Micro Exam

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  1. The theory of comparative advantage suggest that a
    country specialized in producing goods or services for which it has a lower opportunity cost
  2. Assume the United States can use a given amount of its resource to produce either 20 airplanes or 8 automobiles and Japan can employ the same amount of its resources to produce 20 airplanes or 10 automobiles the United States should specialize in what?
  3. A tariff is a
    tax on a import product
  4. the principal objective of the WTO is to
    reduce the level of all tariffs
  5. What are the arguements for protectionism?
    Infant Industry Argument, National Security, Employment Arguement, Cheap Foreign Labor Argument, Free Trade Agreement.
  6. Describe Infant Industry Argument in favor of protectionism
    new domestic industry in their forming stage and it is difficult for them to compete with competitors  the problem: is that infant and mature industry line is very arbitary or hard to define
  7. Describe National Security
    defense industries must be protected so the nation at war will not depend on foreigners essential goods, the problem: the government has stock piles of most goods needed when their at war.
  8. Employment Argument
    restricting imports increasing domestic jobs in protected inudstries, the problem: higher prices reduces competition loss of imports jobs and ignores that US workers tend to be more productive because of human capital
  9. Cheap foreign labor
    U.S Cannot compete with unfair lower wages in other countries
  10. Free Trade Agreement
    Nations negotiate reduction of trade barriers
  11. the account that records a nations foreign economic transactions is called
    balance of payments
  12. Expenditures for services such as tourism income for foreign investment and foreign gifts are tabulated in the
    Current Account
  13. Suppose a German bank purchases a treasury bond from the US this transaction is recorded
    Capital Account
  14. A country that has a lower opportunity cost for producing a good
    has a comparative advantage
  15. if one country  can produce a good with fewer resources than another country
    absolute advantage
  16. one big difference between tariffs and quotas is that tariffs
    generate tax revenues while quotas do not
  17. what is not included in the current account
    U.S capital inflow and outflow
  18. the main explanation of why the cheap foreign labor arguement is poor reasoning for restricting international trade is
    workers who get paid less tend to have lower productivity than those who get paid more
  19. why is it important to specialize in trade
    more choices goods ad services choices are lower costs, purchase or consumers more lifts the quality of life lifts standard of living world consumptions increase total output.
  20. who are the US largest trading partners
    Canada, China, Mexico Japan
  21. Embargo
    a law prohibits trade with another country
  22. Quota
    a limit on the quantity of a good that may be imported in a given time period calendar year
  23. when was the GATT established and it became what
    in 1947 General Agreement on Tariffs and trade then in 1995 became WTO world trade organization
  24. When did the WTO first resolve a conflict
    in 2002 President Bush and steel imports to protect jobs, US steel industry against foreign compettionthe WTO favored Europe and Asia allowed retaliation and targeted FL GA and SC
  25. Examples of Free Trade
    NAFTA purpose was to link Canada and Mexico economies without any restrictions expired in 15 years 

    • APEC
    • CAFTA 
  26. Balance of Payment
    a book keeping record all internation transactions between country other countries during a given time
  27. Current Account/ Capital Account
    Current: lists all exports and imports and services charges of transactions U.s will always have a trade deficit

