Question 1

If free international trade opens up and a country has a comparative disadvantage in sugar production,we should expect

Accepted Answer

A)  greater sugar consumption in that country 
B)  higher sugar prices in that country 
C)  greater sugar production in that country 
D)  lower sugar prices in sugar-exporting countries 
E)  greater sugar consumption in sugar-exporting countries 
A)  greater sugar consumption in that country 
B)  higher sugar prices in that country 
C)  greater sugar production in that country 
D)  lower sugar prices in sugar-exporting countries 
E)  greater sugar consumption in sugar-exporting countries

Question 2

An effective import quota will

Accepted Answer

A)  increase the revenue received by the exporting nation 
B)  eliminate all incentives for trade between nations 
C)  reduce the quantity demanded of the imported good 
D)  lead to a lower domestic price 
E)  lead to a higher price in the exporting nation 
A)  increase the revenue received by the exporting nation 
B)  eliminate all incentives for trade between nations 
C)  reduce the quantity demanded of the imported good 
D)  lead to a lower domestic price 
E)  lead to a higher price in the exporting nation

Question 3

If countries have different resource endowments,trade is usually not possible.

Accepted Answer

A) True 
 B)False

Question 4

When free international trade takes place,in accordance with a country's comparative advantage,

Accepted Answer

A)  producers in export industries are likely to favor it because they sell a larger quantity at identical prices 
B)  producers in export industries are likely to oppose it because they sell a larger quantity,which lowers prices in accordance with the laws of supply and demand 
C)  producers in import industries are likely to favor it because they sell a larger quantity at only slightly depressed prices 
D)  export industry workers are likely to favor it,import industry workers are likely to hate it 
E)  consumers are likely to be of two minds: they hate the more expensive import goods,but they love the cheaper export goods 
A)  producers in export industries are likely to favor it because they sell a larger quantity at identical prices 
B)  producers in export industries are likely to oppose it because they sell a larger quantity,which lowers prices in accordance with the laws of supply and demand 
C)  producers in import industries are likely to favor it because they sell a larger quantity at only slightly depressed prices 
D)  export industry workers are likely to favor it,import industry workers are likely to hate it 
E)  consumers are likely to be of two minds: they hate the more expensive import goods,but they love the cheaper export goods

Question 5

International trade occurs whenever

Accepted Answer

A)  two nations have achieved internal economic efficiency 
B)  one of the trading nations is self-sufficient 
C)  one nation can profit from trade at the expense of another 
D)  two nations can benefit from trading with each other 
E)  labor is cheaper in one country than in another 
A)  two nations have achieved internal economic efficiency 
B)  one of the trading nations is self-sufficient 
C)  one nation can profit from trade at the expense of another 
D)  two nations can benefit from trading with each other 
E)  labor is cheaper in one country than in another

Question 6

The cost of producing a car in Germany is 2,000 bushels of wheat,and the cost of producing a car in Canada is 1,200 bushels of wheat.The two countries can both benefit if the terms of trade are

Accepted Answer

A)  greater than 2,000 of wheat per car 
B)  less than 1,200 bushels of wheat per car 
C)  between 1,200 bushels and 2,000 bushels of wheat per car,and Germany produces wheat 
D)  between 1,200 bushels and 2,000 bushels of wheat per car,and Germany produces cars 
E)  between 1,200 bushels and 2,000 bushels of wheat per car,and Canada produces wheat 
A)  greater than 2,000 of wheat per car 
B)  less than 1,200 bushels of wheat per car 
C)  between 1,200 bushels and 2,000 bushels of wheat per car,and Germany produces wheat 
D)  between 1,200 bushels and 2,000 bushels of wheat per car,and Germany produces cars 
E)  between 1,200 bushels and 2,000 bushels of wheat per car,and Canada produces wheat

Question 7

Objections to free trade

Accepted Answer

A)  often come from those who are harmed by trade 
B)  make no sense because everyone benefits from trade 
C)  usually arise outside of the United States 
D)  are not economically rational 
E)  reflect a lack of understanding of the benefits of international trade 
A)  often come from those who are harmed by trade 
B)  make no sense because everyone benefits from trade 
C)  usually arise outside of the United States 
D)  are not economically rational 
E)  reflect a lack of understanding of the benefits of international trade

Question 8

If there are high transportation costs

Accepted Answer

A)  the terms of trade will also be high 
B)  the result could be incomplete specialization 
C)  large countries will have an advantage in trading with small countries 
D)  small countries will have an advantage in trading with large countries 
E)  trade will be based on absolute advantage rather than comparative advantage 
A)  the terms of trade will also be high 
B)  the result could be incomplete specialization 
C)  large countries will have an advantage in trading with small countries 
D)  small countries will have an advantage in trading with large countries 
E)  trade will be based on absolute advantage rather than comparative advantage

Question 9

Since World War II,there has been a worldwide movement away from free trade policies.

