Question 1

The basic proposition in international trade is that

Accepted Answer

A) trade is determined by absolute advantage. 
B) in the long run, imports are paid for by exports. 
C) everyone is made better off by free trade. 
D) fair trade is more important than free trade.

Question 2

-According to the above table, if these two countries trade,

Accepted Answer

A) Mexico should import computers and the United States import bicycles. 
B) the United States should import computers and Mexico should import bicycles. 
C) the United States should export bicycles and Mexico should export computers. 
D) we cannot tell which country should export which good without knowing the amount of labor utilized in each country.

Question 3

Maximum Feasible Hourly Production Rates of Either
Product A or Product B Using All Available Resources
Product Country X Country Y
A 4 8
B 4 4
-Refer to the above table. If opportunity costs are constant, then the opportunity cost of producing good B in country X is ________, and the opportunity cost of producing good B in country Y is ________.

Accepted Answer

A) 1 unit of A; 2 units of A 
B) 1 unit of A; 0.5 unit of A 
C) 1 unit of B; 2 units of A 
D) 1 unit of A; 0.5 unit of B

Question 4

Import restrictions

Accepted Answer

A) can protect United States jobs in the protected industry, which increases economic welfare of the country as a whole. 
B) can protect United States jobs in the protected industry but will also lead to job reductions in other export industries. 
C) hurt people who work in importing companies, but makes consumers better off. 
D) cannot protect American jobs in any sector of the economy.

Question 5

-According to the above table, which assumes that opportunity costs of producing goods X and Y are constant, the opportunity cost of producing one unit of Good Y is ________ units of Good X for Chen and ________ units of Good X for Holly.

Accepted Answer

A) 50; 40 
B) 25; 10 
C) 2; 2/5 
D) 1/2; 2 1/2

Question 6

Maximum Feasible Hourly Production Rates (in Tons)of Either
Wine or Beef Using All Available Resources
Product Argentina France
Wine (gallons)30 60
Beef (pounds)10 30
-If the residents of a country specialize in a good in which they have a comparative advantage and trade with residents in another nation, the residents in the first country

Accepted Answer

A) can consume more than they could without trade. 
B) can produce more than they could without trade. 
C) will have a lower standard of living. 
D) will be exploited by the second nation.

Question 7

In the long run, imports are paid for by

Accepted Answer

A) investment. 
B) exports. 
C) dollars. 
D) gold or other universally accepted monies.

Question 8

Suppose that opportunity costs are constant in both France and Germany. In France, maximum feasible hourly production levels are either 3 units of wheat or 5 units of wine. In Germany, maximum feasible hourly production levels are either 4 units of wheat or 10 units of wine. It is correct to state that

Accepted Answer

A) Germany has an comparative advantage in producing both wheat and wine. 
B) Germany has a comparative advantage in producing wine. 
C) France has a comparative advantage in producing both wheat and wine. 
D) France has a comparative advantage in producing wine.

Question 9

Maximum Feasible Hourly Production Rates of Either
Product A or Product B Using All Available Resources
Product Country X Country Y
A 4 8
B 4 4
-Refer to the above table. Assuming constant opportunity costs,

Accepted Answer

A) Country X has a comparative advantage in the production of both goods. 
B) Country Y has a comparative advantage in the production of both goods. 
C) Country X has a comparative advantage in the production of Product A while Country Y has a comparative advantage in the production of Product B. 
D) Country Y has a comparative advantage in the production of Product A while Country X has a comparative advantage in the production of Product B.

Question 10

If protective import-restricting tariffs are imposed by a country, in the majority of cases that nation's producers end up

Accepted Answer

A) receiving a higher price for the good than they otherwise would. 
B) receiving a lower price for the good than they otherwise would. 
C) producing less of the good than they otherwise would. 
D) receiving a lower profit for the domestic good than they otherwise would.

Question 11

Maximum Feasible Hourly Production Rates (in Tons)of Either
Pizzas or Donuts Using All Available Resources
Product Country Alpha Country Beta
Pizzas 10 2
Donuts 10 12
-Use the above table. Assuming constant opportunity costs, the opportunity cost of producing donuts in country Alpha is ________, and the opportunity cost of producing donuts in country Beta is ________ .

Accepted Answer

A) 1 donut; 0.17 donut 
B) 1 donut; 6 donuts 
C) 10 donuts; 12 pizzas 
D) 0.2 pizza; 1.67 donuts

Question 12

Today, in the United States, imports are over

Accepted Answer

A) 15 percent of GDP. 
B) 1 percent of GDP. 
C) 8 percent of GDP. 
D) 4 percent of GDP.

Question 13

Because of NAFTA, the U.S. shifts some of its imports from Europe to Mexico (a member of NAFTA). This is an example of

Accepted Answer

A) trade deflection. 
B) trade diversion. 
C) protectionism. 
D) rules of origin.

Question 14

One reason that U.S. exports of commercial services have increased steadily over the past 25 years is that

Accepted Answer

A) European and Asian nations have shown little interest in developing their own commercial services sectors. 
B) the United States has made significant investments in new information technologies. 
C) the U.S. government owns and operates most of the economy's service sector. 
D) the U.S. economy operates like one big corporation.

Question 15

According to the principle of comparative advantage, a nation should specialize in economic activities

Accepted Answer

A) that incur lower opportunity costs. 
B) that incur higher opportunity costs. 
C) for which it has an absolute advantage. 
D) for which it has no absolute advantage.

Question 16

A tariff is a

Accepted Answer

A) legal limit on sales of a foreign product in the domestic market. 
B) regulation of the quality of a foreign product sold in the domestic market. 
C) tax on sales of a foreign product in the domestic market. 
D) voluntary limit on sales of a foreign product in the domestic market.

Question 17

Maximum Feasible Hourly Production Rates (in Tons)of Either
Wine or Beef Using All Available Resources
Product Argentina France
Wine (gallons)30 60
Beef (pounds)10 30
-Use the above table. Assuming constant opportunity costs, the opportunity cost of producing a gallon of wine in Argentina is

Accepted Answer

A) 0.33 pound of beef. 
B) 0.5 pound of beef. 
C) 2 pounds of beef. 
D) 3 pounds of beef.

Question 18

The infant-industry argument is often criticized because

Accepted Answer

A) it is difficult to determine which industry merits protection. 
B) it reduces government revenues in the short term. 
C) it reduces the employment rate. 
D) it reduces labor productivity in the short term.

Question 19

The importance of international trade in the U.S. economy

Accepted Answer

A) has been decreasing and is expected to continue to decrease. 
B) has been decreasing but is expected to start to increase. 
C) has been increasing and is expected to continue to increase. 
D) has been increasing but is expected to decrease in the future.

Question 20

Maximum Feasible Hourly Production Rates of Either
Computers or Bicycles Using All Available Resources
Product United States Mexico
Computers 8 10
Bicycles 4 2
-Refer to the above table. Assuming constant opportunity costs, the opportunity cost of producing a computer in the United States is ________ while the opportunity cost of producing a computer in Mexico is ________.

Accepted Answer

A) 0.8 bicycle; 2 computers 
B) 2.5 computers; 0.25 bicycle 
C) 0.5 bicycle; 0.2 bicycle 
D) 2 bicycles; 5 bicycles

Exam 32: Comparative Advantage and the Open Economy