Final Exam Review

1. Final Exam Review Unit 2: International Economics

2. 1. Explain the Law of Comparative Advantage A country is better off producing goods and services that they have a lower opportunity cost than other countries

3. 2. Explain what NAFTA is, what it stands for, and which nations are a part of it • North American Free Trade Agreement • No tariffs on trade between Canada, Mexico, and the United States • Imports and exports between the 3 countries have increased

4. 3. Explain what is happening when a trade surplus occurs Trade Surplus: When a nation exports more goods than it imports

5. 4. What is the European Union and how does it make trade in Europe easier? • The European Union is an economic group of European nations • Goal: to create a single continental free trade bloc among its members

6. 5. List the major trading partners of the United States • Canada • Mexico • Japan • China • European Union

7. 6. Define what a tariff is and explain why nations would have tariffs on certain goods • Tariff: tax on imported goods • Effect: less imported goods, less competition, and higher prices

8. 7. Explain the concept of balance of trade • Balance of trade: The relationship between a nation's imports and its exports • Can be positive, negative, or zero

9. 8. Explain what happens to the value of a currency appreciates and what happens when it depreciates • Appreciation: when the value of a currency increases • Depreciation: when the value of a currency decreases

10. 9. Explain the advantages of free trade deals. • Trade agreements allow for a greater variety of products to choose from • Greater competition • No tariffs leads to lower prices for consumers

11. 10. Explain the effects of trade barriers. • They reduce competition • They increase the price for goods • Inflation

12. 11. Explain why outsourcingof American jobs to other nations happens and its effects • Reason: cheaper labor and production costs • Effects: Loss of jobs in America It may result in lower prices