Deck 7: Comparative Advantage and the Gains From International Trade

Question 1

In the United States,imports and exports make up more than half of GDP.

Answer 1

False

Question 2

When Roxanne,a U.S.citizen,purchases a designer dress from Barneys of New York that was made in Milan,the purchase is

A) both a U.S. and an Italian import.
B) a U.S. import and an Italian export.
C) a U.S. export and an Italian import.
D) neither an export nor an import for either country.

Answer 2

a U.S. import and an Italian export.

Question 3

U)S.firms that sell products in foreign markets protested the "Buy American" provision in the 2009 stimulus bill,arguing that if the United States restricted imports from foreign firms,

A) foreign countries would likely retaliate by limiting U.S. exports.
B) foreign firms would stop selling all products in the United States.
C) U.S. firms would never be able to meet the increased demand for U.S.-produced goods.
D) eventually the government would demand price cuts from U.S. manufacturers.

Answer 3

foreign countries would likely retaliate by limiting U.S. exports.

Question 4

Today,the United States charged an average tariff rate

A) that is more than its average tariff rate in 1930.
B) which is greater than any other high-income country.
C) of less than 2 percent.
D) that exceeds 50 percent.

Question 5

NAFTA refers to a 1994 agreement that eliminated most tariffs among which countries?

A) Canada, the United Kingdom and Mexico
B) the United States, the United Kingdom and Mexico
C) the United States, Canada and Mexico
D) the United States, Mexico and Cuba

Question 6

Goods and services bought domestically but produced in other countries are referred to as

A) exports.
B) imports.
C) transfer payments.
D) foreign consumption.

Question 7

Caterpillar's sales are now greater outside the United States than inside the United States.

Question 8

Which of the following statements is true?

A) Japan is more dependent on foreign trade than is the United States.
B) Imports and exports account for over one-half of the GDP of Belgium.
C) France is the leading exporting country, accounting for 10 percent of total world exports.
D) Because the cost of labor used on farms is so high, the United States exports very little of its wheat, rice and corn crops.

Question 9

Twenty-seven countries in Europe have eliminated all tariffs with each other.This group of countries is known as the

A) European Union.
B) United Federation of Europe.
C) Gruppo Euro.
D) European Free Trade Association.

Question 10

The intention of the "Buy American" provision in the 2009 stimulus bill was to

A) increase jobs in the United States.
B) prevent foreign firms from dumping product in the United States.
C) insure that products used to build roads and bridges meet U.S. quality and safety standards.
D) save the government money by restricting the sale of more expensive foreign-made products.

Question 11

Which of the following statements about the importance of trade to the U.S.economy is true?

A) Since 1950, both exports and imports have steadily decreased as a fraction of U.S. gross domestic product.
B) Overall, about 80 percent of U.S. manufacturing jobs depend directly or indirectly on exports.
C) The United States is the largest exporter in the world.
D) The U.S. economy is highly dependent on international trade for growth in its gross domestic product.

Question 12

Caterpillar's sales were severely affected by the decline in the U.S.housing market that began in 2006.Sales in the United States declined by ________ between 2006 and 2008,and export sales ________ during the same time period.

A) more than half; increased by enough to make 2008 a record sales year
B) almost 90 percent; remained virtually unchanged
C) almost 90 percent; declined by half
D) more than half; declined by a similar percentage

Question 13

In the 1930s,the United States charged an average tariff rate ________.Today,the rate is ________.

A) of 100 percent; 20 percent
B) above 50 percent; less than 2 percent
C) of less than 10 percent; over 40 percent
D) of 17 percent; 33 percent

Question 14

Absolute advantage is

A) the ability to produce more of a good or service than competitors when using the same amount of resources.
B) the ability to produce higher quality goods compared to one's competitors.
C) the ability to produce a good or service at a higher opportunity cost than one's competitors.
D) the ability to produce more of a good or service than competitors that have more resources.

Question 15

How have U.S.imports and exports,as a fraction of GDP,changed from 1950 to the present?

