Deck 35: International Trade and Comparative Advantage

Question 1

Specialization is a major obstacle to international trade.

Answer 1

False

Question 2

Wages in most other countries have increased as a percentage of U.S.wages in the past 33 years.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

Specialization is the concept of devoting resources to the production of only a small number of goods and services.

Question 6

Countries that are unable to produce goods as efficiently as other countries will never be able to trade.

Question 7

Trade occurs only when a country has an absolute advantage and not just a comparative advantage over another country.

Question 8

If England uses one week's time to produce ten yards of cloth or two barrels of wine and Portugal uses one week's time to produce twelve yards of cloth or six barrels of wine, England has the comparative advantage in both goods.

Question 9

If England uses one week's time to produce ten yards of cloth or two barrels of wine and Portugal uses one week's time to produce twelve yards of cloth or six barrels of wine, then England has a comparative advantage in the production of cloth.

Question 10

One nation can gain from an exchange only at the expense of another.

Question 11

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

Question 12

Comparative advantage is the rule that ordinarily prevents a nation from independently producing all of the goods it requires.

Question 13

International trade usually benefits one trading partner while making the other trading partner worse off.

Question 14

If all countries produce the goods for which they have comparative advantages, all countries benefit with the increased production of goods with no additional resources being used.

Question 15

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

Question 16

Specialization permits larger outputs and offers economies of large-scale production.

Question 17

Capital, labor, and other factors of production move more freely from country to country than they do within a country.

Question 18

Something other than exploiting cheap foreign labor must be driving international trade.

Question 19

Absolute advantage states that a country has an advantage over another if it can produce a good with fewer resources.

Question 20

One country has an absolute advantage over another country if it can produce a good using smaller quantities of resources.

Question 21

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

Question 22

If two countries have production possibilities curves with different slopes, there is no possibility for gains from trade.

Question 23

Mercantilist policy is to do everything it can to promote exports and to discourage imports.

Question 24

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

Question 25

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 26

A tariff is a limitation on the amount of a good that can be imported.

Question 27

A quota ordinarily specifies both minimum and maximum amounts of goods that can come into a country.

Question 28

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

Question 29

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

Question 30

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

Question 31

The United States has relatively low tariffs.

Question 32

The U.S.government uses export subsidies extensively to stimulate exports.

Question 33

At least two demand curves are present in an international equilibrium model.

Question 34

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

Question 35

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

Question 36

Cheap labor is the source of comparative advantages.

Question 37

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

Question 38

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

Question 39

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

Question 40

A quota reduces quantity sold by operating through the demand side of the market.

Question 41

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

Question 42

Foreign competition will always put a domestic industry at a disadvantage.This leads to massive trade adjustment assistance on the part of each country.

Question 43

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 44

An upward spiral of protectionism is a possible outcome of strategic trade policy.

Question 45

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

Question 46

Quotas increase the profits of importers but decrease the profits of exporters.

Question 47

The "infant industry argument" recommends protectionism for industries that produce children's clothing.

Question 48

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

Question 49

Workers in high-wage countries cannot improve their real income when they trade with low-wage countries.

Question 50

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

Question 51

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

Question 52

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

Question 53

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

Question 54

"Dumping" means destroying goods to prevent driving down the price.

Question 55

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

Question 56

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

Question 57

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

Question 58

From 1975 to 2008, which of the following countries experienced greater wage increases than the U.S.?

A) Japan
B) South Korea
C) Taiwan
D) all of the above

Question 59

The economic effects of a quota are identical to those of a tariff.

Question 60

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

Question 61

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 62

When every country does what it is best at,

A) every other nation will lose because of the inability to compete.
B) all other nations can benefit because more of every commodity can be produced.
C) some nations will gain at the expense of other nations.
D) rich nations will gain at the expense of poor nations.

Question 63

Economists believe that trade is necessary for prosperity because

A) every country lacks some vital resources that it can get only by trade.
B) each country's climate makes it a relatively efficient producer of some goods, and an inefficient producer of other goods.
C) specialization permits large outputs and can produce economies of scale.
D) All of the above are correct.

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

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 66

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 67

Some nations that seek to produce all of their own needs face the problem that

A) people don't want a wide variety of choices when buying.
B) some industries are too small to be efficient.
C) other countries may want to buy from them.
D) All of the above are true.

Question 68

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 69

In the past, when the United States enjoyed a continuing trade surplus, wages in the United States

A) were much lower than wages in countries that imported U.S.products.
B) were much higher than wages in countries that imported U.S.products.
C) were roughly the same as wages in countries that imported U.S.products.
D) fell throughout that period, enabling the continuing trade surplus.
E) rose throughout that period, ending the trade surplus.

Question 70

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 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

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 73

A voluntary exchange of products means that

A) if one nation gains from a swap, the other nation must necessarily lose.
B) each country must do its best to act to the disadvantage of its trading partners.
C) both parties must gain (or expect to gain) from the transaction.
D) both parties must lose owing to the transaction costs involved.

Question 74

Which of the following might lead a nation to engage in international trade?

A) Differences in natural endowments such as climate
B) Differences in skills of labor force
C) Differences in endowments of natural resources
D) All of the above are correct.

Question 75

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 76

If Brazil voluntarily ships coffee to the United States in return for airplanes,

A) Brazil will benefit, but the United States will lose.
B) one of the two nations will benefit and the other nation will lose since the trade does not increase the physical quantities of coffee and airplanes available.
C) both Brazil and the United States will benefit since the trade allows each nation to acquire items.
D) both Brazil and the United States will lose since there is no increase in the production of coffee or airplanes and the trade will involve certain transaction costs.

Question 77

Many fear that cheap foreign labor will destroy American jobs; in reality, wages in

A) the United States have risen spectacularly in the last 33 years as trade grew.
B) countries that export to the United States are very low relative to the United States and show no sign of rising.
C) countries that export to the United States have risen spectacularly in the last 33 years.
D) United States export industries are very low relative to wages in the same industry in other countries.
E) All of the above are correct.

Question 78

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 79

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 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.