At current wages and prices firms are earning just

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Unformatted text preview: y is $10 an hour, and the market price for the good produced in the industry is $40. At current wages and prices, firms are earning just enough profit to continue in business. Now suppose government says that these firms have to pay a minimum of $12 an hour to their workers and that Defining Terms Critical Thinking 1. Define a. developed country b. less-developed country c. population growth rate 4. In country A, the government does not protect private property, taxes are high, and quotas and tariffs are imposed on imported goods. In country B, the government does protect private property, taxes are low, and free trade is practiced. In which country do you expect economic growth and development to be stronger? Explain your answer. Reviewing Facts and Concepts 2. Why might people in less-developed countries have more children than people in developed countries? 3. What are some of the benefits of free trade to a less-developed country? Applying Economic Concepts 5. In this section we defined a poor or less-developed country as a country with a low per capita GDP. Does it follow that the people in a country with a low per capita GDP are not as happy as the people in a country with a high per capita GDP? Explain your answer. Section 4 Economic Development 425 15 (390-427) EMC Chap 15 11/18/05 9:13 AM Page 426 Economics Vocabulary Chapter Summary Be sure you know and remember the following key points from the chapter sections. Section 1 Exports are goods that are produced in the domestic country and sold to residents of a foreign country. Imports are goods produced in foreign countries and purchased by residents of the domestic country. A country’s balance of trade is the difference between the value of its exports and imports. Countries specialize in production of goods in which they have comparative advantage. Section 2 Tariffs and quotas are the two major types of trade restrictions. A tariff is a tax on imports; a quota is a limit on the amount of a good that may be imported. Section 3 The exchange rate is the price of one nation’s currency in terms of another nation’s currency. Depreciation is a decrease in the value of one currency relative to other currencies. Appreciation is an increase in the value of one currency relative to other currencies, meaning it buys more of another currency. Section 4 A developed country is one with a relatively high GDP per capita; a less-developed country is one with a relatively low GDP or GNP per capita. Obstacles to economic development include rapid population growth, low savings rate, cultural beliefs, political instability and seizure of property, and high tax rates. Factors that aid development include free trade, low taxation, few restrictions on foreign investment or control on bank lending, absence of wage and price controls, easy business licensing procedures, and protection of private property. 426 Chapter 15 International Trade and Economic Development To reinforce your knowledge of the key terms in this chapter, fill in the following blanks on a separate piece of paper with the appropriate word or phrase. 1. A(n) ______ is a tax on imports. 2. A legal limit on the amount of a good that may be imported (into a country) is called a(n) ______. 3. Country A has a(n) ______ in the production of a good if it can produce the good at lower opportunity cost than country B. 4. The ______ is the difference between the value of exports and the value of imports. 5. ______ refers to the sale of goods abroad at prices below their costs and below the price charged in the domestic market. 6. ______ refers to the situation in which a country can produce more of a good than another country can produce with the same quantity of resources. 7. ______ refers to an increase in the value of one currency relative to other currencies. 8. If one dollar buys two pesos, it is called the ______ between dollars and pesos. 9. ______ refers to a decrease in the value of one currency relative to other currencies. 10. A ______ is a country with a low per capita GDP. 11. The birthrate minus the death rate equals the ______. Understanding the Main Ideas Write answers to the following questions to review the main ideas in this chapter. 1. If exchange rates under a flexible exchange rate system are determined by the forces of supply and demand, will an increase in the demand for pesos cause the peso to appreciate or depreciate? Explain your answer. 2. The United States can produce either combination A (100 units of food and 0 units of clothing) or combination B (80 units of food and 20 units of clothing). Japan can produce combination C (80 units of food and 0 units of clothing) 15 (390-427) EMC Chap 15 3. 4. 5. 6. 7. 8. 9. 10. 11. 11/18/05 9:14 AM Page 427 or combination D (75 units of food and 10 units of clothing). Which country has a comparative advantage in the production of food? Which country has a comparative advantage in the production of clothing? State the low-foreign-wages argument for trade restrictions. What does it mean to say that the United Stat...
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