Deck 9: Comparative Advantage, Exchange Rates, and Globalization

Question 1

When a country runs a trade deficit, it does so by:

A) borrowing from foreign countries or selling assets to them.
B) borrowing from foreign countries or buying assets from them.
C) lending to foreign countries or selling assets to them.
D) lending to foreign countries or buying assets from them.

Answer 1

A

Question 2

The more competition there is in international trade, the larger the traders' proportion of the gains from trade.

Answer 2

False

Question 3

If Americans demand goods produced in Mexico, it leads to a demand for Mexican pesos and a supply of U.S. dollars on the foreign exchange market.

Answer 3

True

Question 4

Specialization according to comparative advantage means that a country is producing the goods:

A) that it wants to consume.
B) for which it has a relatively high opportunity cost.
C) for which it has a relatively low opportunity cost.
D) that it can produce at zero cost.

Question 5

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

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 6

When a country runs a trade surplus, it will:

A) borrow from foreign countries or sell assets to them.
B) borrow from foreign countries or buy assets from them.
C) lend to foreign countries or sell assets to them.
D) lend to foreign countries or buy assets from them.

Question 7

The United States has a trade deficit when the value of the goods and services we import exceeds the value of the goods and services we export.

Question 8

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

Question 9

The balance of trade measures the:

A) difference between the value of imports and that of exports.
B) share of U.S. imports coming from various regions of the world.
C) share of U.S. exports going to various regions of the world.
D) exchange rate needed to make imports equal exports.

Question 10

Economic models take into account the effect of trade on the distribution of income.

Question 11

Refer to the table shown. From this table we can conclude that:

A) France has a comparative advantage in both goods.
B) France has a comparative advantage in wine and Germany has a comparative advantage in electric generators.
C) Germany has a comparative advantage in wine and France has a comparative advantage in electric generators.
D) Germany has a comparative advantage in both goods.

Question 12

Smaller countries tend to get a larger share of the gains from trade than do larger countries.

Question 13

A currency has depreciated in value if it takes more of a foreign currency to buy it.

Question 14

Countries can expect to gain from international trade as long as they:

A) keep production diversified.
B) specialize according to their comparative advantage.
C) produce only those goods for which they have a relatively high opportunity cost.
D) use trade restrictions to reduce competition for domestic producers.

Question 15

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

Question 16

Refer to the table shown. From this table we can conclude that if the two countries trade with each other, it is most likely that:

A) France exports both goods to Germany.
B) Germany exports both goods to France.
C) France exports wine to Germany and imports electric generators from Germany.
D) France exports electric generators to Germany and imports wine from Germany.

Question 17

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

Question 18

Suppose foreign shrimp prices drop by 32 percent and importers gain a 90 percent market share. From this information, what would economists strongly suspect about this industry?

A) Foreigners have a comparative advantage in shrimping.
B) Americans have a comparative advantage in shrimping.
C) Foreign sellers probably are colluding on price to maximize profits.
D) The large sales of foreigners indicate that they are better strategic bargainers than Americans are.

Question 19

Manufacturing wages have risen significantly for 20 years.

Question 20

Globalization represents:

A) a return to isolationism.
B) the opposite of isolationism.
C) the economic complement of political isolationism.
D) the political complement of economic isolationism.

Question 21

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

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 22

Production Possibility Schedules for Two South Pacific Island Nations In Tuvalu, the opportunity cost of producing one coconut (in terms of mangoes) is:

A) 0.
B) 1/3.
C) 3.
D) 400.

Question 23

Production Possibility Schedules for Two South Pacific Island Nations Which of the following statements is true?

A) Gains from trade are possible for both countries.
B) Only Kiribati will benefit from trade with Tuvalu.
C) Only Tuvalu will benefit from trade with Kiribati.
D) No gains from trade are possible for either Kiribati or Tuvalu.

Question 24

Refer to the table shown. Botswana's opportunity cost of producing nickel (in terms of gold) is:

A) 3/5.
B) 5/3.
C) 60.
D) 100.

