When a Nation Is Economically Integrated with Trading Partners, Fixed

question 161

Multiple Choice

When a nation is economically integrated with trading partners, fixed exchange rates:

• A) would be very harmful to the dynamic nature of trade.
• B) could promote integration and economic efficiency by keeping transaction costs low.
• C) would be the best choice if that nation became the dominant nation in the transactions.
• D) would be adequate but have the disadvantage of discouraging trade because of uncertainty.

---

Definitions:

Price Floor

A minimum legal price set by the government at which a good or service can be sold, aiming to prevent prices from falling too low.

Consumer Surplus

The contrast between the intended financial outlay of consumers on a good or service and the payment they ultimately make.

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied.

Producer Surplus

The difference in earnings expected by producers for a good or service versus the actual payment received.