Question 1

A nation has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good than other countries have.

Accepted Answer

A) True 
 B)False

Question 2

If Japan can produce each unit of steel using fewer resources than Canada uses,

Accepted Answer

A) Canada has an absolute advantage in steel production 
B) Japan has a comparative advantage in steel production 
C) Canada has a comparative advantage in steel production 
D) Canada may have an absolute advantage in producing steel 
E) Japan has an absolute advantage in steel production

Question 3

If Armenia can produce two rugs or 100 spy novels in an hour,and Turkey can produce one rug or 50 spy novels in an hour,

Accepted Answer

A) the terms of trade are 50 spy novels per rug,and Turkey should produce both rugs and spy novels 
B) the terms of trade are 50 spy novels per rug,and Turkey should produce only rugs 
C) the terms of trade are 50 spy novels per rug,and Armenia should produce only rugs 
D) there are no gains from trade 
E) the terms of trade are will exceed 50 spy novels per rug,and Armenia should produce both rugs and spy novels

Question 4

Mutually beneficial trade between two countries is possible only as long as

Accepted Answer

A) unit costs of production are the same no matter how many units are being produced 
B) marginal costs rise as production increases 
C) marginal costs are equal to average total costs 
D) one country has an absolute advantage in the production of one good,while the other country enjoys a similar advantage in making another good 
E) one country has a comparative advantage in the production of one good,while the other country enjoys a comparative advantage in making another good

Question 5

In an Israeli factory,each worker can produce 2/5 of a shirt in an hour or 1/3 of a pair of pants in an hour.If there are 500 workers in the factory,then the maximum number of shirts that can be made in an hour is

Accepted Answer

A) 100 
B) 200 
C) 50 
D) 250 
E) 300

Question 6

Which of the following factors does not help explain incomplete specialization by countries that trade in accordance with comparative advantage?

Accepted Answer

A) There may be high transportation costs for perishable products or human services. 
B) The economies of trading partners may be of vastly different sizes. 
C) Opportunity costs of production may not be constant,but may vary with the volume of production. 
D) Governments may impose all kinds of barriers to free international trade,such as tariffs and quotas. 
E) The cost of making trade deals may have become extremely low because of the existence of the World Trade Organization.

Question 7

Assume the North Island of New Zealand can produce 2,000 fishing poles or 20 kayaks per day and the South Island can produce 1,000 fishing poles or 5 kayaks per day.The South Island has a comparative advantage in producing kayaks.

Accepted Answer

A) True 
 B)False

Question 8

If free international trade is compromised by the imposition of an import quota or tariff,

Accepted Answer

A) all of the following are true 
B) import-competing producers in the country that imposes the tariff or quota will be able to sell a larger quantity at higher prices 
C) consumers of import goods will obtain a larger quantity at lower prices 
D) workers in export industries will find more jobs 
E) consumers of export goods will obtain a larger quantity,although only at higher prices

Question 9

The limits of the terms of trade between two countries are determined by those countries' opportunity costs of production.

Accepted Answer

A) True 
 B)False

Question 10

Mutually beneficial international trade between two countries depends on

Accepted Answer

A) each country having an absolute advantage in the production of a different good 
B) one country being worse (requiring more resources)than the other in the production of every good 
C) at least one country having a zero opportunity cost in the production of at least one good 
D) one country being relatively better at producing a good (which makes the other country relatively worse at it) 
E) one country being relatively better at producing all goods

Question 11

One reason why there may be a bias against free trade is that

Accepted Answer

A) transportation costs are too high 
B) absolute advantage may outweigh comparative advantage 
C) those who benefit from trade have little incentive to lobby for it 
D) the terms of trade may be too high 
E) people prefer importing to exporting

Question 12

Objections to free trade

Accepted Answer

A) arise because trade harms everyone 
B) arise when some groups within a nation are harmed by trade 
C) arise because importers and exporters are often the same people 
D) are inconsistent with economic rationality 
E) arise because people prefer not to consume foreign-produced goods

Question 13

Assume that Spain can produce a commodity using fewer resources than any other country.Spain will export this commodity even if other countries have a lower opportunity cost of producing it.

Accepted Answer

A) True 
 B)False

Question 14

Figure 16-5
Quantities of goods that can be produced in one day with available resources:
 
-In Figure 16-5,which of the following is true?

Accepted Answer

A) Both countries can benefit from trade if Panama produces bicycles and Costa Rica produces rugs. 
B) Both countries can benefit from trade if Panama produces both rugs and bicycles. 
C) Both countries can benefit from trade if Panama produces rugs and Costa Rica produces bicycles. 
D) Both countries can benefit from trade if Costa Rica produces bicycles and rugs. 
E) Neither country can benefit from trade since Panama has an absolute advantage in producing both bicycles and rugs.

Question 15

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).

Question 16

A quota typically increases the volume of imports,whereas a tariff typically decreases the volume of imports.

Accepted Answer

A) True 
 B)False

Question 17

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

Question 18

If 50 units of resources can produce either 1 ton of sugar beets or 100 lb.of ham in Germany,while 90 units of resources can produce either 2 tons of sugar beets or 300 lb.of ham in Poland,

Accepted Answer

A) Poland has a comparative advantage in producing both goods 
B) Germany has a comparative advantage in producing sugar beets 
C) neither country has an absolute advantage in producing sugar beets,but Poland has an absolute advantage in producing ham 
D) Germany can produce more ham than Poland can 
E) mutually beneficial international trade is not possible

Question 19

Consider the following information on labor hours needed per unit of output:

Ignoring nonlabor inputs,which of the following statements is correct?

Accepted Answer

A) France has an absolute advantage in the production of both goods. 
B) France has a comparative advantage in the production of both goods. 
C) the opportunity cost of a computer in Italy is 4 units of wine. 
D) the opportunity cost of a unit of wine in France is 2 computers. 
E) France produces more computers that Italy produces wine.

Question 20

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

Exam 17: Comparative Advantage and the Gains From International Trade

A nation has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good than other countries have.

If Japan can produce each unit of steel using fewer resources than Canada uses,

If Armenia can produce two rugs or 100 spy novels in an hour,and Turkey can produce one rug or 50 spy novels in an hour,

Mutually beneficial trade between two countries is possible only as long as

In an Israeli factory,each worker can produce 2/5 of a shirt in an hour or 1/3 of a pair of pants in an hour.If there are 500 workers in the factory,then the maximum number of shirts that can be made in an hour is

Which of the following factors does not help explain incomplete specialization by countries that trade in accordance with comparative advantage?

Assume the North Island of New Zealand can produce 2,000 fishing poles or 20 kayaks per day and the South Island can produce 1,000 fishing poles or 5 kayaks per day.The South Island has a comparative advantage in producing kayaks.

If free international trade is compromised by the imposition of an import quota or tariff,

The limits of the terms of trade between two countries are determined by those countries' opportunity costs of production.

Mutually beneficial international trade between two countries depends on

One reason why there may be a bias against free trade is that

Objections to free trade

Assume that Spain can produce a commodity using fewer resources than any other country.Spain will export this commodity even if other countries have a lower opportunity cost of producing it.

Figure 16-5 Quantities of goods that can be produced in one day with available resources: -In Figure 16-5,which of the following is true?

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

A quota typically increases the volume of imports,whereas a tariff typically decreases the volume of imports.

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

If 50 units of resources can produce either 1 ton of sugar beets or 100 lb.of ham in Germany,while 90 units of resources can produce either 2 tons of sugar beets or 300 lb.of ham in Poland,

Consider the following information on labor hours needed per unit of output: Ignoring nonlabor inputs,which of the following statements is correct?

An effective import quota will