Deck 18: International Trade

Question 1

Suppose Rose has a comparative advantage over Sam in programming rather than in sales. If Rose sold programs rather than write them, then she would

A) sacrifice her programming time and her profits would rise.
B) not sacrifice her programming time and her profits would rise.
C) sacrifice her programming time and her profits would fall.
D) not sacrifice her programming time and her profits would fall.
E) not sacrifice her programming time because she could make just as much profits by selling as she could by programming.

Answer 1

sacrifice her programming time and her profits would fall.

Question 2

According to the text, the most important reason international trade has grown so rapidly during the past 30 years is the reduction in the cost of transportation and communication.

Answer 2

False

Question 3

Many government interventions to restrict trade between countries

A) have increased economic efficiency.
B) involve a foreign firm attempting to monopolize a domestic market.
C) involve the existence of public goods.
D) have harmed rather than improved economic performance.
E) have improved a country's economic performance.

Answer 3

have harmed rather than improved economic performance.

Question 4

If country A can produce computers more efficiently than country B, then trade theory tells us that

A) country A has an information advantage in computer production.
B) country A has an opportunity cost advantage in computer production.
C) country A has an absolute advantage in computer production.
D) country A has a production advantage in computer production.
E) country A has a comparative advantage in computer production.

Question 5

International trade as a share of world GDP has doubled in the last 30 years.

Question 6

Which of the following is the best definition of opportunity cost?

A) The value of the sum of all possible alternatives to a particular choice
B) The value of the next-best foregone alternative that was not chosen because something else was chosen
C) The value of a choice multiplied by the value of the next-best alternative
D) The cost of making an opportunistic choice
E) None of these is remotely close to an appropriate definition of opportunity cost.

Question 7

According to the theory of comparative advantage,

A) a country can gain from trade only if it can produce all goods at a lower cost than its trade partner.
B) a country can gain from trade only if it can produce a good at a lower cost than another country.
C) a country can gain from trade only if it can produce a good more efficiently than another country.
D) any country can gain from trade.
E) only high-income countries will gain from trade

Question 8

If country A can produce computers more efficiently than cars relative to country B, then trade theory tells us that

A) the two countries should trade only if country B has an absolute advantage in car production.
B) country B will only gain from trade if it has an absolute advantage in car production.
C) country B must have an absolute advantage in car production.
D) both can gain from trade regardless of who has the absolute advantage in car production.
E) country A should not trade with country B.

Question 9

The share of 2003 world GDP accounted for by international trade was

A) between 10 and 12 percent.
B) between 70 and 78 percent.
C) approximately 52 percent.
D) approximately 14 percent.
E) between 20 and 25 percent.

Question 10

Which of the following is $\textbf{ not }$ a reason why international trade has increased as a proportion of the world GDP in the last 30 years?

A) The reduction in transportation costs
B) The advent of the Internet and the subsequent reduction in the cost of doing international business
C) Reductions in government restrictions on trade between countries
D) All of the above are relevant in explaining the growth of international trade.
E) None of the above are relevant in explaining the growth of international trade.

Question 11

In the recent three decades, international trade has grown

A) rapidly because of fewer trade barriers.
B) slowly because of increasing transportation costs.
C) slowly because of more government restrictions.
D) rapidly because it is more fashionable to consume foreign goods.
E) neither more slowly nor more rapidly than in past years.

Question 12

Why has international trade grown more rapidly over the past 30 years?

Question 13

Over the past 30 years, international trade, as a proportion of real GDP, has

A) declined by about 20 percent.
B) increased by about 15 percent.
C) increased by about 100 percent.
D) decreased by about 5 percent.
E) increased by about 50 percent.

Question 14

A person with a lower opportunity cost of producing a good than another person

A) does not have a comparative advantage in either good.
B) has a comparative advantage in that good.
C) has no incentive to trade in that good.
D) has a comparative advantage in the other good.
E) has an absolute advantage in the other good.

Question 15

Rose has an absolute advantage over Sam in computer programming and sales. Her efficiency at programming compared to Sam's is greater than her efficiency at sales compared to Sam's.

