Deck 34: International Trade and Comparative Advantage

Question 1

If one country has an absolute advantage in every commodity, there is no reason for it to trade.

Answer 1

False

Question 2

If gains from trade are based solely on comparative advantage, and if all countries have the same opportunity costs of production, then there are no gains from trade.

Answer 2

True

Question 3

Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer.

Answer 3

False

Question 4

Gain from trade is the increase in total production due to specialization allowed by trade.

Question 5

When a country removes a specific import restriction, it always benefits every worker in that country.

Question 6

Absolute advantage is a comparison among producers based on productivity.

Question 7

Comparative advantage, not absolute advantage, determines the decision to specialize in production.

Question 8

If England uses one week's time to produce 10 yards of cloth or 2 barrels of wine and Portugal uses one week's time to produce 12 yards of cloth or 6 barrels of wine, England has the comparative advantage in both goods.

Question 9

Exports are goods produced domestically and sold abroad.

Question 10

If producers have different opportunity costs of production, trade will allow them to consume outside their production possibility frontiers.

Question 11

If South Korea has an absolute advantage in the production of an item, it must also have a comparative advantage in the production of that item.

Question 12

Comparative advantage is a comparison among producers based on opportunity cost.

Question 13

Unequal distribution of resources is one of the main reasons for international trade.

Question 14

If England uses one week's time to produce 10 yards of cloth or 2 barrels of wine and Portugal uses one week's time to produce 12 yards of cloth or 6 barrels of wine, then England has a comparative advantage in the production of cloth.

Question 15

Specialization means that a country devotes its energy and resources to only a small proportion of the world's productive activities.

Question 16

Absolute advantage is the ability to produce a good using fewer inputs than another producer.

Question 17

Imports are goods produced abroad and sold domestically.

Question 18

The U.S. Constitution prevents tariffs on trade between the individual states.

Question 19

Voluntary exchange is based on the principle that all parties must gain from trade.

Question 20

Self-sufficiency is the best way to increase one's material welfare.

Question 21

An export subsidy is a payment by the government to exporters to permit them to charge lower prices.

Question 22

Quotas and tariffs provide the same outcome: restriction of international trade and higher prices for consumers.

Question 23

A country's comparative advantage can be illustrated by the graph of the production possibilities frontier.

Question 24

The principle of comparative advantage states that countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners.

Question 25

A tariff is a tax on imports imposed by the country that is importing the goods.

Question 26

Trade adjustment assistance provides special unemployment benefits, loans, retraining programs, and other aid to workers and firms that are harmed by foreign competition.

Question 27

An export subsidy helps reduce the selling price of a product by allowing individual producers to charge less and still cover all of their production costs.

Question 28

If two countries voluntarily trade two goods with one another, the rate of exchange between the goods must fall in between the price ratios that would prevail in the two countries in the absence of trade.

Question 29

Even though international trade is more complicated, supply and demand are still at the center of the price determination mechanism.

Question 30

The quantity supplied by domestic producers in an importing country must be less than the quantity demanded by its population.

Question 31

A quota sets the maximum amount of a good that is permitted into a country.

Question 32

If a country's productivity doubles for everything it produces, this will not alter its prior pattern of specialization because it has not altered its comparative advantage.

Question 33

Opportunity cost refers to whatever is given up to obtain some item.

Question 34

The United States has relatively low tariffs.

Question 35

Talented people who are best at everything have a comparative advantage in the production of everything.

Question 36

Dumping means selling goods in a foreign market at lower prices than those charged in the home market.

Question 37

Comparative advantage is illustrated by the slopes of production possibilities frontiers.

Question 38

Large gains from trade are most likely when countries are very different.

Question 39

Equilibrium price in international trade is the common price between exporting and importing countries.

Question 40

The United States is known worldwide as being a low-tariff nation.

Question 41

Many countries impose tariffs or quotas to protect the domestic industry from competition.

Question 42

If every country uses tariffs, everyone is likely to lose.

Question 43

A quota specifies the maximum amount of a good that is permitted into the country from abroad per unit of time.

Question 44

The strategic argument for protectionism holds that a nation may sometimes have to threaten protectionism to induce other countries to drop their own protectionist measures.

Question 45

A tariff has one distinct advantage over a quota. It increases tax revenues to the government.

Question 46

If a country's workers can produce 10 hamburgers per hour or 5 bags of French fries per hour. If there is no trade, the price of 1 bag of fries is 2 hamburgers.

Question 47

An import quota will ordinarily raise the price of the good in the importing country.

Question 48

Mercantilism is a doctrine that holds that exports are good for a country, whereas imports are harmful.

Question 49

Dumping is a trade practice in which countries sell goods in a foreign market at cheaper prices than the goods can be produced domestically.

Question 50

According to William Safire, "helpfulism" is basically protectionism.

Question 51

Strategic trade policy relies on threats of protectionism to protect free trade.

Question 52

The infant-industry argument for trade protection holds that new industries need to be protected from foreign competition until they develop and flourish.

Question 53

Any restriction of international trade that is accomplished by a quota can also be accomplished by a tariff.

Question 54

Both tariffs and quotas will restrict supplies coming into the country from abroad.

Question 55

If a nation has an absolute advantage in the production of a good,

A) it can produce that good at a lower opportunity cost than its trading partner.
B) it can produce that good using fewer resources than its trading partner.
C) it will specialize in the production of that good and export it.
D) all of these.