Accepted Answer

A) True 
 B)False

Question 10

In an Israeli factory,each worker can produce 2/5 of a shirt in an hour or 1/4 of a pair of pants in an hour.If there are 500 workers in the factory,then the maximum number of pairs of pants that can be made in an hour is

Accepted Answer

A)  120 
B)  250 
C)  75 
D)  350 
E)  300 
A)  120 
B)  250 
C)  75 
D)  350 
E)  300

Question 11

When a nation begins to import a good,

Accepted Answer

A)  the domestic price of that good will fall 
B)  domestic consumers are harmed 
C)  the domestic price of that good will rise 
D)  domestic producers benefit 
E)  the quantity produced domestically will rise 
A)  the domestic price of that good will fall 
B)  domestic consumers are harmed 
C)  the domestic price of that good will rise 
D)  domestic producers benefit 
E)  the quantity produced domestically will rise

Question 12

Protectionism arises because

Accepted Answer

A)  people misunderstand the benefits of free trade 
B)  trade generally harms some groups in society 
C)  the costs of free trade outweigh the benefits for all groups in society 
D)  the costs of trade for both exporting and importing nations outweigh the benefits 
E)  of a lack of comparative advantage 
A)  people misunderstand the benefits of free trade 
B)  trade generally harms some groups in society 
C)  the costs of free trade outweigh the benefits for all groups in society 
D)  the costs of trade for both exporting and importing nations outweigh the benefits 
E)  of a lack of comparative advantage

Question 13

Which of the following statements is true?

Accepted Answer

A)  Exports tend to decrease economic efficiency. 
B)  A nation should specialize in producing a good in which it has an absolute advantage. 
C)  A nation should specialize in producing a good only when it has both an absolute and a comparative advantage. 
D)  A nation should specialize in producing a good in which it has a comparative advantage. 
E)  International trade does not reflect the benefits of specialization. 
A)  Exports tend to decrease economic efficiency. 
B)  A nation should specialize in producing a good in which it has an absolute advantage. 
C)  A nation should specialize in producing a good only when it has both an absolute and a comparative advantage. 
D)  A nation should specialize in producing a good in which it has a comparative advantage. 
E)  International trade does not reflect the benefits of specialization.

Question 14

One factor that might lead to reduced trade or incomplete specialization is

Accepted Answer

A)  absolute advantage 
B)  comparative advantage 
C)  government-enacted barriers to trade 
D)  constant opportunity cost 
E)  decreasing opportunity cost 
A)  absolute advantage 
B)  comparative advantage 
C)  government-enacted barriers to trade 
D)  constant opportunity cost 
E)  decreasing opportunity cost

Question 15

Which of the following statements about quotas is correct?

Accepted Answer

A)  They benefit domestic consumers through lower prices. 
B)  They benefit domestic producers through higher prices. 
C)  They raise world output. 
D)  They cause outward shifts in the domestic and foreign production possibilities frontiers. 
E)  They benefit domestic producers through increased competition that stimulates innovation. 
A)  They benefit domestic consumers through lower prices. 
B)  They benefit domestic producers through higher prices. 
C)  They raise world output. 
D)  They cause outward shifts in the domestic and foreign production possibilities frontiers. 
E)  They benefit domestic producers through increased competition that stimulates innovation.

Question 16

Suppose that a nation has an absolute advantage in the production of all goods.In this instance,it

Accepted Answer

A)  has no incentive to engage in international trade 
B)  is producing at a point on its production possibilities frontier 
C)  has no unemployment 
D)  also has a comparative advantage in the production of those goods 
E)  should specialize in producing the goods for which it has a lower opportunity cost than other countries 
A)  has no incentive to engage in international trade 
B)  is producing at a point on its production possibilities frontier 
C)  has no unemployment 
D)  also has a comparative advantage in the production of those goods 
E)  should specialize in producing the goods for which it has a lower opportunity cost than other countries

Question 17

Which of the following statements correctly describes international trade in accordance with comparative advantage?

Accepted Answer

A)  Trade is impossible unless there exists a purely competitive market for foreign exchange. 
B)  Trade makes all the citizens of the trading countries better off,which is a clear example of a Pareto improvement. 
C)  Trade may well make some citizens in each trading country worse off. 
D)  Trade requires the judicious application by government of tariffs and quotas in order to discourage production according to comparative disadvantage. 
E)  Trade requires that the economies of the trading partners be of roughly equal size (United States versus Andorra just does not work). 
A)  Trade is impossible unless there exists a purely competitive market for foreign exchange. 
B)  Trade makes all the citizens of the trading countries better off,which is a clear example of a Pareto improvement. 
C)  Trade may well make some citizens in each trading country worse off. 
D)  Trade requires the judicious application by government of tariffs and quotas in order to discourage production according to comparative disadvantage. 
E)  Trade requires that the economies of the trading partners be of roughly equal size (United States versus Andorra just does not work).