A) Rose has a comparative advantage in sales.
B) Sam has an absolute advantage in sales.
C) Sam has a comparative advantage in programming.
D) Sam has a comparative advantage in sales.
E) Sam has an absolute advantage in programming.

Question 16

Rose has an absolute advantage over Sam in both computer programming and sales. Rose will hire Sam to sell her software if her efficiency at programming

A) is greater than her efficiency at sales.
B) compared to Sam's is less than her efficiency at sales compared to Sam's.
C) is less than her efficiency at sales.
D) compared to Sam's is greater than her efficiency at sales compared to Sam's.
E) is greater than or equal to her efficiency at sales.

Question 17

Producing for the world market will tend to

A) increase economic instability in the world.
B) increase the efficiency of production.
C) lower profit.
D) increase the cost of production.
E) increase income inequality around the world.

Question 18

Rose has a comparative advantage in computer programming whereas Sam has a comparative advantage in sales. Therefore,

A) Sam has a lower opportunity cost of spending his time selling than Rose does.
B) Rose should specialize in sales.
C) Sam should write computer programs.
D) Rose has a higher opportunity cost of spending her time writing computer programs than Sam does.
E) Sam has a higher opportunity cost of spending his time selling than Rose does.

Question 19

A situation in which a person or a country can produce one good at a lower opportunity cost than another person or country is known as

A) relative opportunity.
B) absolute advantage.
C) comparative advantage.
D) opportunity cost disparity.
E) discrepancy of opportunity.

Question 20

The commerce clause of the U.S. Constitution is a clause that

A) forbids tariffs and quotas that would hinder trade between the 50 states.
B) forbids dumping within the nation.
C) restricts the way in which Congress can sign free trade agreements.
D) regulates the process of outsourcing American jobs.
E) regulates foreign investment.

Question 21

Country A and country B both produce only two goods, cars and computers. If country A has a lower opportunity cost of producing cars, then

A) country B has an absolute advantage in computer production.
B) country B has a comparative advantage in computer production.
C) country A will have a comparative advantage in both goods if country A also has a lower opportunity cost of producing computers.
D) country A has an absolute advantage in car production.
E) country A can also have a lower opportunity cost of producing computers.

Question 22

Exhibit 29-1
According to the data in Exhibit 29-1, China has a(n)

A) comparative advantage in both goods.
B) comparative advantage in good B.
C) absolute advantage in good A but not in good B.
D) comparative advantage in good A.
E) comparative advantage in neither good.

Question 23

Exhibit 29-1
According to Exhibit 29-1, which of the following is true?

A) As workers are more productive in China, wages will be higher.
B) As workers are more productive in China, China will have a comparative advantage in the production of both goods.
C) As workers are less productive in India, wages will be lower, and they will have a comparative advantage in the production of both goods.
D) Indian workers are less productive at producing both goods, so China will not find it advantageous to trade with India.
E) Indian workers are less productive at producing both goods, so India will not be able to gain from trade with China.

Question 24

Suppose the relative price of computers and rice in Japan is 2 computers per unit of rice. The relative price of computers and rice in Korea is 1/2 computer per unit of rice. If the two countries trade without government restrictions, transportation costs are negligible, and markets are competitive, then the likely terms of trade will fall in the range of

A) 3 computers per unit of rice.
B) 5 computers per unit of rice.
C) 1/4 computer per unit of rice.
D) 1 computer per unit of rice.
E) 2 computers per unit of rice

Question 25

Exhibit 29-2
According to the data in Exhibit 29-2, the relative price of computers and rice for Korea is

A) 1/2 computer per unit of rice.
B) 2 computers per unit of rice.
C) 3 computers per 2 units of rice.
D) 3/2 computers per unit of rice.
E) 2/3 computer per unit of rice.

Question 26

Exhibit 29-1
According to the data in Exhibit 29-1, the opportunity cost of producing one more unit of good A in China is

A) 3 units of good B.
B) 2 units of good B.
C) 5 units of good B.
D) 1/2 unit of good B.
E) 1/3 unit of good B.

