Deck 33: The Gains From International Trade

Question 1

Canada is a net exporter of oil. An increase in the world price of oil, ceteris paribus, means that Canada's terms of trade will

A)not change.
B)deteriorate.
C)improve as long as all of Canada's production of oil is being exported.
D)deteriorate as long as Canada exports more oil than it imports.
E)improve.

Answer 1

E

Question 2

If Country A has a comparative advantage in the production of good X relative to Country B,

A)we do not have enough information to say anything about relative opportunity costs.
B)then Country A also has an absolute advantage in the production of this good.
C)then the opportunity cost of producing X in Country A is higher than in Country B.
D)then Country A also has an absolute advantage in the production of some good other than X.
E)then the opportunity cost of producing X in Country A is lower than in Country B.

Answer 2

E

Question 3

If a country has a comparative advantage in the production of soybeans, and it trades freely with other countries, it will most probably

A)export soybeans.
B)not consume soybeans.
C)import soybeans.
D)increase its consumption of soybeans.
E)derive no advantage from any trade in soybeans.

Answer 3

A

Question 4

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
FIGURE 33- 5
Refer to Figure 33- 5. If Paperland engages in international trade and the world price is P_A, the amount of newsprint will be .

A)imported; Q₁
B)imported; Q₅ - Q₃
C)exported; Q₅ - Q₁
D)imported; Q₅ - Q₁
E)exported; Q₅

Question 5

The diagram below shows Robinson Crusoe's annual production possibilities boundary for the production of bananas and coconuts.
FIGURE 33- 3
Refer to Figure 33- 3. Suppose that a trading partner offers to give coconuts to Robinson Crusoe in exchange for his bananas. If Robinson Crusoe is to improve his consumption possibilities, the terms of trade must be 1 kg coconuts for

A)5 kg bananas.
B)4 kg bananas.
C)3 kg bananas.
D)2 kg bananas.
E)1 kg bananas.

Question 6

Economies of scale and product differentiation can provide an explanation for

A)intra- industry trade.
B)countries remaining at their autarkic positions.
C)absolute advantage.
D)countries trading in completely different products.
E)the imposition of trade barriers.

Question 7

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
FIGURE 33- 5
Governments often implement programs designed to encourage research and development. Such programs may change the comparative advantage of that country because

A)they are expected to change the endowments of each country.
B)increases in research and development always lead to an increase in imports.
C)they will raise the costs of production of the trading partners.
D)they are expected to lead to improvements in technology.
E)the opportunity costs of exported products cannot change.

Question 8

The diagram below shows the (hypothetical)demand and supply curves for regional jets in Canada. Assume that the market is competitive, all jets are identical, and that Canada engages in international trade.
FIGURE 33- 6
Refer to Figure 33- 6. If the world price of a regional jet is $30 million, Canada will

A)import 70 jets per year.
B)export 50 jets per year.
C)neither import nor export any jets.
D)import 90 jets per year.
E)export 70 jets per year.

Question 9

Two nations want to engage in trade but discover that one of them is more efficient in producing all goods. In this case,

A)no trade is possible.
B)the more efficient country should produce all goods and export them.
C)the more efficient country should import all goods.
D)the less efficient country should engage in importation of goods only.
E)each nation should export the good in which it has a comparative advantage.

Question 10

In moving from a no- trade to a free- trade situation, a country will

A)import those goods which are acquired more cheaply through trade than through domestic production.
B)expect a decrease in the average standard of living, but will see increased profits for firms in the export business.
C)experience an increase in its average standard of living only if it begins with an absolute advantage in the production of all goods.
D)be consuming inside its production possibilities boundary.
E)experience increases in employment in all industries.

Question 11

The diagram below shows Robinson Crusoe's annual production possibilities boundary for the production of bananas and coconuts.
FIGURE 33- 3
Refer to Table 33- 3. Canada has an absolute advantage in the production of

A)neither soybeans nor oil.
B)both soybeans and oil.
C)soybeans.
D)oil.

Question 12

Canadian politicians who promoted the NAFTA in the early 1990s claimed that Canadian producers would have access to a larger market and thus costs would decline. Which of the following sources of the gains from trade are implied by this statement?

A)absolute advantage
B)climate.
C)factor endowments
D)economies of scale
E)comparative advantage

Question 13

Trade, whether between individuals or nations, generally promotes

A)higher product prices.
B)specialization.
C)self- sufficiency.
D)autarky.
E)lower living standards.

