, and provides technical assistance and training for developing countries
Term
What is the NAFTA?
Definition
North American Free Trade Agreement--an agreement to liberalize free trade by reducing tariffs among three major trading partners: Canada, mexico,and the US
Term
What is foreign exchange?
Definition
various currencies used to conduct international trade
Term
What is the key to trade?
Definition
specialization
Term
What is proof that interantional trade is beneficial?
Definition
the volume of international trade over time and all around the world
Term
The most frequent argument used to support trade barriers is that they ____.
Definition
protect domestic jobs
Term
A quota imposed on foregin cars imported into the USA will _____.
Definition
increase the price of domestic cars
Term
Foreign exchange is necessary in international trade because:____.
Definition
each country has its own monetary system and currency
Term
When a European importer wants to buy American made products, the importer _____.
Definition
buys dollars and drives the price of the dollar up
Term
If the US dollar depreciates relative to the world currencies, what will be the effect on US exports?
Definition
they will increase
Term
The index that shows the strength of American currency against a group of foreign currencies is the:_____.
Definition
trade weighted value of the dollar
Term
What is the price of one country currency described in terms of another country's currency called?
Definition
foreign exchange rate
Term
What is the system under which the price of one currency is fixed in terms of another?
Definition
fixed exchange rate
Term
What is a system under which forces of supply and demand establish the price of one country's currency in terms of another country's currency?
Definition
floating exchange rate
Term
Foreign currencies in international finance:____
Definition
foreign exchange
Term
What are the two types of tariffs?
Definition
protective tariff and revenue tariff
Term
What is a protective tariff?
Definition
a tariff that is high enough to protect less efficient domestic industries
Term
explain a revenue tariff.
Definition
if the price to make a mechanical pencil in the US is $1. and the price to import the same pencil is 35 cents. If the tariff on the imported pencil were forty cents, the new price would be 75 cents which is still 25 cents less than the american made one so people will choose to buy the imported one because it is less expensive so the tariff would raise revenue rather than protect domestic producers from foreign compeition
Term
What is the real purpose of a quota?
Definition
to protect domestic industries and the jobs in those industries
Term
What is a trade deficit?
Definition
whenever the value of a country's imports exceeds the value of the exports
Term
What is a trade surplus?
Definition
whenever the value of its exports exceed the value of its imports
Term
What happens when the dollar is strong?
Definition
foreign goods become less costly and american exports become more costly for the rest of the world
Term
What happens if the dollar is weak?
Definition
foregin goods become more expensive
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