Chapter 40.
1. What’s the difference between a trade deficit and a trade surplus? Does the United
States normally have a trade surplus or a trade deficit?When a country exports more
than it imports (i.e., the difference between exports and imports is positive), the country
is said to have a trade surplus.A trade deficit, which is also referred to as net exports, is
an economic condition that occurs when a country is importing more goods than it is
exporting. The U.S. has had a trade deficit since 1976.
2. Who is the United State’s most important trading partner? Canada
3. What is the difference between absolute advantage and comparative advantage? Which
one should we use in determining specialization? While absolute advantage indicates
which nation is best at producing a given good, comparative advantage is an indication
of which nation stands to lose the least by choosing to produce one good versus
another. Comparative advantage
4. What are the two main benefits of specialization and trade? More goods are produced
and prices are lower
5. What is a domestic price? What is a world price? How do these prices determine
whether a country imports or exports a good? ‘ The price at which a commodity trades
within a country, in contrast to the world price. For those commodities not benefitting
from some form of price support, the domestic price is determined by supply and
demand. The World price of a good is the price at which that good can be bought or sold
abroad
When a market is open to international trade, the domestic price is driven to equal the
world price
6.