Question 14

Climate affects a country's pattern of comparative advantage.

A)1, 2, and 3
B)1 and 2
C)2 only
D)1 only
E)2 and 3

Question 15

Since joining NAFTA in the early 1990s, Canada has experienced increases in productivity and output in many export- oriented industries because of economies of scale and learning by doing. In these industries, these gains from trade will lead to

A)downward movement (to the right)along the LRAC curve only.
B)downward shifts in the long- run average cost (LRAC)curve.
C)downward shifts in the LRAC and short- run AC curves.
D)downward shifts in the LRAC and movement to the left along the LRAC curve.
E)downward shifts in the LRAC curves and downward movement (to the right)along the LRAC curve.

Question 16

According to the Heckscher- Ohlin theory, national comparative advantages exist because of

A)differences in saving and investment.
B)differences in national factor endowments.
C)international factor mobility.
D)economies of scale.
E)differences in climate alone.

Question 17

The "terms of trade" reflect the

A)quantity of domestic goods that must be exported to get a unit of imported goods.
B)quantity of imports that must be purchased to sell a unit of exported goods.
C)amount of absolute advantage held by one country over another.
D)difference in opportunity costs between two countries.
E)conditions under which trade takes place, as established by the World Trade Organization.

Question 18

If Canada has an absolute advantage in the production of oil relative to the United States, then

A)Canada also has a comparative advantage in producing some good other than oil.
B)the opportunity cost of producing oil is higher in Canada than in the United States.
C)Canada may or may not have a comparative advantage in producing oil relative to the United States.
D)the opportunity cost of producing oil is lower in Canada than in the United States.
E)Canada also has a comparative advantage in producing oil.

Question 19

In addition to reaping the benefits of specialization according to comparative advantage, a nation that engages in international trade and specialization may realize benefits from

A)economies of scale and learning by doing.
B)diseconomies of scale and learning by doing.
C)a less diversified economy.
D)a devaluation of its currency.
E)learning by doing and increased opportunity costs.

Question 20

The index for a country's terms of trade is computed as

A)index of export prices/index of import prices.
B)(index of import prices + index of export prices)x 100.
C)index of import prices/index of export prices.
D)(index of import prices/index of export prices)x 100.
E)(index of export prices/index of import prices)x 100.

Question 21

opportunity costs differ too much between the two countries.

A)1 only
B)3 only
C)2 only
D)2 and 3
E)1 and 2

Question 22

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
FIGURE 33- 5

-Refer to Figure 33- 5. If Paperland engages in international trade and the world price is P_C, the amount of newsprint produced by Paperland will be .

A)Q₁
B)Q₂
C)Q₃
D)Q₄
E)Q₅

Question 23

According to David Ricardo's principle of comparative advantage, the gains from international trade can be reaped

A)only by developed countries.
B)only by a country with an absolute advantage in the production of some commodity.
C)by any country with opportunity costs different from other countries.
D)by any trading country with opportunity costs similar to other countries.
E)by only one country if opportunity costs are identical across countries.

Question 24

If Country A has a comparative advantage in the production of oil relative to Country B, then

A)the opportunity cost of producing oil is higher in Country A than in Country B.
B)Country A when compared to Country B must have an absolute advantage in producing some good other than oil.
C)Country A also has an absolute advantage in producing oil.
D)the opportunity cost of producing oil is lower in Country A than in Country B.
E)Country A also has an absolute advantage in producing some good other than oil.

Question 25

North America exports clothing to the European Union, and the European Union exports clothing to North America. This is a(n)

A)obvious failure to take advantage of specialization.
B)general conclusion of the Heckscher- Ohlin theory.
C)likely result of economies of scale and product differentiation.
D)example of the inefficiency of trade patterns.
E)violation of the law of comparative advantage.

Question 26

Since 1950, the world's real GDP has increased by seven times and the volume of world trade has increased by roughly

A)the same amount.
B)two times.
C)ten times.
D)fifteen times.
E)thirty times.

Question 27

If Canada's index of import prices is 250 and the index of export prices is 200, then the index of the terms of trade is

A)0.80.
B)1.25.
C)12.50.
D)80.00.
E)125.00.

Question 28

Canadians consume millions of cups of Tim Horton's coffee each year. If Tim Horton's reduced the price per cup of coffee (because of a decrease in administration and transportation costs), ceteris paribus, Canada's terms of trade will

A)improve as long as consumption of coffee decreases.
B)deteriorate.
C)not change.
D)improve.
E)deteriorate as long as consumption of coffee increases.

