Question 1

A nation's comparative advantage in the production of an item is determined by:

Accepted Answer

A) which country has already specialized in the production of the item. 
B) the total and marginal costs of producing the item. 
C) the opportunity cost of producing the item relative to a trading partner's opportunity cost. 
D) wage rates and other input costs. 
A) which country has already specialized in the production of the item. 
B) the total and marginal costs of producing the item. 
C) the opportunity cost of producing the item relative to a trading partner's opportunity cost. 
D) wage rates and other input costs.

Question 2

Specialization according to comparative advantage means that a country is producing the goods:

Accepted Answer

A) that it wants to consume. 
B) for which it has a relatively high opportunity cost. 
C) for which it has a relatively low opportunity cost. 
D) that it can produce at zero cost. 
A) that it wants to consume. 
B) for which it has a relatively high opportunity cost. 
C) for which it has a relatively low opportunity cost. 
D) that it can produce at zero cost.

Question 3

The price of an acre of land in rural Nevada is a few hundred dollars.The price of an acre of land in downtown New York is many millions of dollars.How does the law of one price explain this difference?

Accepted Answer

A) It cannot; there are unexplainable exceptions to the law of one price. 
B) It suggests that in the long run price of land will be equalized regardless of location. 
C) The law of one price depends on the mobility of resources, but location by its very nature cannot be mobile. 
D) The law of one price applies only to resources involved in international trade. 
A) It cannot; there are unexplainable exceptions to the law of one price. 
B) It suggests that in the long run price of land will be equalized regardless of location. 
C) The law of one price depends on the mobility of resources, but location by its very nature cannot be mobile. 
D) The law of one price applies only to resources involved in international trade.

Question 4

At one time, most of the cars produced in Mexico were sold in Mexico.Today, however, Mexico both exports and imports cars.How can comparative advantage explain these data?

Accepted Answer

A) It cannot; comparative advantage predicts that a country either exports a product or imports it, not both. 
B) The pattern is not due to comparative advantage but to government restrictions on production. 
C) Mexico has a comparative disadvantage in automobiles. 
D) Mexico specializes in the production of high-end cars, which it exports, and imports low-end cars that can be produced at lower cost elsewhere. 
A) It cannot; comparative advantage predicts that a country either exports a product or imports it, not both. 
B) The pattern is not due to comparative advantage but to government restrictions on production. 
C) Mexico has a comparative disadvantage in automobiles. 
D) Mexico specializes in the production of high-end cars, which it exports, and imports low-end cars that can be produced at lower cost elsewhere.

Question 5

Transferable comparative advantages are:

Accepted Answer

A) based on factors that are relatively unchangeable. 
B) based on factors that can change relatively easily. 
C) becoming more like inherent comparative advantages with technological innovations. 
D) rarely eroded over time. 
A) based on factors that are relatively unchangeable. 
B) based on factors that can change relatively easily. 
C) becoming more like inherent comparative advantages with technological innovations. 
D) rarely eroded over time.

Question 6

If Americans demand goods produced in Mexico, it leads to a demand for Mexican pesos and a supply of U.S.dollars on the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 7

If 1 Canadian dollar costs 0.60 U.S.dollar, 1 U.S.dollar costs:

Accepted Answer

A) 0.40 Canadian dollar. 
B) 0.60 Canadian dollar. 
C) 1.40 Canadian dollars. 
D) 1.67 Canadian dollars. 
A) 0.40 Canadian dollar. 
B) 0.60 Canadian dollar. 
C) 1.40 Canadian dollars. 
D) 1.67 Canadian dollars.

Question 8

The supply of euros on the foreign exchange market slopes:

Accepted Answer

A) upward because European consumers buy fewer foreign goods when the value of the euro decreases. 
B) upward because European consumers buy more foreign goods when the value of the euro decreases. 
C) downward because European consumers buy fewer foreign goods when the value of the euro decreases. 
D) downward because European consumers buy more foreign goods when the value of the euro decreases. 
A) upward because European consumers buy fewer foreign goods when the value of the euro decreases. 
B) upward because European consumers buy more foreign goods when the value of the euro decreases. 
C) downward because European consumers buy fewer foreign goods when the value of the euro decreases. 
D) downward because European consumers buy more foreign goods when the value of the euro decreases.

Question 9

Refer to the table shown.   Botswana's opportunity cost of producing nickel (in terms of gold) is:

Accepted Answer

A) 3/5. 
B) 5/3. 
C) 60. 
D) 100. 
A) 3/5. 
B) 5/3. 
C) 60. 
D) 100.

Question 10

Economic models take into account the effect of trade on the distribution of income.

Accepted Answer

A) True 
 B)False

Question 11

The loss of jobs due to international trade is often:

Accepted Answer

A) more visible than the decline in consumer prices due to international trade. 
B) less visible than the decline in prices due to international trade. 
C) greater than the benefit of trade in the form of decline in prices. 
D) spread across all sectors while decline in prices is concentrated in one sector. 
A) more visible than the decline in consumer prices due to international trade. 
B) less visible than the decline in prices due to international trade. 
C) greater than the benefit of trade in the form of decline in prices. 
D) spread across all sectors while decline in prices is concentrated in one sector.

Question 12

A currency has depreciated in value if it takes more of a foreign currency to buy it.

