Question 1

If the index of export prices for Country X increases from 120 to 150 and the index of import prices increases from 100 to 125,it may be said that

Accepted Answer

A) the terms of trade have improved. 
B) the terms of trade have deteriorated. 
C) there has been no change in the terms of trade. 
D) the terms of trade have improved by 10%. 
E) there is insufficient information to calculate the terms of trade. 
A) the terms of trade have improved. 
B) the terms of trade have deteriorated. 
C) there has been no change in the terms of trade. 
D) the terms of trade have improved by 10%. 
E) there is insufficient information to calculate the terms of trade. C

Question 2

Since 1950,the world's real GDP has increased by seven times and the volume of world trade has increased by roughly

Accepted Answer

A) the same amount. 
B) two times. 
C) ten times. 
D) fifteen times. 
E) thirty-five times. 
A) the same amount. 
B) two times. 
C) ten times. 
D) fifteen times. 
E) thirty-five times. E

Question 3

The "terms of trade" reflect the

Accepted Answer

A) amount of absolute advantage held by one country over another. 
B) conditions under which trade takes place,as established by the World Trade Organization. 
C) difference in opportunity costs between two countries. 
D) quantity of domestic goods that must be exported to get a unit of imported goods. 
E) quantity of imports that must be purchased to sell a unit of exported goods. 
A) amount of absolute advantage held by one country over another. 
B) conditions under which trade takes place,as established by the World Trade Organization. 
C) difference in opportunity costs between two countries. 
D) quantity of domestic goods that must be exported to get a unit of imported goods. 
E) quantity of imports that must be purchased to sell a unit of exported goods. D

Question 4

Australia exports wine to Canada,and Canada also exports wine to Australia.This is a(n)

Accepted Answer

A) violation of the law of comparative advantage. 
B) obvious failure to take advantage of specialization. 
C) likely result of economies of scale and product differentiation. 
D) general conclusion of the Heckscher-Ohlin theory. 
E) example of the inefficiency of trade patterns. 
A) violation of the law of comparative advantage. 
B) obvious failure to take advantage of specialization. 
C) likely result of economies of scale and product differentiation. 
D) general conclusion of the Heckscher-Ohlin theory. 
E) example of the inefficiency of trade patterns.

Question 5

The concept of "comparative advantage" refers to the

Accepted Answer

A) ability of one region to produce a commodity at a lower opportunity cost than another region. 
B) ability of one region to produce a commodity with less labour input than another region. 
C) ability of one region to produce a commodity with fewer total inputs than another region. 
D) gains from international trade. 
E) terms of trade index. 
A) ability of one region to produce a commodity at a lower opportunity cost than another region. 
B) ability of one region to produce a commodity with less labour input than another region. 
C) ability of one region to produce a commodity with fewer total inputs than another region. 
D) gains from international trade. 
E) terms of trade index.

Question 6

If Country A has a comparative advantage in the production of oil relative to Country B,then

Accepted Answer

A) Country A also has an absolute advantage in producing oil. 
B) Country A also has an absolute advantage in producing some good other than oil. 
C) the opportunity cost of producing oil is higher in Country A than in Country B. 
D) the opportunity cost of producing oil is lower in Country A than in Country B. 
E) Country A when compared to Country B must have an absolute advantage in producing some good other than oil. 
A) Country A also has an absolute advantage in producing oil. 
B) Country A also has an absolute advantage in producing some good other than oil. 
C) the opportunity cost of producing oil is higher in Country A than in Country B. 
D) the opportunity cost of producing oil is lower in Country A than in Country B. 
E) Country A when compared to Country B must have an absolute advantage in producing some good other than oil.

Question 7

The following production possibilities schedule shows the quantities of wheat and rice that can be produced in Canada and India with one unit of equivalent resources.
   TABLE 32-2
-Refer to Table 32-2.To achieve the potential gains from international trade,

Accepted Answer

A) India should export wheat to Canada and import Canadian rice. 
B) Canada should produce both wheat and rice and not trade with India. 
C) India should export rice to Canada and import Canadian wheat. 
D) India should exclude wheat from its consumption. 
E) India should produce both wheat and rice and not trade with Canada. 
A) India should export wheat to Canada and import Canadian rice. 
B) Canada should produce both wheat and rice and not trade with India. 
C) India should export rice to Canada and import Canadian wheat. 
D) India should exclude wheat from its consumption. 
E) India should produce both wheat and rice and not trade with Canada.

Question 8

One region is said to have an absolute advantage over another region in the production of good X when

Accepted Answer

A) the first region has a more productive labour force than the second. 
B) the first region has a larger supply of the raw materials required to produce good X. 
C) an equal quantity of resources can produce more of good X in the first region than in the second region. 
D) there is no demand for good X in the second region. 
E) the opportunity cost of one unit of X is lower in the first region than in the second region. 
A) the first region has a more productive labour force than the second. 
B) the first region has a larger supply of the raw materials required to produce good X. 
C) an equal quantity of resources can produce more of good X in the first region than in the second region. 
D) there is no demand for good X in the second region. 
E) the opportunity cost of one unit of X is lower in the first region than in the second region.