Question 16

Exports are domestically produced goods and services

A) sold to other countries.
B) sold to the government.
C) sold at home.
D) which are used to produce other goods and services.

Question 17

Workers in industries protected by tariffs and quotas are likely to support these trade restrictions because

A) they do not want to offend their employers who want them.
B) politicians lobby to convince workers the restrictions will make them better off.
C) they believe the restrictions will protect their jobs.
D) they don't understand that the restrictions will threaten their jobs.

Question 18

In 2010,________ of Caterpillar's sales were outside the United States.

A) only 12 percent
B) more than two-thirds
C) less than half
D) 95 percent

Question 19

A tariff is a tax imposed by a government on

A) exports.
B) services.
C) imports.
D) luxury items.

Question 20

Which of the following statements is true?

A) Exports benefit trading countries because exports create jobs. Imports do not benefit trading countries because they result in a loss of jobs.
B) Each year China exports about 50 percent of its wheat crop and 40 percent of its rice crop.
C) Most of the leading exporting countries are large, high-income countries.
D) All sectors of the U.S. economy are affected equally by international trade.

Question 21

Table 9-2
Output Per Hour of Work

Table 9-2 shows the output per hour of work for handbags and jackets in Cambodia and in Thailand.
Refer to Table 9-2.
a.Which country has an absolute advantage in the production of handbags and jackets?
b.Which country has a comparative advantage in the production of handbags?
c.Which country has a comparative advantage in the production of jackets?

Question 22

Countries that engage in trade will tend to specialize in the production of goods and services in which they have ________ and will ________ these goods and services.

A) a comparative advantage; import
B) an absolute advantage; export
C) a comparative advantage; export
D) an absolute advantage; import

Question 23

Table 9-2
Output Per Hour of Work

Table 9-2 shows the output per hour of work for handbags and jackets in Cambodia and in Thailand.
Refer to Table 9-2.Fill in the following table with the opportunity costs of producing handbags and jackets for Cambodia and Thailand.

Question 24

Table 9-1

Linda and Sandy own The Preppy Puppy, a dog grooming business. Table 9-1 lists the number of dogs Linda and Sandy can each bathe and groom in one week.
Refer to Table 9-1.Select the statement that accurately interprets the data in the table.

A) Linda has a comparative advantage in dog bathing.
B) Sandy has an absolute advantage in dog bathing.
C) Sandy has a comparative advantage in dog bathing.
D) Linda has a comparative advantage in dog grooming and dog bathing.

Question 25

Table 9-1

Linda and Sandy own The Preppy Puppy, a dog grooming business. Table 9-1 lists the number of dogs Linda and Sandy can each bathe and groom in one week.
Refer to Table 9-1.Select the statement that accurately interprets the data in the table.

A) Sandy has a greater opportunity cost than Linda for dog grooming.
B) Sandy's opportunity cost for dog grooming is less than Linda's.
C) Linda has a greater opportunity cost than Sandy for dog bathing.
D) Sandy's opportunity cost for dog grooming and dog bathing are both greater than Linda's.

Question 26

The ratio at which a country can trade its exports for imports from other countries is called

A) a trade barrier.
B) the terms of trade.
C) autarky.
D) a free trade agreement.

Question 27

Table 9-1

Linda and Sandy own The Preppy Puppy, a dog grooming business. Table 9-1 lists the number of dogs Linda and Sandy can each bathe and groom in one week.
Refer to Table 9-1.Select the statement that accurately interprets the data in the table.

A) Sandy has a comparative advantage in dog grooming.
B) Linda has a comparative advantage in dog grooming.
C) Linda has a comparative advantage in dog grooming and dog bathing.
D) Sandy has a comparative advantage in dog bathing.

Question 28

Whenever a buyer and a seller agree to trade,

A) the agreement is made based on absolute advantage.
B) they must have identical opportunity costs in producing their respective products.
C) one party will always be worse off.
D) both must believe they will be made better off.

