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Econ Unit 6
| Question | Answer |
|---|---|
| What is globalization? | The process by which businesses start operating on a global scale. |
| What is the opposite of globalization? | Economic isolationism. |
| List one advantage of globalization. | Lower production costs leading to lower costs for consumers. |
| What is a disadvantage of globalization? | Increased competition that can harm domestic companies. |
| How does trade improve utility for countries? | By gaining new resources and preserving existing ones. |
| Define absolute advantage. | A country's ability to produce more of a good or service using the same resources as another country. |
| Define comparative advantage. | A country's ability to produce a good at a lower opportunity cost than another country. |
| What is voluntary trade? | Trade that allows individuals to obtain goods and services they desire, leading to specialization. |
| What is specialization in trade? | Focused production of goods and services that individuals or countries are best suited to produce. |
| Give an example of a country with an absolute advantage in a product. | Saudi Arabia has an absolute advantage in producing oil. |
| Why should countries specialize in production? | To maximize efficiency and benefit from trade. |
| What is the significance of opportunity cost in determining comparative advantage? | It helps identify which country should produce which good based on lower costs. |
| Why does America outsource phone answering to India despite having an absolute advantage in technology? | Because the opportunity cost of producing technology is too high for America. |
| What happens when countries specialize in goods with the lowest opportunity cost? | They can trade for goods they cannot produce efficiently, increasing overall utility. |
| What was Babe Ruth's role in the context of specialization and trade? | He exemplified how a person can have absolute advantages in multiple areas but should specialize for efficiency. |
| How does specialization lead to greater variety of products? | It allows countries to focus on what they produce best, leading to more diverse offerings in the market. |
| What is the relationship between trade and competition? | Trade fosters competition, which can lead to better products and lower prices for consumers. |
| What is the benefit of an open-border trade policy? | It allows countries to utilize resources effectively and maximize profits through specialization. |
| What is the outcome of trade between Alaska and Brazil in the salmon and coffee example? | Alaska specializes in salmon and Brazil in coffee, leading to increased total production and mutual benefits. |
| What is the role of comparative advantage in international trade? | It guides countries to specialize in goods they can produce at a lower opportunity cost. |
| What is the opportunity cost for a country with an absolute advantage in everything? | They can still benefit from specializing in goods where they have a comparative advantage. |
| What is the effect of increased demand on natural resources due to globalization? | It can lead to environmental harm. |
| What is the significance of the Boston Red Sox's use of Babe Ruth in the context of trade? | It illustrates the importance of specialization and the potential loss of efficiency when not utilized. |
| How does trade contribute to world peace? | By fostering interdependence among nations, reducing the likelihood of conflict. |
| What is the impact of job insecurity due to globalization? | It can lead to concerns about outsourcing and the stability of domestic employment. |
| What does the term 'utility' refer to in economics? | The satisfaction or benefit derived from consuming goods and services. |
| What is comparative advantage? | The ability of a country to produce a good at a lower opportunity cost than another country. |
| What does opportunity cost represent in production? | The amount of one good that must be given up to produce another good. |
| What is a trade surplus? | A positive trade balance where a country exports more than it imports. |
| What is a trade deficit? | A negative trade balance where a country imports more than it exports. |
| What are tariffs? | Taxes on imported goods |
| What is a protective tariff? | A tax on imports designed to make foreign goods more expensive than domestic goods. |
| What is an embargo? | A complete ban on the import or export of particular goods to or from a specific country. |
| What is NAFTA? | North America Free Trade Agreement, an agreement among the U.S., Canada, and Mexico to increase free trade. |
| When was NAFTA signed into law? | December 8, 1993 |
| What impact did NAFTA have on U.S. exports to Mexico? | U.S. goods exported to Mexico increased from $51 billion to $152 billion. |
| What is the significance of trade organizations like NAFTA? | They eliminate trade barriers and increase investment opportunities among member countries. |
| What is the effect of trade on political power? | Countries that depend on each other for trade are less likely to engage in conflict. |
| What is the balance of trade? | The value of a nation's imports subtracted from the value of its exports. |
| What are import quotas? | Restrictions on the number of a good that can be brought into a country. |
| What is the role of trade restrictions? | To exert political power and protect domestic industries. |
| What was the trade relationship between the U.S. and Mexico before NAFTA? | Mexican tariffs on U.S. imports were 250% higher than U.S. tariffs on Mexican imports |
| What is outsourcing? | The practice of contracting with foreign companies to produce goods that will be sold by the domestic firm. |
| Why do companies outsource work? | To take advantage of lower labor costs in developing nations. |
| What is a sweatshop? | A factory where workers are employed at low wages for long hours and under poor working conditions. |
| What was the impact of NAFTA on U.S. jobs? | Between 1994 and 2002, the U.S. lost 1.7 million jobs, primarily in manufacturing. |
| Which U.S. states were most affected by job losses due to NAFTA? | California, New York, Michigan, and Texas. |
| What is the USMCA? | The USMCA is the trade agreement that replaced NAFTA in summer 2020. |
| What is the European Union (EU)? | An economic and political union of 27 member states located primarily in Europe. |
| What treaty established the European Union? | The Maastricht Treaty in 1993. |
| How does specialization affect standard of living? | It allows countries to trade efficiently, leading to economic growth and higher standards of living. |
| What are foreign exchange markets? | Markets that deal in buying and selling foreign currency for businesses that want to import goods. |
| What is an exchange rate? | The price of one nation's currency in relation to another nation's currency |
| What is a fixed exchange rate? | An exchange rate set by the government in relation to another nation's currency. |
| What is a flexible exchange rate? | An exchange rate based on supply and demand. |
| What happens when a currency appreciates? | It buys more of a foreign currency than it did previously, making imports cheaper. |
| What is depreciation of a currency? | A decrease in the value of a currency due to supply and demand. |
| How does currency appreciation affect trade? | It makes exports more expensive and imports cheaper, potentially increasing the trade deficit. |
| What is the relationship between currency depreciation and imports? | When a currency depreciates, imports become more expensive, potentially decreasing the trade deficit. |
| What is the significance of the European Central Bank? | It manages the monetary policy for the Eurozone, similar to the Federal Reserve in the U.S. |
| What does 'United in Diversity' refer to? | It is the motto of the European Union. |
| What is the impact of globalization on economies? | Countries become interconnected, meaning economic issues in one can affect others. |
| What is the role of currency in trade? | Currency acts as a medium of exchange, facilitating international trade. |
| What is the effect of a strong dollar on U.S. exports? | A strong dollar makes U.S. exports less expensive for foreign buyers. |
| What is the effect of a weak dollar on imports? | A weak dollar makes imports more expensive for U.S. consumers. |
| What was the average factory wage situation in Mexico compared to the U.S.? | Average factory wages in Mexico are significantly lower due to less stringent labor laws. |
| What is the significance of the Treaty of Lisbon? | It amended the constitutional basis of the EU and came into force in 2009. |
| How do exchange rates affect purchasing power? | Changes in exchange rates can increase or decrease the purchasing power of a currency. |
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