Question 25

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:

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 26

Refer to the table shown. A comparative advantage in the production of gold is held by:

A) Zimbabwe.
B) Botswana.
C) neither country.
D) both countries.

Question 27

Production Possibility Schedules for Two South Pacific Island Nations A comparative advantage in the production of coconuts is held by:

A) Kiribati.
B) Tuvalu.
C) both countries.
D) neither country.

Question 28

Refer to the graph shown. Given these production possibility curves, you would suggest that:

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

Question 29

If nations trade on the basis of comparative advantage:

A) a nation usually can gain from trade only at the expense of its trading partners.
B) exporting nations gain from trade and importing nations lose.
C) importing nations gain from trade and exporting nations lose.
D) all trading partners can gain from trade.

Question 30

Refer to the table shown. In this example:

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 31

A widget has an opportunity cost of 4 wadgets in Saudi Arabia and 2 wadgets in the United States. Given these opportunity costs, you would suggest that:

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 32

The country with a comparative advantage in the production of good X is the one that:

A) has the greatest technical efficiency in producing good X.
B) has the greatest supply of the natural resources used in producing good X.
C) can produce good X with the least labor.
D) can produce good X at the lowest opportunity cost.

Question 33

Production Possibility Schedules for Two South Pacific Island Nations In Kiribati, the opportunity cost of producing one mango (in terms of coconuts) is:

A) 0.
B) 1/4.
C) 4.
D) 400.

Question 34

Assume that in Canada the opportunity cost of producing one television set is two bushels of wheat. Assume that in the United States the opportunity cost of producing one bushel of wheat is two television sets. If these two countries specialize according to comparative advantage and then trade with each other:

A) Canada will export both televisions and wheat.
B) Canada will export wheat and import televisions.
C) the United States will export wheat and import televisions.
D) the United States will export both televisions and wheat.

Question 35

Production Possibility Schedules for Two South Pacific Island Nations A comparative advantage in the production of mangoes is held by:

A) Kiribati.
B) Tuvalu.
C) both countries.
D) neither country.

Question 36

Refer to the graph shown. We would expect that if the two countries trade with each other (and neither trades with the rest of the world):

A) Norstrilia will export manufactured goods and Graustark will export agricultural goods.
B) Norstrilia will export agricultural goods and Graustark will export manufactured goods.
C) Norstrilia will export both goods to Graustark, which will have a permanent trade deficit.
D) Graustark will export both goods to Norstrilia, which will have a permanent trade deficit.

Question 37

A nation's comparative advantage in the production of an item is determined by:

A) which country has already specialized in the production of the item.
B) the total and marginal costs of producing the item.
C) the opportunity cost of producing the item relative to a trading partner's opportunity cost.
D) wage rates and other input costs.

Question 38

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?

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 39

Assume that in Canada the opportunity cost of producing one television set is two bushels of wheat. Assume that in the United States the opportunity cost of producing one bushel of wheat is two television sets. If these two countries specialize according to comparative advantage and then trade with each other:

A) Canada will import both televisions and wheat.
B) Canada will import wheat and export televisions.
C) the United States will import wheat and export televisions.
D) the United States will import both televisions and wheat.

Question 40

If the United States were to stop trading with other nations, economists would predict that in the long run the United States would end up with:

A) more jobs.
B) lower prices.
C) a higher standard of living.
D) a lower standard of living.

Question 41

In considering the distribution of the gains from trade:

A) Smaller countries usually get a larger proportion of the gains from trade.
B) Larger countries usually get a larger proportion of the gains from trade.
C) The gains are generally split equally between small and large countries.
D) No statement can be made about the general nature of the split.

Question 42

The fact that the United States has a trade deficit means that:

A) the United States is producing more than it is consuming.
B) foreign countries can have comparative advantages in all goods.
C) foreign countries can have comparative advantages in more goods compared to the United States.
D) the United States is lending more to foreign countries than it is borrowing from foreign countries.

Question 43

Workers in education, healthcare and government sectors have:

A) seen their incomes fall just like in manufacturing.
B) been mostly hurt from globalization.
C) benefited from globalization in terms of lower consumer prices.
D) been hurt because the sector has been shrinking.

