The economic reasoning dictating that each nation specialize in the production of goods that it produces relatively more efficiently than other nations and import those goods that are produced relatively more efficiently by other nations is called the doctrine of:
Answer(s): D
The doctrine of comparative advantage relates to comparative costs within one country. It holds that a country should produce those products in which it has a comparative advantage, not necessarily those products in which it has an absolute advantage. The doctrine suggests that a country should produce those products for which the greatest efficiencies are attainable even if it could also produce other goods more efficiently than another nation. In the long run, importing a product in which a country has an absolute advantage but not a comparative advantage will result in an overall increase in global production.
What is the economic term used to describe the situation in which each nation specializes in the production of goods that it produces relatively more efficiently than other nations and imports those goods that are produced relatively more efficiently by other nations?
The relevant concept is comparative advantage, which compares the costs of inputs within a single country_ In contrast, the concept of absolute advantage with respect of inputs between countries. It is possible that a country might have an absolute advantage, with respect to every product, but comparative. advantage is different from absolute advantage. A particular nation can have a comparative advantage even though it does not have an absolute advantage. For example assume that Country A can produce Item for US $100 and Item Y for US $200 and that Country B earl produce Item X for US $50 and Item Y for US $150. B has an absolute advantage in the production of both procedures however, B has a comparative advantage in producing Item X 50 100, or 50% of the A cost compared with 150 200, or 75% of the A cost for Item Y)_ A has a comparative advantage in producing Item Y 200 150. or 133% of the B cost, versus 100 50, or 200% for Item X). A nation will benefit by exporting goods in which it has a comparative advantage and importing goods in which it does not have a comparative advantage. Total output will be maximized when each nation specializes in the products in which it has the greatest comparative advantage or the least comparative disadvantage.
If the value of the U.S. dollar in foreign currency markets changes from US $1 = .95 euros to US $1 = .90 euros.
Answer(s): B
The dollar has declined in value relative to the euro_ If an American had previously wished to purchase a European product that was priced at 10 euros, the price would have been about US $10.53. After the dollar's decline in value, the price of the item has increased to about US $11.11. Hence, imports from Europe should do-i --se and exports increase.
Exchange rates are determined by:
Answer(s): C
Although currencies can be supported by various means for short periods, the primary determinant of exchange, rates is the supply of and demand for the various currencies. Under current international agreements, exchange rates are allowed to "float_" During periods of extreme fluctuations, however, governments and control banks may intervene to maintain stability in the market.
Two countries have flexible e change rate systems and an active trading relationship. If incomes <List A> in country 1, everything else being equal, then the currency of country 1 will tend to <List B> relative to the currency of country 2.
If incomes in country 1 rise, consumers in country 1 will increase their imports from country 2. The resulting increase in the supply of currency 1 will result in a tendency for it to depreciate relative to the currency of country 2.
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