Question

1. Define comparative advantage and describe its role in the specialization decision.

2. Summarize the benefits of free trade.

3. Define and explain how each of the following effects quantity and price.

            a. Tariff

            b. Quota

            c. Embargo

4. Identify the U.S. current balance of trade (surplus, balanced or deficit). _____________________

Explain its impact on the Macro-economy. (AD, real GDP, employment, and price level)

5.         Answer the following questions concerning exchange rates.

            a.         Define exchange rates.

b.         What determines the exchange rate between nations?

            c.         Identify what would cause exchange rates to rise/appreciate or fall/depreciate.

6. The following is explaining a weak [falling or depreciating] dollar.

                  Remember a weak dollar means the dollar buys less of the foreign currency.

Originally the $1 = 200 yen   Now the $1 = 100 yen

**Do the math to show how a weak dollar affects the price of a specific U.S. import and export.

A) A Japanese television that cost 40,000 Yen in Japan:

   At $1 = 200 yen

At $1 = 100 yen

B) A U.S. bushel of corn that cost $10 in the U.S.:

At $1 = 200 yen

At $1 = 100 yen

C) Explain what happens to the quantity of U.S. imports and exports:

D) Explain the effects on the U.S. economy (including real GDP and employment).

7. What is the Euro?

8. What are some of the economic benefits for those countries using the Euro?

9. What is the main economic cost [or what do they lose control over] for those countries using the Euro?

Answer 1

Answer 1 - The comparitive advantage can be described as the benefit to one country over the other in the production of a certain good with lesser amout of resources.

It assists in the decision making as the country should produce only that good , in which it has a lower opportunity cost in comparison to other country. It means that it will have to sacrifice lesser of other good to produce the good. It should produce the good in which the country has comparitive advantage.