Question 9

A country that engages in no foreign trade is said to be in a situation of

Accepted Answer

A) comparative advantage. 
B) absolute advantage. 
C) reciprocal absolute advantage. 
D) autarky. 
E) isolation. 
A) comparative advantage. 
B) absolute advantage. 
C) reciprocal absolute advantage. 
D) autarky. 
E) isolation.

Question 10

The diagram below shows the (hypothetical)demand and supply curves for regional jets in Canada.Assume that the market is competitive,all jets are identical,and that Canada engages in international trade.   FIGURE 32-6
-Refer to Figure 32-6.Assume the world price of a regional jet is $20 million.Further,suppose that Canada disallowed international trade in regional jets and Canadian consumers purchase the domestic equilibrium quantity of jets from domestic suppliers.What is the total additional expenditure Canadian consumers will pay in this no-trade situation versus the amount they would pay for the same quantity at the world price?

Accepted Answer

A) $10 million 
B) $700 million 
C) $1400 
D) $1800 million 
E) $2100 
A) $10 million 
B) $700 million 
C) $1400 
D) $1800 million 
E) $2100

Question 11

Canadian politicians who promoted the NAFTA in the early 1990s claimed that Canadian producers would have access to a larger market and thus costs would decline.Which of the following sources of the gains from trade are implied by this statement?

Accepted Answer

A) climate 
B) economies of scale 
C) comparative advantage 
D) factor endowments 
E) absolute advantage 
A) climate 
B) economies of scale 
C) comparative advantage 
D) factor endowments 
E) absolute advantage

Question 12

The following production possibilities schedule shows the quantities of soybeans and oil that can each be produced in Canada and Mexico with one unit of equivalent resources.
   TABLE 32-3
-Refer to Table 32-3.If Canada were to transfer half a unit of resources from oil to soybeans and Mexico were to transfer one unit of resources from soybeans to oil,the effect on the total output of the two countries would be as follows:

Accepted Answer

A) soybean production would increase by 30 bushels. 
B) soybean production would increase by 6 bushels and oil production would increase by 3 barrels. 
C) soybean production would increase by 36 bushels and oil production would decrease by 2 barrels. 
D) oil production would increase by 8 barrels. 
E) soybean production would increase by 6 bushels and oil production would increase by 2.02 barrels. 
A) soybean production would increase by 30 bushels. 
B) soybean production would increase by 6 bushels and oil production would increase by 3 barrels. 
C) soybean production would increase by 36 bushels and oil production would decrease by 2 barrels. 
D) oil production would increase by 8 barrels. 
E) soybean production would increase by 6 bushels and oil production would increase by 2.02 barrels.

Question 13

This table shows how much cotton and cocoa can be produced in Peru and Brazil with one unit of equivalent resources.
   TABLE 32-4
-Refer to Table 32-4.Compared with Peru,Brazil has

Accepted Answer

A) a comparative but not absolute advantage in the production of cocoa beans. 
B) an absolute and a comparative advantage in the production of cocoa beans. 
C) an absolute,but not a comparative,advantage in the production of cocoa beans. 
D) an absolute advantage in the production of cotton. 
E) an absolute and a comparative advantage in the production of cotton. 
A) a comparative but not absolute advantage in the production of cocoa beans. 
B) an absolute and a comparative advantage in the production of cocoa beans. 
C) an absolute,but not a comparative,advantage in the production of cocoa beans. 
D) an absolute advantage in the production of cotton. 
E) an absolute and a comparative advantage in the production of cotton.

Question 14

The concept of comparative advantage in international trade is based on ________ as opposed to absolute costs.

Accepted Answer

A) relative prices 
B) absolute prices 
C) opportunity costs 
D) average cost 
E) total cost 
A) relative prices 
B) absolute prices 
C) opportunity costs 
D) average cost 
E) total cost

Question 15

According to David Ricardo's principle of comparative advantage,there will be gains from international trade

Accepted Answer

A) only by a country with an absolute advantage in the production of some commodity. 
B) only by developed countries. 
C) by any trading country with opportunity costs similar to other countries. 
D) by only one country if opportunity costs are identical across countries. 
E) by any country with opportunity costs different from other countries. 
A) only by a country with an absolute advantage in the production of some commodity. 
B) only by developed countries. 
C) by any trading country with opportunity costs similar to other countries. 
D) by only one country if opportunity costs are identical across countries. 
E) by any country with opportunity costs different from other countries.