Question 29

If Canada has a comparative advantage relative to Mexico in the production of timber,then

A) the explicit cost of production for timber is lower in Canada than in Mexico.
B) the opportunity cost of production for timber is lower in Canada than in Mexico.
C) the implicit costs of production for timber are lower in Canada than in Mexico.
D) the average cost of production for timber is lower in Canada than in Mexico.

Question 30

If the opportunity cost of production for two goods is different between two countries,then

A) trade cannot benefit either country.
B) only one country can be made better off by trade.
C) mutually beneficial trade is possible.
D) trade will only benefit both countries if one can lower its opportunity costs.

Question 31

Examples of ________ show how trade between two countries can make each better off.

A) absolute advantage
B) comparative advantage
C) autarky
D) trade barriers

Question 32

If Estonia has an absolute advantage in the production of two goods compared to Norway,Estonia can not benefit from trade with Norway.

Question 33

________ is the ability of an individual,a firm,or a country to produce a good or service at a lower opportunity cost than competitors.

A) Absolute advantage
B) Specialization
C) Autarky
D) Comparative advantage

Question 34

The ability of a firm or country to produce a good or service at a lower opportunity cost than other producers is called absolute advantage.

Question 35

An economic principle that explains why countries produce different goods and services is

A) absolute advantage.
B) trade as a percentage of GDP.
C) comparative advantage.
D) NAFTA.

Question 36

If Canada imports fishing poles from Mexico and Mexico imports bacon from Canada,which of the following would explain this pattern of trade?

A) Mexico has a lower opportunity cost of producing bacon than Mexico and Mexico has a comparative advantage in producing fishing poles.
B) The opportunity cost of producing fishing poles in Canada is higher than the opportunity cost of producing bacon in Mexico.
C) Mexico must have an absolute advantage in producing fishing poles and Canada must have an absolute advantage in bacon.
D) Mexico has a higher opportunity cost of producing fishing poles than Canada, and Canada has a higher opportunity cost of producing bacon.

Question 37

Table 9-1

Linda and Sandy own The Preppy Puppy, a dog grooming business. Table 9-1 lists the number of dogs Linda and Sandy can each bathe and groom in one week.
Refer to Table 9-1.Select the statement that accurately interprets the data in the table.

A) Linda has an absolute advantage in dog bathing and Sandy has an absolute advantage in dog grooming.
B) Sandy has an absolute advantage in dog bathing and Linda has an absolute advantage in dog grooming.
C) Sandy has an absolute advantage in dog bathing and dog grooming.
D) Linda has an absolute advantage in dog bathing and dog grooming.

Question 38

A situation in which a country does not trade with other countries is called

A) autarky.
B) self-actualization.
C) autonomy.
D) independence.

Question 39

Assume that China has a comparative advantage in producing corn and exports corn to Japan.We can conclude that

A) China also has an absolute advantage in producing corn relative to Japan.
B) China has a lower opportunity cost of producing corn relative to Japan.
C) Japan has an absolute disadvantage in producing corn relative to China.
D) Labor costs are higher for corn producers in Japan than in China.

Question 40

If Japanese workers are more productive than French workers then trade between Japan and France

A) can take place only if France has an absolute advantage in producing a good or service Japanese buyers want.
B) cannot take place because Japanese goods and services will be less expensive than French goods and services.
C) cannot take place until French workers become more productive.
D) will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want.

Question 41

One reason a country does not specialize completely in production is that not all goods and services are traded internationally.

Question 42

What is autarky?

Question 43

Once a country has lost its comparative advantage in producing a good,its income will be ________ and its economy will be ________ if it switches from producing the good to importing it.

A) higher; less efficient
B) higher; more efficient
C) lower; less efficient
D) lower; more efficient

Question 44

In the real world we don't observe countries completely specializing in the production of goods for which they have a comparative advantage.One reasons for this is

A) comparative advantage works better in theory than in practice.
B) some countries have more resources than other countries.
C) tastes for many traded goods are similar in many countries because of globalization.
D) production of most goods involves increasing opportunity costs.

Question 45

The United States is a leading exporter of wheat.What explains the comparative advantage of the United States in wheat production?

