Global Economy, Development, and Trade – Lecture Review

These 30 question-and-answer flashcards review key topics from the lecture, including measures of development, macroeconomic goals, differences in economic systems, and the principles of international trade such as absolute and comparative advantage.

What do factors like health, education, human rights, crime, personal safety, and environmental cleanliness primarily affect in a nation?

They have a large impact on the country’s standard of living.

A country is classified as high-income when its GDP per capita exceeds approximately what amount?

About $12,475 (in U.S. dollars).

Which agreement among the United States, Canada, and Mexico is a well-known example of reducing trade barriers through free trade?

NAFTA – the North American Free Trade Agreement.

When indicators such as health and illiteracy are added to GDP comparisons, what usually becomes evident?

Very wide differences in the standard of living across countries and regions.

Policies that raise human capital and use existing technology to connect to world markets are typically growth strategies for which group of nations?

Converging (middle-income) nations.

What is a key criticism of relying solely on per capita GDP to compare countries?

It fails to capture the precise standard of living and the diversity of national economies.

Roughly what share of the world’s population lives in high-income economies, and how much of world GDP do they produce and consume?

About 12–14% of the population, yet more than 60–70% of world GDP.

Compared with the United States, unemployment rates in European nations have generally been .

Higher.

Growth in standard of living, low unemployment, low inflation, and a sustainable balance of trade are collectively known as what?

The main universal goals of macroeconomic policy.

How do the United States, Cuba, and Canada differ in economic institutions?

The U.S. is highly market-oriented, Cuba has a command economy, and Canada has a mixture of both.

Improvements in human capital, physical capital, and technology interacting in a market-driven economy lead to what economic result?

Productivity improvements.

What fundamental similarity exists across the more than 200 national economies of the world?

Each has its own distinctive characteristics.

The coexistence of open trading nations with those using tariffs and quotas illustrates what?

Differences in economic institutions among nations.

Why do nations trade according to basic economic reasoning?

Because no single country can produce all of the goods and services its citizens want.

What principle states that a country should specialize in producing goods for which it has the lowest opportunity cost?

Comparative advantage.

What term describes the phenomenon where increasing output lowers average cost of production (up to a point)?

Economies of scale.

What determines the slope of the production possibility frontier (PPF)?

The opportunity cost of producing one good in terms of the other.

According to the theory of comparative advantage, gains from trade arise from producing at a lower .

Opportunity cost.

Why does trade benefit both sides of a trading arrangement?

Because of specialization based on comparative advantage and lower opportunity costs.

If a nation has a comparative disadvantage in making a product, how can it still benefit?

By importing that product at a lower opportunity cost than producing it domestically.

When one nation can produce a good at lower absolute cost than another, it is said to have what?

An absolute advantage in that product.

International trade theory suggests a country should import goods in which it has a .

Comparative disadvantage.

Colombia uses less land and labor than any other country to grow coffee. What advantage does this illustrate?

An absolute (and likely a comparative) advantage in coffee production.

What is the most important factor in efficiently allocating world production according to economists?

Comparative advantage.

If producing a pair of pants costs the USA five bushels of wheat but costs China two, which country has the comparative advantage in pants?

China, because it sacrifices fewer bushels of wheat (lower opportunity cost).

The core reason both sides gain from trade is rooted in the concept of .

Opportunity cost (and specialization where opportunity costs are lowest).

High-income economies are typically characterized by what three features?

High GDP per capita, advanced technology, and market-oriented institutions.

Low- and middle-income countries often pursue growth by doing what two things?

Increasing human capital and adopting existing technologies from leader nations.

When economists compare per capita GDP across regions, they admit most comparisons are what?

Admittedly rough and incomplete.

Differences in unemployment and inflation rates around the world highlight what overarching theme?

The diversity of economic institutions and policy choices among nations.