Question 29

When specialization according to comparative advantage also makes economies of scale possible,

A)costs will rise in all trading countries.
B)trade is not beneficial to the country that has the absolute advantage in both goods.
C)it will be beneficial for all trading countries to impose tariffs.
D)the production possibilities boundaries of all trading countries will shift inward.
E)there will be additional gains from trade.

Question 30

The division of the gains of trade between two trading countries depends on the

A)long- run costs.
B)size of the absolute advantages possessed by each country.
C)quantity of resources held by each country.
D)level of unemployment in both countries.
E)difference between the terms of trade and the autarkic relative prices.

Question 31

A country with a domestic market is most likely to gain from international trade, in part because of its prospects of benefitting from .

A)mature; a less diversified economy
B)small; diseconomies of scale and learning by doing
C)mature; a devaluation of its currency
D)small; economies of scale and learning by doing
E)large; learning by doing

Question 32

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
FIGURE 33- 5
Refer to Figure 33- 5. If Paperland engages in trade and the world price is P_B, the residents of Paperland will consume units of newsprint, and the net exports of newsprint from Paperland will be units.

A)Q₁; Q_{5 -} Q₁
B)Q₂; zero
C)^Q3; zero
D)Q_4; Q_{5 -} Q₁
E)^Q5; zero

Question 33

The diagram below shows the (hypothetical)demand and supply curves for regional jets in Canada. Assume that the market is competitive, all jets are identical, and that Canada engages in international trade.
FIGURE 33- 6
Refer to Figure 33- 6. If the world price of a regional jet is $35 million, Canada will

A)import 60 jets per year.
B)neither import nor export any jets.
C)export 20 jets per year.
D)import 20 jets per year.
E)export 80 jets per year.

Question 34

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
FIGURE 33- 5
The principle of comparative advantage was first formulated in the 18th century by

A)Karl Marx.
B)Thomas Malthus.
C)David Hume.
D)Adam Smith.
E)David Ricardo.

Question 35

When two countries are specializing and trading with each other, the gains from trade will tend to be greater when

A)there are economies of scale in production.
B)prices rise in both countries.
C)the production possibilities boundaries shift inward.
D)opportunity costs in the two countries are similar.
E)comparative advantages are eliminated.

Question 36

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
FIGURE 33- 5
Refer to Figure 33- 5. If Paperland engages in trade and the world price is P_A, the residents of Paperland will consume units of newsprint.

A)Q₁ B)Q₂ C)Q₃ D)Q₄ E)Q₅

Question 37

According to what economists call the "law of one price",

A)the world price of a commodity is established by the country with the highest opportunity cost in producing the product without respect to the domestic or world demand for the product.
B)the lower the costs to move a product from one market to the other, the more equal the prices for the same product when it is sold in different markets.
C)the world price of a commodity is established by the country with the highest relative demand for that product without respect to the cost of production.
D)the price of a given product will never be equal in two different markets because of differences in the patterns of demand.
E)the price of a specific product will be the same in any two markets in which the cost of labour is the same.

Question 38

The existence of any "gains from trade" relies on

A)tariffs.
B)comparative advantage.
C)closed economies.
D)both absolute and comparative advantage.
E)absolute advantage.

Question 39

Consider two countries that can produce rice and other products. If neither country has an absolute advantage in the production of rice,

A)neither country can possibly have a comparative advantage in the production of rice.
B)there is no possibility that either country will import rice from the other.
C)the opportunity cost of producing rice must be identical in the two countries.
D)rice will still be traded as long as one of the countries has a comparative advantage in its production.
E)then rice should not be produced.

Question 40

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
FIGURE 33- 5
There is an unfavourable change in a nation's terms of trade whenever its

A)import prices fall while its export prices remain constant.
B)export and import prices stay the same.
C)export prices rise more than its import prices.
D)export prices rise while its import prices remain constant.
E)import prices rise more than its export prices.

Question 41

When opportunity costs are identical between two countries for all goods,

A)international trade will be advantageous only to the country that has an absolute advantage in the production of some commodity.
B)there will be gains from trade for both countries if one country has an absolute advantage in the production of some commodity.
C)absolute advantages will determine the gains from trade.
D)there can be no gains from trade unless there are economies of scale in some of the products.
E)there will be absolute advantages from trade but no comparative advantages from trade.

