Question 1

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

Question 2

Most economists:

Accepted Answer

A)  focus on the costs of international trade and discount its benefits in lower consumer prices. 
B)  include the effects of trade on the distribution of income. 
C)  recognize both the costs of international trade in lost jobs and the benefits in terms of lower prices. 
D)  support free trade because it raises the wages of those in countries who can hardly meet their basic needs.

Question 3

Refer to the table shown.  In this example:

Accepted Answer

A)  there are gains from trade for Botswana. 
B)  there are gains from trade for Zimbabwe. 
C)  there are gains from trade for both countries. 
D)  there are no possible gains from trade.

Question 4

If the world supply curve is SW1, and the country's exchange rate depreciates,

Accepted Answer

A)  the trade surplus will move toward balance. 
B)  the trade surplus will become greater. 
C)  the trade deficit will move toward balance. 
D)  the trade deficit will become greater.

Question 5

When people talk about U.S. intellectual property rights, what are they talking about?

Accepted Answer

A)  The existence of high-quality educational institutions such as the Ivy League schools. 
B)  Ideas and knowledge protected by patents and copyrights. 
C)  The human capital of the U.S. labor force. 
D)  The abstract nature of ownership in corporate organizations.

Question 6

People with intellectual property rights are on the low end of the income distribution that is created from globalization.

Accepted Answer

A) True 
 B)False

Question 7

The text calls the type of comparative advantage that is not easily changed, such as climate:

Accepted Answer

A)  stable comparative advantage. 
B)  inherent comparative advantage. 
C)  equilibrium comparative advantage. 
D)  permanent comparative advantage.

Question 8

Economists:

Accepted Answer

A)  are not concerned with the distributional effects of trade. 
B)  cannot measure the distributional effects of trade. 
C)  do not generally include the distributional effects of trade in their models. 
D)  disagree with laypeople that the distributional effects of trade are important.

Question 9

If the world supply curve is SW0,

Accepted Answer

A)  there is a trade deficit. 
B)  there is a trade surplus. 
C)  trade is in balance. 
D)  there is no trade.

Question 10

The Mexican demand for American goods leads to the demand for:

Accepted Answer

A)  Mexican pesos and the supply of U.S. dollars on the foreign exchange market. 
B)  U.S. dollars and Mexican pesos on the foreign exchange market. 
C)  U.S. dollars and the supply of Mexican pesos on the foreign exchange market. 
D)  U.S. dollars and the supply of U.S. dollars on the foreign exchange market.

Question 11

If the world supply curve is SW1,

Accepted Answer

A)  there is a trade deficit. 
B)  there is a trade surplus. 
C)  trade is in balance. 
D)  there is no trade.

Question 12

How are goods manufactured in other countries creating jobs in the United States?

Accepted Answer

A)  People whose jobs were outsourced are now discouraged workers. 
B)  U.S. firms are specializing in managing the trade of these goods. 
C)  Foreign countries are importing U.S. natural resources. 
D)  People who have lost jobs have more time to shop and therefore increase demand for goods.

Question 13

Refer to the graph shown.  We can conclude from the diagram that:

Accepted Answer

A)  Graustark has a comparative advantage in both goods. 
B)  Norstrilia has a comparative advantage in both goods. 
C)  Norstrilia has a comparative advantage in manufacturing and Graustark has a comparative advantage in agriculture. 
D)  Norstrilia has a comparative advantage in agriculture and Graustark has a comparative advantage in manufacturing.

Question 14

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.

Question 15

We can conclude from the table shown that Morocco has a comparative advantage in the production of tables.

Accepted Answer

A) True 
 B)False

Question 16

Immediately after World War II, the United States ran trade:

Accepted Answer

A)  deficits and was an international lender. 
B)  deficits and was an international borrower. 
C)  surpluses and was an international lender. 
D)  surpluses and was an international borrower.

Question 17

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 ability of resources to move; location by its very nature cannot be mobile. 
D)  The law of one price applies only to resources involved in international trade.

Question 18

Refer to the graph shown.  The graph demonstrates Saudi Arabia's and the United States' production possibility curves for widgets and wadgets. Given these production possibility curves, you would suggest that:

Accepted Answer

A)  Saudi Arabia specialize in widgets and the United States in wadgets. 
B)  No trade should take place. 
C)  Saudi Arabia specialize in wadgets and the United States in widgets. 
D)  Both countries should produce an equal amount of each.

Question 19

The depreciation of a currency will:

Accepted Answer

A)  balance a trade surplus. 
B)  have no impact on a country's comparative advantages. 
C)  worsen a country's comparative advantages. 
D)  improve a country's comparative advantages.

Question 20

Suppose that the U.S. dollar buys 100 Japanese yen. Gold costs $500 per ounce in New York and 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.

Exam 9: Comparative Advantage, Exchange Rates, and Globalization