Question 27

Suppose two countries trade two goods without government restrictions. If transportation costs are negligible and markets are competitive, then the price of the goods

A) will be lower in the high-wage country.
B) will be lower in the low-wage country.
C) must be the same in both countries.
D) could be lower in one country than the other.
E) could be higher in one country than the other.

Question 28

The slope of the linear production possibilities curve before trade is determined by the

A) available quantity of labor in the country divided by the average labor productivity.
B) average labor productivity divided by the average wage.
C) average labor productivity.
D) opportunity cost of production.
E) available quantity of labor in the country.

Question 29

Compared to production possibilities curves without trade, those with trade are

A) the same but with a different slope.
B) shifted inward.
C) sometimes shifted outward and sometimes shifted inward.
D) shifted outward.
E) the same.

Question 30

Exhibit 29-1
According to the data in Exhibit 29-1, the opportunity cost of producing one more unit of good A in India is

A) 1/2 unit of good B.
B) 1/3 unit of good B.
C) 3 units of good B.
D) 2 units of good B.
E) 5 units of good B.

Question 31

Suppose the pretrade relative price of two goods in country X is 2 and the pretrade relative price of two goods in country Y is 4. The posttrade relative price will settle somewhere between 2 and 4 depending on

A) the level of wages in the two countries.
B) the level of demand in the two countries.
C) the opportunity cost of production in the two countries.
D) the level of labor productivity in the two countries.
E) which country has the absolute advantage.

Question 32

Exhibit 29-3
Referring to Exhibit 29-3, suppose the posttrade relative price between Japan and Korea is 1 computer per unit of rice. If Japan takes 10 workers out of rice production, puts the 10 workers in computer production, and sells the resulting computers to Korea in exchange for rice, the net gain from trade for Japan is

A) 20 units of rice.
B) 3 units of rice.
C) 50 units of rice.
D) 30 units of rice.
E) 5 units of rice.

Question 33

Exhibit 29-1
According to the data in Exhibit 29-1, the opportunity cost of producing one more unit of good B in China is

A) 3 units of good A.
B) 1/3 unit of good A.
C) 2 units of good A.
D) 1/2 unit of good A.
E) 10 units of good A.

Question 34

Exhibit 29-1
According to the data in Exhibit 29-1, which of the following statements is true?

A) Chinese workers cannot gain from trade with India.
B) Labor productivity in both goods is higher in India than in China.
C) Wages will be higher in India than in China.
D) Labor productivity in both goods is higher in China than in India.
E) Labor productivity in the production of good A is higher in India than in China.

Question 35

Exhibit 29-1
According to the data in Exhibit 29-1, China has a(n)

A) comparative advantage in neither good.
B) absolute advantage in the production of both goods.
C) comparative advantage in both goods.
D) absolute advantage in good A but not in good B.
E) comparative advantage in good A.

Question 36

Exhibit 29-2
According to the data in Exhibit 29-2, the relative price of computers and rice for Japan is

A) 1/2 computer per unit of rice.
B) 1 computer per 4 units of rice.
C) 1/4 computer per unit of rice.
D) 4 computers per unit of rice.
E) 2 computers per unit of rice.

Question 37

The negative slope of Korea's linear production possibilities curve between computers and rice means that

A) to get more computers, Korea must give up some production of rice.
B) Korea has a comparative advantage in rice.
C) Korea has a comparative advantage in computers.
D) Korea can produce more computers without having to give up some production of rice.
E) to get more computers, Korea must give up increasing amounts of production of rice.

Question 38

Exhibit 29-3
Referring to Exhibit 29-3, suppose the posttrade relative price between Japan and Korea is 1 computer per unit of rice. If Korea takes 10 workers out of computer production, puts the 10 workers in rice production, and sells the resulting rice to Japan in exchange for computers, Korea will gain

A) 3 computers.
B) 10 computers.
C) 2 computers.
D) 30 computers.
E) 20 computers.

Question 39

Exhibit 29-3
Referring to Exhibit 29-3, suppose the posttrade relative price between Japan and Korea is 1 computer per unit of rice. If Korea takes 10 workers out of rice production, puts the 10 workers in computer production, and sells the resulting computers to Japan in exchange for rice, Korea will

A) gain 20 units of rice.
B) lose 20 units of rice.
C) lose 30 units of rice.
D) gain 10 units of rice.
E) lose 40 units of rice.