Question 42

Australia exports wine to Canada, and Canada also exports wine to Australia. This is a(n)

A)example of the inefficiency of trade patterns.
B)obvious failure to take advantage of specialization.
C)violation of the law of comparative advantage.
D)general conclusion of the Heckscher- Ohlin theory.
E)likely result of economies of scale and product differentiation.

Question 43

One region is said to have an absolute advantage over another region in the production of good X when

A)there is no demand for good X in the second region.
B)the opportunity cost of one unit of X is lower in the first region than in the second region.
C)an equal quantity of resources can produce more of good X in the first region than in the second region.
D)the first region has a larger supply of the raw materials required to produce good X.
E)the first region has a more productive labour force than the second.

Question 44

When opportunity costs differ between countries,

A)comparative advantages may or may not exist.
B)specialization and trade can lead to increases in the production of all commodities.
C)each country should produce only those goods for which it has an absolute advantage.
D)only the larger countries will benefit from trade.
E)only the smaller countries will benefit from trade.

Question 45

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
FIGURE 33- 5
Refer to Figure 33- 5. If Paperland engages in international trade and the world price is P_A, the amount of newsprint produced by Paperland will be .

A)Q₁ B)Q₂ C)Q₃ D)Q₄ E)Q₅

Question 46

The theory that patterns of international trade are determined by natural endowments of factors successfully explains the prominence of

A)Britain in the pop music industry.
B)Canada in communications technology.
C)the United States in pharmaceutical research.
D)Japan in car manufacturing.
E)tourism in the Turks and Caicos.

Question 47

Economies of scale and product differentiation can provide an explanation for

A)countries trading in similar products.
B)firms seeking government approval of mergers.
C)countries trading in completely different products.
D)firms seeking government intervention to protect their industries.
E)countries remaining at their autarkic positions.

Question 48

The idea that unit production costs fall as producers become more familiar with a new production process is known as

A)an opportunity cost curve.
B)intra- industry trade.
C)an isoquant map.
D)learning by doing.
E)an Edgeworth box.

Question 49

If Canada's index of export prices is 250 and the index of import prices is 200, then the index of the terms of trade is

A)125.
B)80.
C)50
D)1.25.
E)0.8.

Question 50

If the index of export prices increases from 120 to 150 and the index of import prices increases from 100 to 125, it may be said that

A)there is insufficient information to calculate the terms of trade.
B)there has been no change in the terms of trade.
C)the terms of trade have improved.
D)the terms of trade have improved by 10 percent.
E)the terms of trade have deteriorated.

Question 51

If two countries each produce wool and cotton, the country with the higher opportunity cost for cotton (in terms of wool)will also have

A)an absolute advantage in the production of cotton.
B)an absolute advantage in the production of both wool and cotton.
C)a comparative advantage in the production of cotton.
D)a comparative advantage in the production of wool.
E)an absolute advantage in the production of wool.

Question 52

The diagram below shows the (hypothetical)demand and supply curves for regional jets in Canada. Assume that the market is competitive, all jets are identical, and that Canada engages in international trade.
FIGURE 33- 6
Refer to Figure 33- 6. If the world price of a regional jet is $20 million, Canada will

A)import 70 jets per year.
B)import 90 jets per year.
C)export 70 jets per year.
D)import 40 jets per year.
E)export 50 jets per year.

Question 53

If a product is very inexpensive to move from one regional market to another, then the

A)"law of one price" argues that it will sell for the same price in all markets.
B)price it sells for in every country will depend on the cost of labour in the single low- cost country in which the product was produced.
C)absolute cost of producing the product must be the same in all markets.
D)difference in the price from one market to another will depend on the relative elasticities of demand in the separate markets.
E)production of the world supply will be from the single country with the lowest absolute cost of producing it.

Question 54

Canada is a net importer of citrus fruit. If severe weather in Florida wipes out the fruit crop for one season, Canada's terms of trade will likely

A)not change.
B)deteriorate.
C)improve.
D)improve as long as Canada stops importing citrus fruit from Florida.
E)indeterminable with the information provided.

Question 55

If Canada's terms of trade rise from 212 to 236, then the change is said to be

A)favourable.
B)neutral.
C)unfavourable.
D)a deterioration.
E)prudent, since the rule of 72 is not violated.