Question 44

When considering outsourcing, most laypeople:

A) recognize its benefits to raising foreign wages.
B) oppose it because of the visible loss of jobs.
C) support it because they enjoy lower consumer prices.
D) recognize it frees resources for other jobs for which the U.S. has a comparative advantage.

Question 45

The group that benefited the most from international trade has been people who:

A) financed international trade.
B) managed firms.
C) owners of firms.
D) no one has benefited.

Question 46

Why are the gains from trade often difficult to recognize?

A) The United States does not keep accurate records of employment.
B) The gains are spread out over a wide variety of goods and consumers.
C) There are no gains from trade.
D) The gains are in services, which are difficult to measure.

Question 47

On average, globalization has:

A) been insignificant.
B) left Americans no better or not worse off.
C) hurt Americans.
D) benefited Americans.

Question 48

Most economists:

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 49

Economists:

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 50

Which of the following puts downward pressure on U.S. manufacturing wages?

A) A declining value of the dollar
B) Rising foreign wages
C) Technological innovation
D) Immigration

Question 51

The analysis of international trade suggests that trading companies earn higher than normal profits in:

A) the long run but not in the short run.
B) the short run but not in the long run.
C) both the short run and the long run.
D) neither the short run nor the long run.

Question 52

In the past, presidential candidates have argued that free trade with Mexico would result in massive job losses in the United States because Mexican wages were so low. Which of the following is the best explanation of why few economists agree with this position?

A) Economists did not believe that any jobs would be lost in the United States.
B) Economists believed that the U.S. unemployment rate would rise.
C) Although economists agreed that in some areas the United States would lose jobs, they expected that the United States would gain jobs in other areas.
D) Although economists predicted that unemployment would rise, the increased profits of corporations would raise stock prices enough to compensate for the lost jobs.

Question 53

The U.S. textile industry is relatively small because the United States imports most of its clothing. A clear result of the importation of clothing is that:

A) there is less variety available than there would be without imports.
B) the quality of clothing is lower than it would be without imports.
C) the price of clothing is higher than it would be without imports.
D) the price of clothing is lower than it would be without imports.

Question 54

If countries decide they will no longer buy U.S. assets or lend to the United States:

A) adjustments will be set in motion to equalize comparative advantages.
B) adjustments will be set in motion so that the United States has more comparative advantages.
C) the United States can begin to run a trade deficit.
D) There is no reason foreign countries will not want to buy more U.S. assets than the United States buys of foreign assets.

Question 55

In the United States, globalization has caused workers in the education, health care, and government sectors to face:

A) lower wages.
B) higher prices on consumer goods.
C) little or no downward pressure on their wages.
D) longer hours to compete with the higher production levels abroad.

Question 56

In the United States globalization has played:

A) a significant role in growing income disparity because some sectors have benefited and others have not.
B) little role in growing income disparity because all Americans are consumers who have enjoyed lower prices.
C) a significant role in growing income disparity because foreign workers' incomes have risen.
D) little role in growing income disparity because while some jobs were lost, the gain in jobs balanced out those that were lost.

Question 57

Economists and laypeople see the pros and cons of international trade in different ways. Which of the following is one of those ways?

A) Laypeople enjoy the benefits of trade in terms of lower consumer prices.
B) Laypeople believe in the law of one price and economists do not.
C) Laypeople tend to think of foreign trade only in terms of manufactured goods.
D) Laypeople recognize that the United States has a comparative advantage in services.

Question 58

The loss of jobs due to international trade is often:

A) more visible than the decline in consumer prices due to international trade.
B) less visible than the decline in prices due to international trade.
C) greater than the benefit of trade in the form of decline in prices.
D) spread across all sectors while decline in prices is concentrated in one sector.

Question 59

Which of the following statements correctly summarizes a difference between the layperson's and the economist's views of the net benefits of trade?

