Econ 200 Final

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13 Terms

1
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Explain the roots of comparative advantage

Firms produce goods and services in which they have a comparative advantage by responding to input and output prices and choosing to produce the good that earns the highest profits

2
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What are the characteristics that affect the costs of production?

Technology, factor endowment, and natural resources and climate

3
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Autarky

an economy that is self-contained and doesn’t engage in trade with outsiders. the economy neither exports nor imports goods

<p>an economy that is self-contained and doesn’t engage in trade with outsiders. the economy neither exports nor imports goods</p>
4
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Imports

Goods or services produced elsewhere, consumed domestically

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Exports

Goods or services consumed elsewhere, produced domestically

6
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What happens if the world price is less than the autarkic domestic price?

domestic price decreases to equal world price, and excess demand occurs in the domestic market.

<p>domestic price decreases to equal world price, and excess demand occurs in the domestic market.</p>
7
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When domestic price is greater than world price what happens?

producers export their goods and services

<p>producers export their goods and services </p>
8
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What happens if the world price is greater than the domestic price?

domestic price increases to equal the world price, and excess supply occurs in the domestic market

<p>domestic price increases to equal the world price, and excess supply occurs in the domestic market </p>
9
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Why isn’t there complete specialization?

In the real world, products are not generally produced by one nation due to several reasons:

  • not everything can be traded internationally

  • production of many goods involves increasing opportunity cost, so small amounts of production are likely to take place in several countries

  • tastes for products differ, so countries might have comparative advantages in different sub-types of products

  • trade agreements between countries

  • differences in the natural resources, climate, and relative endowments of different areas

10
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Tariff

tax targeted at certain imports, the purpose is to reduce the quantity of imports to protect domestic producers

11
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What are the two effects tariffs impose?

increases the world price for domestic consumers, and decreases the amount of shortage made up by imports

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Quota

a limit on the amount of a particular good that can be imported

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Quota rents

the additional revenue earned by those who are allowed to import goods