    Capital, inflows of investmens foreigners investment payment flows, stock, treasury
  28. Explain Exchange Rate
    The number of units of one nation's currency that equals one unit of another nation's currency
  29. The Supply and Demand for Dollars
  30. If U.S exports are less popular--> leads to a decrease in the demand for dollars
    Leads to value of the dollar falls
  31. If the Japanse exports are less popular--> leads to a decrease in the demand for dollars
    Leads to the value of the dollar falls
  32. Define depreciation of currency?
    a fall in the price of one currency relative to another
  33. Define Appreciation of currency?
    a rise in the price of one currency relative to another
  34. What can we conclude about the depreciation of the dollar?
    U.S goods and services cost foreign consumers less, so they buy more U.S exports, at the same time, a weak dollar means foreign goods and services cost U.S consumers more so they buy fewer imports
  35. What can we conclude about the appreciation of the dollar?
    U.S good and services cost foreign consumers more, so they buy fewer U.S exprts. At the same time a strong dollar means foreign goods and services cost U.S consumers less, so they buy more foreign imports
  36. What are the 3 basic types of Economies?
    Traditional, Command, Market
  37. Define a Traditional Economy?
    An economic system that answers the how, what, whom, as it always has been answered traditionally.
  38. What are the strengthens and the weaknesses of the Traditional Economy?
    • Strengthens: little or no friction no disput
    • Weaknesses: Restricts individual initiative creativity inovation. lacks the advanced goods
  39. Describe the Economic System?
    organization and methods used to determine what goods and services are produced, how they are produced for whom and what is produced
  40. Describe the Command Economy?
    an economic system that answers the what, how, and for whom questions by a dictator or central authority.
  41. What are the strengthens and weaknesses of the Command Economy?
    • Strengthens: change economic quickly, government provides economic security and equity
    • Weakness: power to be absolutely wrong, quality and variety of goods suffer
  42. Define a Market Economy: Free Enterprise System also known as Capitalistic?
    Answers the how, whom, and what using prices determined by intraction of supply and demand.
  43. What is the advantage provided by the Market Economy?
    Provides wide varieties of goods at lower cost
  44. What critiscims of Market Economy?
    • -lack of competition
    • -externalities
    • -public goods
    • -income inequality
  45. In the real-world, do we have a single pure economic system?
    No, the closest country to a pure economic system is Hong Kong.
  46. Describe a Mix Economy system?
    the answered questions what, how, whom mixes traditional, command and market system.
  47. Who wrote the Wealth of Nations?
    Adam Smith wrote it in 1776
  48. Adam Smith believed in laissez faire, describe this concept?
    He believed that the government should not intervein, the market should be left alone. And the market is self regulating and their is no need for the government.
  49. Describe what Adam Smith meant about "an invisible hand"
    He explains that the market is like an invisible hand individual that competes in the market and pursues interest of society
  50. What is the advantage of a market economy?
    •It provides a wide variety of goods and services that buyers and sellers exchange at the lowest prices
  51. What are criticisms of a marketeconomy?
    •lack of competition•externalities•public goods•income inequality
  52. What is a mixed economy?
    •An economic system that answers the basic questions through a mixture of traditional, command, and market systems
  53. What is capitalism?
    •An economic system characterized by private ownership of resources and markets. Also called the free enterprise system.
  54. What is consumer sovereignty?
    •The freedom of consumers to cast their dollar votes to buy, or not to buy, at prices determined in competitive markets
  55. What is socialism?
    •An economic system characterized by government ownership of resources and centralized decision making
  56. Who was Karl Marx?
    His criticism of capitalism advanced the theory of communism
  57. What two books did  Karl Marx write?
    •The Communist Manifesto, 1848•Das Kapital, 1867-1885
  58. What is communism?
    •A stateless, classless economic system in which the factors of production are owned by the workers, and people share production according to their needs
  59. What are characteristics ofsocialism?
    public ownership and centralization
  60. What are the strengths and weakness we of socialism?
    • Strengthens: •an equitable distribution of income•rapid growth is possible•no unemployment
    • Weaknesses: •inefficiencies•Discourages the profit motive and stifles economic growth
  61. An economic system is the organizations and methods used to determine what?
    how, what, for whom are goods and services going to be produced
  62. In a command economy, the basic economic questions are answered by
    central authority
  63. Adam Smith was an advocate of
    unrestricted or free trade
  64. In Adam Smith's competitive market economy the question of what goods to produce is determined by the
    invisible hand of the price system..
  65. Adam Smith wrote the
    pursuit of private self interest promotes the publich interest in a market economy
  66. What is a criticism of capitalism
    unequal distribution of income, failure to protect the environment, exploitation of workers
  67. What is a strength of a command based economic system?
    Good can be allocated based on need rather than willingness and ability to pay
  68. The term socialism refers to what?
    An economic system characterized by government ownership of resources and centralized allocation
  69. Karl Marx was a
    19th century German philosopher
  70. In Marx ideal communist society the state
    does not exist
  71. Which nation achieved the ideal communist society  as described by Marx
    No nation  has achieved Marx vision of communist society
Card Set:
Micro Exam
2013-12-11 02:36:24
Final Exam

Tucker 8th Ed.
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