Chapter 18 - International Trade

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Chapter 16 - Answers to review questions

3.

Absolute advantage is the ability to produce more of a good or service than competitors using the same amount of resources

Comparative advantage is the ability to produce a good or service at a lower opportunity cost than other producers

What is meant by country specialising in production? Is it typical for countries to be completely specialised?

Specialization means a country produces only one good in which they have a comparative advantage and trades for the other goods it needs.

It is not typical for a country to completely specialise because 1. Not all goods involves increasing opportunity costs 2. the production of most goods involves increasing opportunity costs 3. Tastes for products differ 4. the talents of people and other resources within a country differ

7.

A tariff is a tax imposed by the government on imports

Winners = Domestic producers within the protected sector and the government

Losers = Domestic consumers in non-protected sectors and domestic producers in non-protected sectors

8. A quota is a numerical limit imposed by the government on the quantity of a good that can be imported

Winners = domestic producers, whoever holds the import license and the government

Losers = domestic consumers in non-protected sectors and domestic producers in non-protected sectors

11. Use of trade barriers to shield domestic companies and their workers from foreign competition.

Beneficiaries = protected domestic companies and their workers

Losers = domestic customers and domestic producers

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