A) Economists often argue that the gains from trade in the form of low consumer prices tend to be widespread and not easily recognizable while the costs in jobs lost tend to be concentrated and readily identifiable.
B) Economists often argue that most U.S. jobs are at risk of outsourcing while laypeople intuitively recognize that inherent in comparative advantage is that each country has a comparative advantage in the production of some good.
C) Economists focus on trade in manufactured goods while laypeople also focus on trade involving the services of people who manage the trade.
D) Economists most often argue that the costs of trade outweigh the benefits while laypeople often argue that the benefits of trade outweigh the costs.

Question 60

Country A's cost of widgets is $4.00 and cost of wadgets is $8.00. Country B's cost of widgets is 8 euros and cost of wadgets is 16 euros. Which of the following would you suggest?

A) Country A should specialize in widgets and Country B in wadgets.
B) Trade of widgets for wadgets would not benefit the countries.
C) Country A should specialize in wadgets and Country B in widgets.
D) Both countries should produce an equal amount of each.

Question 61

What economists call the law of one price depends on:

A) government action.
B) people seeking to exploit profit opportunities.
C) random chance.
D) the inertia effect.

Question 62

When comparative advantage is based on transferable factors, the law of one price tends to:

A) erode the advantage away.
B) amplify the advantage.
C) stabilize the advantage.
D) make the advantage into an inherent comparative advantage.

Question 63

The decline in the price of American goods is due in part to:

A) agglomeration effects of firms.
B) declines in productivity.
C) trade barriers that allow domestic firms to lower prices.
D) globalization and increased trade.

Question 64

The foreign exchange rate is the rate at which:

A) taxes are imposed on foreign imports.
B) foreign goods are traded between domestic consumers.
C) one country's currency can be traded for another country's currency.
D) immigrants are exchanged between countries.

Question 65

The United States imports:

A) only manufactured goods.
B) only services.
C) neither manufactured goods nor services.
D) both manufactured goods and services.

Question 66

A common economically unfounded fear held by laypeople is that:

A) globalization will result in the United States losing most jobs because wages are so much higher in the United States.
B) globalization will result in dramatically higher prices because most services will be outsourced.
C) the United States has a comparative advantage in the production of all goods.
D) a U.S. trade surplus will result in a dramatically lower dollar.

Question 67

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

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 68

The text mentions 10 sources of U.S. comparative advantage. Which of the following is not one of them?

A) Relatively open immigration laws
B) Religious diversity
C) Skills of the U.S. labor force
D) A large stock of intellectual property rights

Question 69

If 1 Canadian dollar costs 0.60 U.S. dollars, 1 U.S. dollar costs:

A) 0.40 Canadian dollars.
B) 0.60 Canadian dollars.
C) 1.40 Canadian dollars.
D) 1.67 Canadian dollars.

Question 70

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?

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 71

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

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 72

Which of the following is eroding the U.S. comparative advantage?

A) The spread of technology
B) The law of one price
C) A depreciating dollar
D) Intellectual property rights

Question 73

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

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

Question 74

Transferable comparative advantages are:

A) based on factors that are relatively unchangeable.
B) based on factors that can change relatively easily.
C) becoming more like inherent comparative advantages with technological innovations.
D) rarely eroded over time.

Question 75

One of the 10 sources of U.S. comparative advantage mentioned in the text is:

A) religious diversity.
B) a large military.
C) a high ratio of lawyers to the population.
D) stable U.S. government institutions.

Question 76

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

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 77

The text refers to the type of comparative advantage that can be gained or lost because of changes in skills of workers or types of capital as:

A) unstable comparative advantage.
B) transferable comparative advantage.
C) non-equilibrium comparative advantage.
D) temporary comparative advantage.

Question 78

The text mentions 10 sources of U.S. comparative advantage. Which of the following is not one of them?

A) Wealth from past production
B) The fact that English is the international language of business
C) A substantial policy to limit immigration
D) Extensive natural resources

Question 79

If the euro rises in price, it becomes:

A) cheaper for Americans to buy European products and cheaper for Europeans to buy American products.
B) cheaper for Americans to buy European products but more expensive for Europeans to buy American products.
C) more expensive for Americans to buy European products but cheaper for Europeans to buy American products.
D) more expensive for Americans to buy European products and more expensive for Europeans to buy American products.

Question 80

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?

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.