Question 16

The diagram below shows Robinson Crusoe's annual production possibilities boundary for the production of bananas and coconuts.   FIGURE 32-3
-Refer to Figure 32-3.Starting from point A and moving to point B,Robinson Crusoe's opportunity cost of producing each additional kilogram of coconuts is

Accepted Answer

A) increasing. 
B) increasing followed by decreasing. 
C) constant. 
D) decreasing. 
E) decreasing followed by increasing. 
A) increasing. 
B) increasing followed by decreasing. 
C) constant. 
D) decreasing. 
E) decreasing followed by increasing.

Question 17

The diagram below shows the (hypothetical)demand and supply curves for regional jets in Canada.Assume that the market is competitive,all jets are identical,and that Canada engages in international trade.   FIGURE 32-6
-Refer to Figure 32-6.If the world price of a regional jet is $35 million,Canada will

Accepted Answer

A) neither import nor export any jets. 
B) import 60 jets per year. 
C) import 20 jets per year. 
D) export 80 jets per year. 
E) export 20 jets per year. 
A) neither import nor export any jets. 
B) import 60 jets per year. 
C) import 20 jets per year. 
D) export 80 jets per year. 
E) export 20 jets per year.

Question 18

Ireland and Japan are assumed to produce only wool and steel,to have full employment and complete mobility of resources between industries.Their production possibilities boundaries before trade are drawn in solid lines.It is assumed that the two countries have the same amount of resources.Their consumption possibilities after trade are shown by the dotted lines.The outputs of wool and steel are given in physical units.   FIGURE 32-1
-Refer to Figure 32-1.Japan has an absolute advantage in

Accepted Answer

A) wool. 
B) steel. 
C) both goods. 
D) neither good. 
E) Insufficient information to determine the answer. 
A) wool. 
B) steel. 
C) both goods. 
D) neither good. 
E) Insufficient information to determine the answer.

Question 19

This table shows how much wine and cheese can be produced in Spain and Portugal with one unit of equivalent resources.Initially there is no trade.Once trade opens up,transportation costs are assumed to be zero.
   TABLE 32-5
-Refer to Table 32-5.The comparative advantage in cheese is held by

Accepted Answer

A) Spain. 
B) Portugal. 
C) both countries. 
D) neither country. 
E) Insufficient information to know. 
A) Spain. 
B) Portugal. 
C) both countries. 
D) neither country. 
E) Insufficient information to know.

Question 20

The diagram below shows the (hypothetical)demand and supply curves for regional jets in Canada.Assume that the market is competitive,all jets are identical,and that Canada engages in international trade.   FIGURE 32-6
-Refer to Figure 32-6.If the world price of a regional jet is $30 million,Canada will

Accepted Answer

A) neither import nor export any jets. 
B) import 70 jets per year. 
C) import 90 jets per year. 
D) export 50 jets per year. 
E) export 70 jets per year. 
A) neither import nor export any jets. 
B) import 70 jets per year. 
C) import 90 jets per year. 
D) export 50 jets per year. 
E) export 70 jets per year.

Exam 32: The Gains From International Trade

If the index of export prices for Country X increases from 120 to 150 and the index of import prices increases from 100 to 125,it may be said that

Since 1950,the world's real GDP has increased by seven times and the volume of world trade has increased by roughly

The "terms of trade" reflect the

Australia exports wine to Canada,and Canada also exports wine to Australia.This is a(n)

The concept of "comparative advantage" refers to the

If Country A has a comparative advantage in the production of oil relative to Country B,then

The following production possibilities schedule shows the quantities of wheat and rice that can be produced in Canada and India with one unit of equivalent resources. TABLE 32-2 -Refer to Table 32-2.To achieve the potential gains from international trade,

One region is said to have an absolute advantage over another region in the production of good X when

A country that engages in no foreign trade is said to be in a situation of

Canadian politicians who promoted the NAFTA in the early 1990s claimed that Canadian producers would have access to a larger market and thus costs would decline.Which of the following sources of the gains from trade are implied by this statement?

This table shows how much cotton and cocoa can be produced in Peru and Brazil with one unit of equivalent resources. TABLE 32-4 -Refer to Table 32-4.Compared with Peru,Brazil has

The concept of comparative advantage in international trade is based on ________ as opposed to absolute costs.

According to David Ricardo's principle of comparative advantage,there will be gains from international trade

The diagram below shows Robinson Crusoe's annual production possibilities boundary for the production of bananas and coconuts. FIGURE 32-3 -Refer to Figure 32-3.Starting from point A and moving to point B,Robinson Crusoe's opportunity cost of producing each additional kilogram of coconuts is

This table shows how much wine and cheese can be produced in Spain and Portugal with one unit of equivalent resources.Initially there is no trade.Once trade opens up,transportation costs are assumed to be zero. TABLE 32-5 -Refer to Table 32-5.The comparative advantage in cheese is held by

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