A) positive externalities
B) investment by multinational firms such as Archer-Daniels-Midland and the Tyson Foods Inc.
C) climate and soil conditions in the United States which are well-suited for wheat production
D) a large supply of unskilled labor

Question 46

Suppose in Finland a worker can produce either 32 cell phones or 4 kayaks while in Canada a worker can produce either 40 cell phones or 10 kayaks.
a.Which country has an absolute advantage in cell phone production? In kayak production?
b.What is the opportunity cost of 1 cell phone in Finland? In Canada?
c.What is the opportunity cost of 1 kayak in Finland? In Canada?
d.Which country has a comparative advantage in cell phone production? In kayak production?
e.Suppose each country has 1,000 workers.Currently,each country devotes 40 percent of its labor force to cell phone production and 60 percent to kayak production.What is the output of cell phones and kayaks for each country and what is the total output of cell phones and kayaks between the two countries?
f.Suppose each country specializes in the production of the good in which it has a comparative advantage.What is the total output of cell phones and kayaks in the two countries?
g.Provide a numerical example to show how Finland and Canada can both gain from trade.Assume that the terms of trade are established at 6 cell phones for 1 kayak.

Question 47

The first example used to explain comparative advantage used two countries (England and Portugal)and two goods (wine and cloth)to show that

A) each country would be better off from trade if it had an absolute advantage in producing one of the goods.
B) each country would have a comparative advantage in the production of the good for which it had an absolute advantage.
C) mutually beneficial trade was possible between two countries even if one had an absolute advantage in the production of both goods.
D) mutually beneficial trade was possible between two countries even if one had a comparative advantage in the production of both goods.

Question 48

Japan has developed a comparative advantage in designing and producing automobiles.The source of its comparative advantage in these products is

A) abundant supplies of natural resources.
B) a favorable climate.
C) a strong central government.
D) technology.

Question 49

Wall Street,in the borough of Manhattan in New York City,is the heart of the U.S.financial system,where banks,brokerage houses,other financial firms,and the New York Stock Exchange are all located.What is the reason for New York City's comparative advantage in the financial market?

A) the development of superior information technology
B) an abundant supply of skilled labor
C) New York City has one of the largest sea ports in the world.
D) external economies

Question 50

A consequence of increasing marginal costs of producing digital music players in Japan is

A) Japan will not export digital music players.
B) Japan will stop short of complete specialization in the production of digital music players.
C) Japan will import digital music players from countries that don't experience increasing marginal costs.
D) Japan will likely impose trade restrictions on imported digital music players.

Question 51

Which of the following is not a source of comparative advantage?

A) relative abundance of labor and capital
B) technology
C) climate and natural resources
D) a strong foreign currency exchange rate

Question 52

One of the main sources of comparative advantage is internal economies.

Question 53

Tastes for products such as beer differ.As a result

A) we see countries specializing completely in the production of beer.
B) consumers of beer have difficulty deciding what type of imported beer to buy.
C) the quality of imported beer is less than it could be.
D) different countries may each have a comparative advantage in producing different types of beer.

Question 54

What are the four main sources of comparative advantage? Briefly explain each source and provide examples.

Question 55

________ refers to reductions in a firm's costs that result from an increase in the size of an industry.

A) Internal economies
B) External economies
C) Autarkial dominance
D) Streamlining

Question 56

The simple trade model demonstrates that countries can expand consumption by specializing in the production of goods and services in which they have a comparative advantage.In reality we do not see complete specialization in production.State three reasons why this is case.

Question 57

Which of the following statements is true?

A) All individuals in both countries are made better off as a result of international trade.
B) Within each country, some individuals are made better off as a result of international trade, but one of the countries will be worse off overall.
C) Although some individuals are made better off as a result of international trade, both countries may be made worse off overall.
D) Each country as a whole is made better off as a result of international trade, but individuals within each country may be made worse off.