Question 56

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
FIGURE 33- 5
Refer to Figure 33- 5. If Paperland does not engage in international trade, the equilibrium quantity of newsprint produced will be

A)Q₁.
B)Q₂.
C)Q₃.
D)Q₄.
E)Q₅.

Question 57

A country that engages in no foreign trade is said to be in a situation of

A)absolute advantage.
B)comparative advantage.
C)autarky.
D)reciprocal absolute advantage.
E)isolation.

Question 58

The concept of comparative advantage in international trade is based on _ as opposed to absolute costs.

A)total cost
B)average cost
C)relative prices
D)absolute prices
E)opportunity costs

Question 59

The "law of one price" states that the price of

A)a product that is costless to transport will be the same in all markets.
B)labour, measured in terms of its opportunity cost, is the same in all markets.
C)a product worldwide is always equal to the cost of production from the country with the lowest opportunity cost to make the product.
D)a product is always equal to the absolute cost of the resources that went into its production in any country.
E)natural resources is the same in all markets.

Question 60

The concept of "comparative advantage" refers to the

A)ability of one region to produce a commodity with less labour input than another region.
B)ability of one region to produce a commodity with fewer total inputs than another region.
C)ability of one region to produce a commodity at a lower opportunity cost than another region.
D)terms of trade index.
E)gains from international trade.

Question 61

The diagram below shows Robinson Crusoe's annual production possibilities boundary for the production of bananas and coconuts.
FIGURE 33- 3
Refer to Figure 33- 3. Starting from point A and moving to point B, Robinson Crusoe's opportunity cost of producing each additional kilogram of coconuts is

A)decreasing.
B)decreasing followed by increasing.
C)increasing followed by decreasing.
D)increasing.
E)constant.

Question 62

Suppose that Spain is currently producing 90 units of wine and 10 units of cheese, but to produce 10 more units of cheese it must sacrifice 30 units of wine. Further, suppose that Portugal produces 45 units of wine and 45 units of cheese, but to produce 10 more units of cheese it must sacrifice only 10 units of wine. It can be concluded that

A)neither country has an absolute advantage in the production of either wine or cheese.
B)Portugal has an absolute advantage in both wine and cheese production.
C)Spain has an absolute advantage in both wine and cheese production.
D)more information is needed to conclude anything about absolute advantage in either country.
E)Portugal has an absolute advantage in wine production and Spain has an absolute advantage in cheese production.

Question 63

If two countries each produce wool and cotton, we know that the country with the comparative advantage in cotton will also have a lower

A)resource input per unit produced of both cotton or wool.
B)resource input per unit produced of wool.
C)opportunity cost to produce cotton.
D)opportunity cost to produce wool.
E)resource input per unit produced of cotton.

Question 64

If two nations want to trade with one another, they can determine their respective comparative advantages by

A)hiring economists to gather and interpret the relevant data.
B)computing the opportunity costs of all goods and services.
C)first determining which has absolute advantage in the production of goods and services.
D)allowing firms in each country to freely engage in international trade.
E)making certain that the prices of tradable goods and services are equal in both nations.

Question 65

The diagram below shows Robinson Crusoe's annual production possibilities boundary for the production of bananas and coconuts. FIGURE 33- 3
Refer to Figure 33- 3. Starting from point B and moving to point A, his opportunity cost of producing each additional kilogram of bananas is

A)increasing.
B)decreasing followed by increasing.
C)constant.
D)decreasing.
E)increasing followed by decreasing.

Question 66

Suppose Canada could produce all goods and services more cheaply than all other countries. In that case,

A)no trade would occur because Canada would have an absolute advantage in producing everything.
B)trade would probably take place because Canada would still have a comparative disadvantage in producing some goods.
C)trade would occur but only if other countries subsidize the import of Canadian goods and services.
D)trade would occur but only if other countries also have an absolute advantage.
E)no trade would occur because Canada would not have a comparative advantage in producing anything.

Question 67

opportunity costs are the same in the two countries.

A)2 only
B)3 only
C)1 and 2
D)2 and 3
E)1 only

Question 68

The diagram below shows Robinson Crusoe's annual production possibilities boundary for the production of bananas and coconuts.
FIGURE 33- 3
Refer to Figure 33- 3. Suppose that a trading partner offers to give bananas to Robinson Crusoe in exchange for his coconuts. If Robinson Crusoe is to improve his consumption possibilities, the terms of trade must be 1 kg bananas for

A)3.0 kg coconuts.
B)2.0 kg coconuts.
C)1.0 kg coconuts.
D)0.5 kg coconuts.
E)0.33 kg coconuts.