Question 40

If country A has a lower opportunity cost of producing cars than country B, then country A has

A) a comparative advantage in car production and country B has an absolute advantage in car production.
B) an absolute advantage in car production.
C) a comparative advantage in car production.
D) an absolute and a comparative advantage in car production.
E) no reason to trade with country B.

Question 41

Country A has a comparative advantage over country B in the production of a good if the opportunity cost of producing the good in country A is less than in country B.

Question 42

The relative price of two goods (units of A per unit of B) is the same as the opportunity cost of producing good B.

Question 43

The economist who created the theory of comparative advantage was

A) Adam Smith.
B) Karl Marx.
C) Thomas Robert Malthus.
D) David Ricardo.
E) Milton Friedman.

Question 44

A country cannot have a comparative advantage in the production of all goods.

Question 45

If there are increasing opportunity costs of production, the production possibilities curve will bow inward.

Question 46

The gains from trade are larger for a particular country if the posttrade relative price settles closer to the pretrade relative price of the other country.

Question 47

To measure the gains from trade, we need to consider the relative prices in the two countries.

Question 48

If a country's opportunity costs increase when it trades one product for another,

A) the country will stop trading in that product.
B) the country will have a linear production possibilities curve.
C) complete specialization can still occur but only in the product in which the country does not have a comparative advantage.
D) the country will specialize completely in the product in which it has a comparative advantage.
E) complete specialization does not occur.

Question 49

The slope of a linear production possibilities curve with trade is given by the

A) opportunity costs of the product in each country.
B) relative price-the number of units of good A that can be obtained for one unit of good B.
C) ratio of productivity of workers in two countries.
D) ratio of the elasticities of the product demand curves.
E) rise over run of a country's average total cost curve.

Question 50

The difference between production possibilities curves with and without trade represents the

A) country's absolute advantage.
B) terms of trade.
C) deadweight loss to a country.
D) gains from trade.
E) country's comparative advantage.

Question 51

Countries with low labor productivity will not have a comparative advantage in the production of any good.

Question 52

Production can only occur along the pretrade production possibilities frontier.

Question 53

Linear production possibilities curves explain why a country

A) tries to produce both products.
B) specializes in one product but not the one in which it has a comparative advantage.
C) does not specialize in the product in which it has a comparative advantage.
D) completely specializes in one product.
E) becomes self-sufficient.

Question 54

Consumption can only occur along the pretrade production possibilities frontier.

Question 55

Explain the difference between absolute and comparative advantage.

Question 56

The principle of comparative advantage

A) does not hold true in cases of constant opportunity costs.
B) does not hold true in cases of increasing opportunity costs.
C) holds true in cases of constant opportunity costs but not in cases of increasing opportunity costs.
D) holds true in cases of increasing opportunity costs, as it does with constant opportunity costs.
E) may or may not hold true in cases of increasing opportunity costs.

Question 57

The principle of comparative advantage implies that trade

A) decreases the level of world employment.
B) shifts production possibilities curves inward.
C) increases the amount of world production.
D) decreases the amount of world production.
E) decreases the amount of world consumption.

Question 58

A country can have an absolute advantage in the production of all goods.

Question 59

The slope of the pretrade production possibilities curve is the opportunity cost of production.

Question 60

When countries specialize in producing products in which they have a comparative advantage, they

A) increase the amount of goods available for consumption.
B) decrease the amount of goods available for consumption.
C) gain at the expense of the whole society.
D) decrease the world total amount of resources available for production.
E) increase the world total amount of resources available for production.

Question 61

Exhibit 29-4

-Suppose the post-trade relative price is 1/3 radio per banana, or equivalently 1 radio per 3 bananas. Based on the information in Exhibit 29-4, demonstrate the gains from trade to each country by assuming each takes 10 units of labor from the production of one good, moves the units of production to the other good, and trades the extra production with the other country.

Question 62

Changes in comparative advantage over time from investment in physical and human capital and in technology are called

A) static comparative advantage.
B) innovative comparative advantage.
C) resource-intensive comparative advantage.
D) dynamic comparative advantage.
E) differential comparative advantage.