Accepted Answer

A) True 
 B)False

Question 13

Globalization represents:

Accepted Answer

A) a return to isolationism. 
B) the opposite of isolationism. 
C) the economic complement of political isolationism. 
D) the political complement of economic isolationism. 
A) a return to isolationism. 
B) the opposite of isolationism. 
C) the economic complement of political isolationism. 
D) the political complement of economic isolationism.

Question 14

The demand for euros on foreign exchange markets slopes:

Accepted Answer

A) upward because foreign consumers buy fewer European goods when the value of the euro increases. 
B) upward because foreign consumers buy more European goods when the value of the euro increases. 
C) downward because foreign consumers buy fewer European goods when the value of the euro increases. 
D) downward because foreign consumers buy more European goods when the value of the euro increases. 
A) upward because foreign consumers buy fewer European goods when the value of the euro increases. 
B) upward because foreign consumers buy more European goods when the value of the euro increases. 
C) downward because foreign consumers buy fewer European goods when the value of the euro increases. 
D) downward because foreign consumers buy more European goods when the value of the euro increases.

Question 15

In considering the distribution of the gains from trade:

Accepted Answer

A) Smaller countries usually get a larger proportion of the gains from trade. 
B) Larger countries usually get a larger proportion of the gains from trade. 
C) The gains are generally split equally between small and large countries. 
D) No statement can be made about the general nature of the split. 
A) Smaller countries usually get a larger proportion of the gains from trade. 
B) Larger countries usually get a larger proportion of the gains from trade. 
C) The gains are generally split equally between small and large countries. 
D) No statement can be made about the general nature of the split.

Question 16

Assume that in Canada the opportunity cost of producing one television set is two bushels of wheat.Assume that in the United States the opportunity cost of producing one bushel of wheat is two television sets.If these two countries specialize according to comparative advantage and then trade with each other:

Accepted Answer

A) Canada will import both televisions and wheat. 
B) Canada will import wheat and export televisions. 
C) the United States will import wheat and export televisions. 
D) the United States will import both televisions and wheat. 
A) Canada will import both televisions and wheat. 
B) Canada will import wheat and export televisions. 
C) the United States will import wheat and export televisions. 
D) the United States will import both televisions and wheat.

Question 17

The decline in the price of American goods is due in part to:

Accepted Answer

A) agglomeration effects of firms. 
B) declines in productivity. 
C) trade barriers that allow domestic firms to lower prices. 
D) globalization and increased trade. 
A) agglomeration effects of firms. 
B) declines in productivity. 
C) trade barriers that allow domestic firms to lower prices. 
D) globalization and increased trade.

Question 18

Which of the following is eroding the U.S.comparative advantage?

Accepted Answer

A) The spread of technology. 
B) The law of one price. 
C) A depreciating dollar. 
D) Intellectual property rights. 
A) The spread of technology. 
B) The law of one price. 
C) A depreciating dollar. 
D) Intellectual property rights.

Question 19

Production Possibility Schedules for Two South Pacific Island Nations   In Kiribati, the opportunity cost of producing one mango (in terms of coconuts) is:

Accepted Answer

A) 0. 
B) 1/4. 
C) 4. 
D) 400. 
A) 0. 
B) 1/4. 
C) 4. 
D) 400.

Question 20

Suppose that the U.S.dollar buys 100 Japanese yen, gold costs $500 per ounce in New York, and gold costs 20,000 yen per ounce in Tokyo.What does the law of one price predict will happen?

Accepted Answer

A) Nothing will happen. 
B) Traders will avoid the U.S.market and exchange only in Tokyo, where the price of gold is lower. 
C) Traders will buy gold in the United States and sell it in Japan. 
D) Traders will buy gold in Japan and sell it in the United States. 
A) Nothing will happen. 
B) Traders will avoid the U.S.market and exchange only in Tokyo, where the price of gold is lower. 
C) Traders will buy gold in the United States and sell it in Japan. 
D) Traders will buy gold in Japan and sell it in the United States.

Exam 9: Comparative Advantage, Exchange Rates, and Globalization

A nation's comparative advantage in the production of an item is determined by:

Specialization according to comparative advantage means that a country is producing the goods:

The price of an acre of land in rural Nevada is a few hundred dollars.The price of an acre of land in downtown New York is many millions of dollars.How does the law of one price explain this difference?

At one time, most of the cars produced in Mexico were sold in Mexico.Today, however, Mexico both exports and imports cars.How can comparative advantage explain these data?

Transferable comparative advantages are:

If Americans demand goods produced in Mexico, it leads to a demand for Mexican pesos and a supply of U.S.dollars on the foreign exchange market.

If 1 Canadian dollar costs 0.60 U.S.dollar, 1 U.S.dollar costs:

The supply of euros on the foreign exchange market slopes:

Refer to the table shown. Botswana's opportunity cost of producing nickel (in terms of gold) is:

Economic models take into account the effect of trade on the distribution of income.

The loss of jobs due to international trade is often:

A currency has depreciated in value if it takes more of a foreign currency to buy it.

Globalization represents:

The demand for euros on foreign exchange markets slopes:

In considering the distribution of the gains from trade:

The decline in the price of American goods is due in part to:

Which of the following is eroding the U.S.comparative advantage?

Production Possibility Schedules for Two South Pacific Island Nations In Kiribati, the opportunity cost of producing one mango (in terms of coconuts) is:

Suppose that the U.S.dollar buys 100 Japanese yen, gold costs $500 per ounce in New York, and gold costs 20,000 yen per ounce in Tokyo.What does the law of one price predict will happen?

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

International Trade Policy

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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