Question 56

Tariffs are more desirable than quotas if a government wants to increase revenues and reduce benefits to inefficient exporters.

Question 57

A quota brings a more serious misallocation of resources than a tariff.

Question 58

A tariff is a tax on imports.

Question 59

If a country has an absolute advantage in the production of an item, it must also have a comparative advantage in the production of that item.

Question 60

Labor is defined as cheap only if its productivity is very low.

Question 61

Nothing raises the standard of living more than a greater

A) abundance of goods.
B) effort of production.
C) population.
D) number of import tariffs.
E) All of the above are true.

Question 62

A common fallacy that is used to oppose trade is the idea that

A) the only gains from trade go to the rich, so the poor must lose.
B) "you get what you pay for."
C) "if it's not broken, don't fix it."
D) one country's gain must be another's loss.
E) what is true for one is true for all.

Question 63

If a nation has an absolute advantage in the production of a good

A) it can produce that good at a lower opportunity cost than its trading partner
B) it can produce the good using fewer resources than its trading partner.
C) it can benefit by restricting imports of that good.
D) None of these.

Question 64

Trade between nations usually means that

A) one country is richer than another.
B) one country becomes richer while the other becomes poorer.
C) both trading nations show some gains.
D) one trading country is trying to "beggar its neighbor."

Question 65

The following table shows the units of output a worker can produce per month in country A and country B. Country Which of the following statements about absolute advantage is true?

A) Country A has the absolute advantage in the production of food while country B has the absolute advantage in the production of electronics.
B) Country A has the absolute advantage in the production of both food and electronics.
C) Country B has the absolute advantage in the production of both food and electronics.
D) All of these.

Question 66

Political factors influence international trade because

A) foreign trade always involves at least two governments.
B) foreign governments are much less concerned with the welfare of citizens in other countries.
C) foreign governments often establish impediments to free international trade.
D) All of the above are correct.

Question 67

One of the main reasons that people want to limit imports is the

A) fear that imports will decrease the income of Americans.
B) idea that cheap foreign labor destroys American jobs.
C) concept that if trade benefits another country, it must harm the United States.
D) All of the above are correct.

Question 68

Suppose a country's workers can produce 4 watches per hour or 16 rings per hour. If there is no trade

A) domestic price of 1 ring is 1/4th of a watch.
B) domestic price of 1 ring is 4 watches.
C) domestic price of 1 ring is 5 watches.
D) all of these.

Question 69

Suppose a country's workers can produce 4 watches per hour or 16 rings per hour. If there is no trade

A) the opportunity cost of 1 watch is 4 rings.
B) the opportunity cost of 1 watch is 1/4th of a ring.
C) the opportunity cost of 1 watch is 5 rings.
D) the opportunity cost of 1 watch is 1/5th of a ring.

Question 70

If Argentina has a large amount of farmland and Great Britain has many factories,

A) the two nations have no reason to trade.
B) Argentina will be willing to trade but Great Britain will not.
C) Great Britain will be willing to trade but Argentina will not.
D) the two nations will probably engage in mutually advantageous trade.

Question 71

The main reason why one nation trades with another is to

A) save its natural resources from rapid depletion.
B) exploit the advantages of specialization.
C) eliminate the danger of retaliation from other nations.
D) improve political alliances.

Question 72

__________ is a payment by the government to exporters to permit them to reduce the selling prices of their goods so they can compete more effectively in foreign markets.

A) Export subsidy
B) Import subsidy
C) Tariff
D) All of these

Question 73

One of the major reasons why nations trade is that

A) nations choose to trade for largely unknown reasons.
B) resources are not equally distributed across the planet.
C) nations wish to exert cultural influence abroad.
D) nations wish to copy others and need imports to study.

Question 74

The following table shows the units of output a worker can produce per month in country A and country B. Country The opportunity cost of 1 unit of electronics in country A is

A) 4 units of food.
B) 3 units of food.
C) 2 units of food.
D) all of these.

Question 75

Trade between two nations is complicated by

A) the variability in exchange rates of the respective nation's currencies.
B) different production techniques in the nations.
C) the age and experience of the respective nation's diplomats.
D) the variability in climate between the nations.

Question 76

The following table shows the units of output a worker can produce per month in country A and country B. Country The opportunity cost of a unit of electronics in Country B is

A) 3 units of food.
B) 2 units of food.
C) 5 units of food.
D) none of these.

Question 77

The following table shows the units of output a worker can produce per month in country A and country B. Country The opportunity cost of I unit of food in country A is

A) ¼ of a unit of electronics.
B) ½ of a unit of electronics.
C) 1/3 of a unit of electronics.
D) All of these.

Question 78

One reason why nations trade is because

A) trading provides opportunities to earn profits.
B) the rate of interest is not the same in all countries.
C) resources are not equally distributed to all nations.
D) some nations like to build one thing while others like to build another.

Question 79

Comparing international trade with trade among the different states of the United States shows that

A) the logic of international trade is quite different from that of intranational trade.
B) the basic reasons for trade are equally applicable within a country or among countries.
C) there is no need to study international trade as a special subject.
D) All of the above are correct.

Question 80

The logic of why international trade increases well-being is

A) a major revision of the logic of why trade within a country increases well-being.
B) completely different from the logic of why trade within a country increases well-being.
C) a narrow, special case of the logic of why trade within a country increases well-being.
D) no different from the logic of why trade within a country increases well-being.