Question 1

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 2

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 3

Maximum Feasible Hourly Production Rates of Either
Cuckoo Clocks or Movies Using All Available Resources
Product United States Switzerland
Cuckoo Clocks 4 2
Movies 10 4
-Refer to the above table. If opportunity costs are constant, residents of the United States will gain from specializing and trading with Switzerland if the

Accepted Answer

A)  produce both clocks and films and export clocks to Switzerland. 
B)  produce both clocks and films and export both to Switzerland. 
C)  import films and export clocks to Switzerland. 
D)  import clocks and export films.

Question 4

Maximum Feasible Hourly Production Rates (in Tons) of Either
Knives or Forks Using All Available Resources
Product Country Alpha Country Beta
Knives 9 3
Forks 6 12
-Use the above table. Assuming constant opportunity costs, the opportunity cost of producing knives in country Alpha is ________, and the opportunity cost of producing knives in country Beta is ________.

Accepted Answer

A)  2 forks; 0.33 knife 
B)  0.5 knife; 3 forks 
C)  1.5 forks; 0.25 fork 
D)  0.67 fork; 4 forks

Question 5

A country will specialize in the good for which

Accepted Answer

A)  it has absolute advantage. 
B)  it has moderate production costs. 
C)  it can produce at minimum average cost. 
D)  it has comparative advantage.

Question 6

A voluntary import expansion involves a

Accepted Answer

A)  country agreeing to import more from another country. 
B)  country agreeing to reduce its trade barriers. 
C)  country agreeing to an import quota. 
D)  firm agreeing to expand output.

Question 7

The argument a tariff on imported goods produced by an unlimited industry could benefit the members of the domestic union is

Accepted Answer

A)  the national defense argument. 
B)  the protect domestic jobs argument. 
C)  the infant industry argument. 
D)  the dumping argument.

Question 8

Countries engaged in international trade specialize in production based on

Accepted Answer

A)  relative price levels. 
B)  relative foreign exchange rates. 
C)  comparative advantage. 
D)  the differences in transportation costs.

Question 9

When U.S. residents buy products that were made in Japan, then ultimately the Japanese want

Accepted Answer

A)  yen. 
B)  dollars. 
C)  Japanese goods. 
D)  goods, including U.S.-made goods.

Question 10

Dumping is

Accepted Answer

A)  selling a good abroad in huge quantities at a very low price. 
B)  exporting goods that are sources of pollution. 
C)  exporting goods that are of inferior quality relative to the goods sold in the domestic market. 
D)  selling a good abroad at a price below cost or below the price charged in the domestic market.

Question 11

The effects of a tariff are

Accepted Answer

A)  reduced quantity supplied overall, reduced quantity supplied by domestic producers, and a lower price. 
B)  reduced quantity supplied overall, increased quantity supplied by domestic producers, and a higher price. 
C)  reduced quantity supplied overall, decreased quantity supplied by domestic producers, and a lower price. 
D)  identical to the effects of a quota, except that the price of the good is higher.

Question 12

Why do free trade proponents dislike rules of origin in trade agreements?

Accepted Answer

A)  It decreases the amount of international trade in the world. 
B)  It increases the amount of international trade in the world. 
C)  It decreases incentives for trade diversion. 
D)  It increases incentives for trade deflection.

Question 13

When a good is put onto the global market at a price below the cost to produce it, this is known as

Accepted Answer

A)  the infant-industry argument. 
B)  dumping. 
C)  a quota. 
D)  protection of domestic jobs.

Question 14

When one country "dumps" some of its products in another country, it

Accepted Answer

A)  increases the aggregate level of employment in the importing country, thereby depressing that nation's market wages. 
B)  also exports new technology to the importing nation and thereby indirectly boosts the importing nation's real GDP. 
C)  sells its products abroad at a price lower than the price in the home market or lower than the cost of production. 
D)  also exports pollution-causing technologies and thereby creates environmental hazards in the receiving country.

Question 15

The principle of comparative advantage essentially states that

Accepted Answer

A)  there are some goods for which the opportunity costs of production are the same regardless of who produces them. 
B)  some goods have high opportunity costs and low absolute costs. 
C)  specialization can reduce output rather than increase it. 
D)  total output of an economic system is greatest when each good is produced by those who have the lowest opportunity cost of producing the good.

Question 16

Maximum Feasible Hourly Production Rates for Either
Food or Cloth Using All Available Resources
 
-Using the data in the above table, and assuming constant opportunity costs, it is likely that

Accepted Answer

A)  the United States will import food. 
B)  Mexico will export cloth. 
C)  the United States will export both cloth and food. 
D)  Mexico will export both cloth and food.

Question 17

All of the following are arguments in favor of restricting trade EXCEPT

Accepted Answer

A)  comparative advantage. 
B)  protecting domestic jobs. 
C)  protecting emerging industries. 
D)  dumping.

Question 18

"The United States has fallen behind Japan and most of Europe in terms of competitiveness." Do you agree or disagree? Why?

Accepted Answer

The answer of "The United States has fallen behind Japan...

Question 19

When a tariff is imposed, the supply curve for the imported good

Accepted Answer

A)  shifts downward and to the right. 
B)  shifts upward and to the left. 
C)  does not change. 
D)  becomes perfectly inelastic.

Question 20

The trend in current tariff laws is to

Accepted Answer

A)  raise tariffs on foreign goods. 
B)  keep tariffs the same. 
C)  lower tariffs on foreign goods. 
D)  abolish tariffs all together.

Exam 32: Comparative Advantage and the Open Economy

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,