Questions

Explain the difference between Absolute Advantage and Comparative Advantage

- Absolute Advantage states that when a country is able to produce a variety of goods cheaper than other countries, they will focus on producing on those products w/ the LOWEST PRODUCTION COST;

While Comparative Advantage occurs when a country doesn not have an Absolute Advantage in the production of goods/services (meaning they don't produce any goods cheaper than anyone), so they will produce the good w/ the LOWEST OPPORTUNIT COST when compared to other countries with the same resources.

Why would countries restrict their trade?

(BTUT)

1. Balace of payments problems
2. To protect Newl local industries
3. Unfair competition from low wage countries
4. To prevent dumping (from other countries)

What causes a Balance of Payment deficit?

1. An increase in imports/ decrease in exports
2. Overspending by the gov't on foreign products
3. Increast cost of capital goods (tech)

What should be done w/ a Balance of Payment surplus?

1. Increase the nation's foreign currency reserves
2. Pay of national/local debt
3. Make loans to other countries
4. Implement gov't projects
5. Purchase foreign investments/ shares of other countries

What are some temporary solutions for Balance of Payment deficit?

1. Borrow from IMF
2. Obtain loans from abroad
3. Take money from their official gold/foreign currency reserves
4. Selling of foreign assets

What are problems faced by exporters?

1. Language
2. Product Acceptability
3. Import regulations
4. Transit Risk
5. Arranging Transportation
6. Foreign Currency