Question 18

The terms of trade

Accepted Answer

A)  equal the ratio of opportunity costs of production in two countries 
B)  equal the ratio of marginal production costs in two countries 
C)  is the quantity of one good that is exchanged for one unit of another good 
D)  are determined by absolute advantage 
E)  equal the ratio of average production costs in two countries 
A)  equal the ratio of opportunity costs of production in two countries 
B)  equal the ratio of marginal production costs in two countries 
C)  is the quantity of one good that is exchanged for one unit of another good 
D)  are determined by absolute advantage 
E)  equal the ratio of average production costs in two countries

Question 19

Given an opportunity cost of 10 bicycles per 1 sewing machine in Germany and 20 bicycles per 2 sewing machines in Hungary,

Accepted Answer

A)  Neither country has a comparative advantage in the production of either good. 
B)  Germany has a comparative advantage in the production of sewing machines. 
C)  Germany has an absolute advantage in the production of sewing machines. 
D)  Hungary has an absolute advantage in the production of bicycles. 
E)  Hungary produces more bicycles than Germany does. 
A)  Neither country has a comparative advantage in the production of either good. 
B)  Germany has a comparative advantage in the production of sewing machines. 
C)  Germany has an absolute advantage in the production of sewing machines. 
D)  Hungary has an absolute advantage in the production of bicycles. 
E)  Hungary produces more bicycles than Germany does.

Question 20

Suppose that the opportunity cost of producing a rocking chair in Mexico is 50 basketballs and the opportunity cost of a rocking chair in Japan is 80 basketballs.Japan and Mexico can realize mutual gains if the terms of trade are

Accepted Answer

A)  greater than 80 basketballs per rocking chair,and Japan produces rocking chairs 
B)  between 50 and 80 basketballs per rocking chair,and Japan produces basketballs 
C)  greater than 80 basketballs per rocking chair,and Mexico produces basketballs 
D)  less than 50 basketballs per rocking chair,and Japan produces basketballs 
E)  between 50 and 80 basketballs per rocking chair,and Japan produces rocking chairs 
A)  greater than 80 basketballs per rocking chair,and Japan produces rocking chairs 
B)  between 50 and 80 basketballs per rocking chair,and Japan produces basketballs 
C)  greater than 80 basketballs per rocking chair,and Mexico produces basketballs 
D)  less than 50 basketballs per rocking chair,and Japan produces basketballs 
E)  between 50 and 80 basketballs per rocking chair,and Japan produces rocking chairs

Exam 16: Comparative Advantage and the Gains From International Trade

If free international trade opens up and a country has a comparative disadvantage in sugar production,we should expect

An effective import quota will

If countries have different resource endowments,trade is usually not possible.

When free international trade takes place,in accordance with a country's comparative advantage,

International trade occurs whenever

The cost of producing a car in Germany is 2,000 bushels of wheat,and the cost of producing a car in Canada is 1,200 bushels of wheat.The two countries can both benefit if the terms of trade are

Objections to free trade

If there are high transportation costs

Since World War II,there has been a worldwide movement away from free trade policies.

In an Israeli factory,each worker can produce 2/5 of a shirt in an hour or 1/4 of a pair of pants in an hour.If there are 500 workers in the factory,then the maximum number of pairs of pants that can be made in an hour is

When a nation begins to import a good,

Protectionism arises because

Which of the following statements is true?

One factor that might lead to reduced trade or incomplete specialization is

Which of the following statements about quotas is correct?

Suppose that a nation has an absolute advantage in the production of all goods.In this instance,it

Which of the following statements correctly describes international trade in accordance with comparative advantage?

The terms of trade

Given an opportunity cost of 10 bicycles per 1 sewing machine in Germany and 20 bicycles per 2 sewing machines in Hungary,

Suppose that the opportunity cost of producing a rocking chair in Mexico is 50 basketballs and the opportunity cost of a rocking chair in Japan is 80 basketballs.Japan and Mexico can realize mutual gains if the terms of trade are

What Is Economics

Scarcity,choice,and Economic Systems

Scarcity, choice, and Economic Systems: Part A

Working With Supply and Demand

Elasticity

Consumer Choice

Production and Cost

How Firms Make Decisions: Profit Maximization

Perfect Competition

Perfect Competition: Part A

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

labor Markets: Part A

Capital and Financial Markets

Economic Efficiency and the Competitive Ideal

Governments Role in Economic Efficiency

What Macroeconomics Tries to Explain

Production, income, and Employment

The Price Level and Inflation

The Classical Long-Run Model

Part A: The Classical Model in an Open Economy

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-Run Macro Model

Fiscal Policy

Money,banks,and the Federal Reserve

The Money Market and Monetary Policy

Feedback Effects From GDP to the Money Market

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Appendix-finding Equilibrium GDP Algebraically

Appendix: Capital and Leverage

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