Key+Questions!

=Chapter 18=

Section 1

 * 1) Define the following terms: absolute advantage, comparative advantage
 * 2) Hoes does specialization encourage international trade?
 * 3) Why might policy makers choose to concentrate on absolute advantage when making economic choices?
 * 4) Why might policy makers choose to pursue a comparative advantage rather than an absolute advantage?

Section 2

 * 1) Define the following terms: foreign exchange market, foreign exchange rate, adjustable-peg system, devaluation, appreciation, floating exchange rate, balance of payments, balance of trade, trade surplus, trade deficit.
 * 2) Contrast adjustable-peg exchange rates with floating exchange rates, and explain why exchange rates are an important factor in international trade.
 * 3) When determining the balance of payments, what is the purpose of the current account? the capital account?

Section 3

 * 1) Define the following terms: trade barrier, revenue tariff, protective tariff, import quota, voluntary trade restriction, embargo, free trade, protectionism.
 * 2) How might a nation hope to benefit from trade barriers? What are the opportunity costs of trade barriers?
 * 3) Hhow do protectionists support their belief that nations should use trade barriers?
 * 4) What evidence supports the claim that free trade is neccessary for economic strength?

Overall Questions

 * 1) Why might a nation practice specialization?
 * 2) Explain the difference between absolute advantage and comparative advantage.
 * 3) Why was the adjustable-peg system replaced by the floating exchange system to determine foreig exchange rates?
 * 4) What effect does currency depreciation have on a nation's exports and imports?
 * 5) What are the three types of trade barriers? Explain how each works to restrict international trade.
 * 6) List three specific examples of trade cooperation among nations.