International Economics: Trade, Exchange Rates, and Balance of Payments

Why do people trade?

People trade to obtain goods and services they do not produce themselves.

What is trade?

Trade is the exchange of goods or services between parties, increasing the amount and variety of goods available.

Why do nations trade?

Nations trade to acquire goods and services they lack and to utilize resources or skills they possess.

What is absolute advantage?

Absolute advantage is the ability of a nation to produce more of a product than another nation or to produce it using fewer resources.

What is comparative advantage?

Comparative advantage is the ability of a country to produce a good at a lower opportunity cost than another country.

When should a nation trade?

A nation should trade when it has a comparative advantage in producing certain goods.

What is a trade surplus?

A trade surplus occurs when a nation exports more than it imports.

What is a trade deficit?

A trade deficit occurs when a nation imports more than it exports.

What is the balance of trade?

The balance of trade is the relationship between a nation's imports and exports.

Who are the main trading partners of the United States?

The main trading partners of the United States are Canada, Mexico, and Japan.

What is an exchange rate?

An exchange rate is the price of one nation's currency in terms of another currency.

What is currency appreciation?

Currency appreciation is an increase in a currency's value relative to another currency.

What is currency depreciation?

Currency depreciation is a decrease in a currency's value relative to another currency.

What happens when a currency appreciates?

When a currency appreciates, foreign goods become cheaper, imports increase, and exports decrease.

What happens when a currency depreciates?

When a currency depreciates, domestic goods become cheaper, imports decrease, and exports increase.

What are the effects of a strong dollar?

A strong dollar leads to declining American exports, increased imports, and cheaper travel abroad.

What are the effects of a weak dollar?

A weak dollar results in rising American exports, decreased imports, and more expensive travel abroad.

What is the significance of the U.S. being the largest exporter?

The U.S. being the largest exporter indicates its significant role in global trade.

What is the significance of the U.S. being the largest importer?

The U.S. being the largest importer shows its high demand for foreign goods and services.

What is the opportunity cost of producing cakes for Sean?

Sean gives up the opportunity to produce 15 cookies for each cake produced.

What is the opportunity cost of producing cakes for Sara?

Sara gives up the opportunity to produce 30 cookies for each cake produced.

Who has the comparative advantage in producing cakes, Sean or Sara?

Sean has the comparative advantage in producing cakes because he gives up fewer cookies.

What is the practice question regarding trade deficit?

When a nation imports more than it exports, economists say it has a trade deficit.

What is the practice question regarding trade surplus?

When a nation exports more than it imports, economists say it has a trade surplus.