1. International economics
EOC Review #4
International economics

2. Absolute Advantage
Producing more of a good than another country

3. Comparative Advantage
When a country can produce a good at a lower opportunity cost than another nation

4. Trade
Balance of Trade – difference between a country imports and exports
More exports – trade surplus
More imports – trade deficit
Balance of Payments – includes balance of trade, but also includes financial transactions from one country to another
Example: a British company buys a U.S. company

5. Trade Policies
Free Trade – trade between two country without trade barriers
Protectionism – creating trade barriers to protect your country from foreign competition
Arguments for free trade: lower prices for consumers, more choices, international cooperation
Arguments against free trade: job losses to outsourcing, trade deficits

6. Trade Barriers Tariff – tax on imports
Quotas – limit on amount of imports
Embargo – ban on some or all imports from a country
Standards – only allowing imports that meet a certain quality
Subsidies – giving money to domestic companies to allow them to undercut foreign sellers

7. Exchange Rate
The value of one country’s currency in terms of another country
If the U.S. dollar increases in value:
U.S. goods will become more expensive – hurts U.S. exporters
Foreign goods will become cheaper – helps U.S. consumers, tourists
If the U.S. dollar decreases in value:
U.S. goods will become cheaper – helps U.S. exporters
Foreign goods will become more expensive – hurts U.S. consumers, tourists

8. Trade Agreements NAFTA North American Free Trade Agreement
formed in 1994 between U.S.A., Mexico and Canada
Free trade and reduction in trade barriers

9. European Union Formed in 1993, mostly Western Europe
Expanded after the fall of communism
Common currency (Euro) and open borders

10. ASEAN Association of Southeast Asia Nations 10 smaller Asian countries
Promote trade

11. OPEC Organization of Petroleum Exporting Countries
Cartel of oil-rich nations (not US)
Limit supply, raise price

12. Question 14
If the U.S. government disagrees with a foreign country’s politics and wants to prevent trading with that country, the MOST effective action the U.S. government can take is to
place high tariffs on all goods from that country.
place an embargo on all goods from that country.
enforce safety standards on all goods from that country.
enforce a quota on all goods shipped from that country.

13. The correct answer is B. While tariffs, quotas and standards would eliminate trade, only an embargo will come close to preventing trade as the question asked.

14. Question 15 Which definition BEST describes the term balance of trade?
the difference between a country’s exchange rate and the value of a country’s imports
the value of a country’s goods and services that are exported divided by its per capita income
the difference between the yearly value of a country’s exports and the yearly value of goods it produces
the value of a country’s exported goods and services minus the value of goods and services a country imports

15. The correct answer is D. The Balance of trade is imports minus exports.

16. What is the MOST LIKELY result of an increase in the value of the U. S
What is the MOST LIKELY result of an increase in the value of the U.S. dollar against the Chinese currency?
U.S. workers in the United States would benefit.
Chinese importers of U.S. goods would benefit.
U.S. consumers of Chinese goods would benefit.
Chinese consumers of Chinese goods would benefit.

17. The correct answer is C, a stronger dollar means Chinese goods will become relatively cheaper to U.S. consumers. While some U.S. workers will benefit – in that they are also consumers – U.S. workers will be hurt because some jobs will be lost to the Chinese market.