Question 69

The existence of "absolute advantage"

A)fosters the self- sufficiency of nations.
B)refers to a situation where one country can produce one unit of a given product with fewer resources than the other country.
C)refers to a situation in which one country can produce one unit of all goods with fewer resources than can another country.
D)implies that there will be no benefits from trade between two nations.
E)is not physically possible.

Question 70

If two countries each produce wool and cotton, the country with the lower opportunity cost for cotton (in terms of wool)will also have

A)an absolute advantage in the production of both wool and cotton.
B)an absolute advantage in the production of cotton.
C)an absolute advantage in the production of wool.
D)a comparative advantage in the production of cotton.
E)a comparative advantage in the production of wool.

Question 71

International trade permits a country to

A)produce and consume beyond its production possibilities boundary.
B)lower the per- unit production costs of all goods which it is producing.
C)shift its production possibilities boundary outward.
D)expand its production possibilities while holding constant its consumption possibilities.
E)consume beyond its production possibilities boundary.

Question 72

Suppose that Spain is currently producing 90 units of wine and 10 units of cheese, but to produce 10 more units of cheese it must sacrifice 30 units of wine. Further, suppose that Portugal produces 45 units of wine and 45 units of cheese, but to produce 10 more units of cheese it must sacrifice only 10 units of wine. It can be concluded that

A)Portugal has an absolute advantage in both wine and cheese production.
B)more information is needed to conclude anything about comparative advantage in either country.
C)Portugal has an absolute advantage in wine production and Spain has an absolute advantage in cheese production.
D)Spain has an absolute advantage in both wine and cheese production.
E)Spain has a comparative advantage in the production of wine and Portugal has a comparative advantage in the production of cheese.

Question 73

Which of the following statements about comparative advantage is true?

A)Comparative advantage is based solely on differences in factor endowments.
B)A country with a rising price level will lose any existing comparative advantage.
C)Comparative advantage is based solely on differences in climate.
D)Comparative advantage for certain products may be acquired by deliberate domestic government policy.
E)To have a comparative advantage a country must also have an absolute advantage.

Question 74

Consider two countries that can produce wheat and coffee. The gains from trade when the two countries have different opportunity costs are realized when

A)each country has an absolute advantage in one of the two commodities.
B)the two countries continue to produce the same quantities of wheat and coffee.
C)resources are reallocated within the two countries such that each specializes in the production of the good in which it has a comparative advantage.
D)production possibility boundaries shift inward.
E)resources are reallocated within the two countries such that each specializes in the production of the good in which it has an absolute advantage.

Question 75

Consider a country that is initially autarkic and then engages freely in international trade. If a country has a comparative advantage in the production of soybeans, it will most probably

A)increase the production of soybeans to allow for the export of soybeans.
B)derive no advantage from any trade in soybeans.
C)increase the production of soybeans for domestic consumption.
D)decrease the production of soybeans for domestic consumption.
E)import soybeans

Question 76

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
FIGURE 33- 5
Refer to Figure 33- 5. If Paperland engages in international trade and the world price is P_C , the amount of newsprint will be .

A)imported; Q₄ - Q₂.
B)exported; Q₄ - Q₂.
C)imported; Q₃
D)exported; Q₂
E)imported; Q₄

Question 77

The increases in a nation's output and consumption that result from specialization and trade are called

A)the terms of trade.
B)the gains from trade.
C)autarky.
D)comparative advantage.
E)absolute advantage.

Question 78

There will be a favourable change in a nation's terms of trade if the

A)export price index rises by more than the import price index.
B)export and import prices rise by the same amount.
C)export and import prices fall by the same amount.
D)export and import prices stay the same.
E)import price index rises by more than the export price index.

Question 79

The hypothesis that the price of some given internationally traded product in one country will be equal to the price of the same product in some other country is known as

A)the Big Mac index.
B)the law of one price.
C)absolute advantage.
D)comparative advantage.
E)gains from trade.

Question 80

If, over a period of a year, a country's import price index rises from 100 to 120 and its export price index rises from 100 to 110, its index for the terms of trade has

A)risen to 109.09.
B)risen from 100 to 120.
C)risen from 100 to 110.
D)fallen from 110 to 100.
E)fallen to 91.66.