ECON 201 Chapter 17 Notes
ECON 201 Chapter 17 Notes ECON 201
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This 2 page Class Notes was uploaded by Marlinda Chism on Thursday February 4, 2016. The Class Notes belongs to ECON 201 at University of Tennessee - Knoxville taught by K. Sims in Spring 2016. Since its upload, it has received 18 views. For similar materials see Macroeconomics in Economcs at University of Tennessee - Knoxville.
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Date Created: 02/04/16
Chapter 17 Notes Objectives Summarize U.S. trade patterns. Explain how trade increases total output. Tell how the terms of trade are established. Discuss how trade barriers affect market outcomes. Describe how currency exchange rates affect trade flows. Vocabulary Imports – Goods and services purchased from foreign sources. Exports – Goods and services sold to foreign buyers. Trade deficit – The amount by which the value of imports exceeds the value of exports in a given time period. (negative trade balance) Trade surplus – The amount by which the value of exports exceeds the value of imports in a given time period. Production possibilities – The alternative combinations of goods and services that could be produced in a given time period with all available resources and technology. Consumption possibilities – The alternative combinations of goods and services that a country could consume in a given time period. Comparative advantage – The ability of a country to produce a specific good at a lower opportunity cost than its trading partners. Absolute advantage – The ability of a country to produce a specific good with fewer resources (per unit of output) than other countries. Terms of trade – The rate at which goods are exchanged; the amount of good A given up for good B in trade. Tariff – A tax (duty) imposed on imported goods. They reduced the flow of imports by raising import prices. Quota – A limit on the quantity of a good that may be imported in a given time period. Equilibrium price – The price at which the quantity of a good demanded in a given time period equals the quantity supplied. Key Concepts Why trade in the first place when the U.S. is capable of producing the same things they import? Specialization increases total output. In the absence of trade, a country cannot consume more that it produces. With trade, a country’s consumption possibilities exceed its production possibilities. IGNORE FIXED COSTS AND ABSOLUTE FIGURES. They don’t actually matter. You need to be able to recognize the trend of an economical graph, not numerical figures. A country will not trade unless the terms of trade are superior to domestic opportunity costs. (In other words, the U.S. will not participate in trade unless there is a benefit) A tariff on imported goods makes them more expensive to domestic consumers, and thus less competitive with domestically produced goods.
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