Question 63

Production that uses a relatively high level of capital per worker is called

A) labor abundant.
B) capital intensive.
C) labor intensive.
D) capital abundant.
E) labor deepened.

Question 64

The equilibrating of the price of labor and the price of capital across countries when they are engaging in free trade is called

A) the Leontief paradox.
B) the gains from trade model.
C) the complete specialization model.
D) factor-price equalization.
E) the comparative advantage model.

Question 65

Exhibit 29-4

-Answer the questions below:
(A) Suppose country A has 100 units of labor and country B has 200 units of labor. Based on the information in Exhibit 29-4, draw the production possibilities curve for both countries, with radios on the horizontal axis. What is the slope of each curve?
(B)Suppose the posttrade relative price is 1/3 radio per banana, or equivalently 1 radio per 3 bananas. Draw the posttrade production possibilities curve for each country and identify the production point for each country.

Question 66

Exhibit 29-4
Referring to Exhibit 29-4, suppose you are given the following information about the production of two goods in two countries.
(A)Who has an absolute advantage in the production of each good?
(B)Find the opportunity cost of producing bananas in each country.
(C)Who has a comparative advantage in banana production?

Question 67

If one country has a higher level of capital per worker than another country, it is relatively

A) capital abundant.
B) labor abundant.
C) labor intensive.
D) capital intensive.
E) capital deepened.

Question 68

The Heckscher-Ohlin model

A) provides support for levying tariffs on imported goods.
B) supports restrictions on trade.
C) provides an explanation for why a country has a comparative advantage in a good.
D) explains why mercantilism is inefficient.
E) explains why comparative advantage changes over time because of investment in physical and human capital.

Question 69

Explain the connection between opportunity costs of production and complete specialization in the production of a good.

Question 70

The United States may have a comparative advantage in pharmaceuticals because of

A) its investment in research.
B) its ability to bypass patent laws in various countries.
C) its natural resource endowment.
D) weather conditions.
E) its geographical location in the world.

Question 71

Production that uses a relatively low level of capital per worker is called

A) labor abundant.
B) capital abundant.
C) labor intensive.
D) capital intensive.
E) capital deepened.

Question 72

If a country has an absolute advantage in the production of both goods, then it is better off producing them both rather than producing only one good and trading with another country. True or False. Explain.

Question 73

If one country has a lower level of capital per worker than another country, it is relatively

A) labor abundant.
B) capital intensive.
C) capital abundant.
D) labor intensive.
E) labor deepened.

Question 74

Explain the connection between opportunity costs of production and the shape of the production possibilities curve.

Question 75

Explain the connection between the relative price and opportunity cost.

Question 76

If the comparative advantage between Japan and Korea was due only to differences in relative capital and labor abundance, then trade would tend to

A) increase real wages in the higher-wage country and lower real wages in the lower-wage country.
B) have no effect on the real wages in either country.
C) increase real wages in the lower-wage country and lower real wages in the higher-wage country.
D) decrease money wages in the lower-wage country and raise money wages in the higher-wage country.
E) prevent wages from changing in either country.

Question 77

An implication of the Heckscher-Ohlin model is that trade will tend to

A) bring factor prices into equality in different countries.
B) cause factor prices to fall in different countries.
C) be diverted from countries with higher factor prices.
D) not have any effect on factor prices in different countries.
E) cause factor prices to rise in different countries.

Question 78

A country would have a comparative advantage in a good if its production is

A) capital intensive and the country is capital abundant.
B) capital intensive and the country is labor abundant.
C) labor intensive and the country is capital abundant.
D) capital intensive but the country is neither capital nor labor abundant.
E) labor intensive but the country is neither capital nor labor abundant.

Question 79

Central America would most likely have a comparative advantage over the United States in producing

A) automobiles.
B) tropical fruits.
C) computers.
D) pharmaceuticals.
E) financial services.

Question 80

Which of the following is least likely to explain a country's comparative advantage?

A) Its stock of natural resources
B) A skilled labor force
C) Its transportation system
D) The level of physical capital investment
E) The level of investment in research