Question 58

A Federal Reserve publication proclaimed that "Trade is a win-win situation for all countries that participate." This statement is

A) false since it ignores the workers who lose their jobs as result of international trade.
B) false since not all countries participate in international trade.
C) true because it refers to countries; individuals may be losers as a result of international trade.
D) true because all consumers and workers benefit from international trade.

Question 59

In the 1970s and 1980s,the United States lost its comparative advantage in consumer electronics goods to Japan.What factor was most responsible for the development of Japan's comparative advantage in consumer electronics goods?

A) Japanese firms benefited from external economies.
B) Japan has abundant supplies of labor.
C) Japanese firms excelled in process technology.
D) Japan has abundant supplies of natural resources needed to produce electronics goods.

Question 60

China has developed a comparative advantage in the production of clothing.The source of this comparative advantage is

A) a large supply of natural resources.
B) a large supply of unskilled workers and relatively little capital.
C) investment in capital used to produce clothing.
D) superior process technology.

Question 61

Figure 9-2

Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff.
Refer to Figure 9-2.Without the tariff in place,the United States consumes

A) 9 million pounds of rice.
B) 15 million pounds of rice.
C) 31 million pounds of rice.
D) 42 million pounds of rice.

Question 62

Figure 9-2

Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff.
Refer to Figure 9-2.As a result of the tariff,domestic producers increase their quantity supplied by

A) 31 million pounds of rice.
B) 22 million pounds of rice.
C) 15 million pounds or rice.
D) 6 million pounds of rice.

Question 63

Figure 9-2

Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff.
Refer to Figure 9-2.The loss in domestic consumer surplus as a result of the tariff is equal to the area

A) B + D + E + F.
B) D + E + F.
C) C + D + E + F.
D) B.

Question 64

Figure 9-2

Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff.
Refer to Figure 9-2.Without the tariff in place,the United States produces

A) 9 million pounds of rice.
B) 15 million pounds of rice.
C) 31 million pounds of rice.
D) 42 million pounds of rice.

Question 65

Figure 9-1

Figure 9-1 shows the U.S. demand and supply for leather footwear.
Refer to Figure 9-1.Under autarky,the deadweight loss is

A) $0.
B) $15.
C) $30.
D) $40.

Question 66

Figure 9-1

Figure 9-1 shows the U.S. demand and supply for leather footwear.
Refer to Figure 9-1.Suppose the government allows imports of leather footwear into the United States.The market price falls to $18.What are the values of consumer surplus and domestic producer surplus?

A) Consumer surplus = $270; producer surplus = $40.
B) Consumer surplus = $320; producer surplus = $40.
C) Consumer surplus = $320; producer surplus = $360..
D) Consumer surplus = $305; producer surplus = $320.

Question 67

Trade between countries that is without restrictions is called

A) unobstructed commerce.
B) unabated trade.
C) free trade.
D) unencumbered trade.

Question 68

Figure 9-2

Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff.
Refer to Figure 9-2.With the tariff in place,the United States

A) imports 16 million pounds of rice.
B) imports 9 million pounds of rice.
C) imports 15 million pounds of rice.
D) exports 31 million pounds of rice.

Question 69

Under autarky,consumer surplus is represented by the area

A) above the supply curve and below the equilibrium price.
B) above the supply curve and below the demand curve.
C) below the demand curve and above the equilibrium price.
D) above the demand curve and below the supply curve.

Question 70

Figure 9-1

Figure 9-1 shows the U.S. demand and supply for leather footwear.
Refer to Figure 9-1.Under autarky,the consumer surplus is ________ and the producer surplus is ________.

A) $195; $105
B) $300; $285
C) $260; $40
D) $555; $105

Question 71

Figure 9-2

Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff.
Refer to Figure 9-2.The tariff revenue collected by the government equals the area

A) D + E + F.
B) E.
C) B + D + E + F.
D) C + D + E + F.

Question 72

Figure 9-2

Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff.
Refer to Figure 9-2.If the tariff was replaced by a quota which limited rice imports to 16 million pounds,the amount of revenue received by rice importers would equal

A) $6.4 million.
B) $9.6 million.
C) $16 million.
D) $19.8 million.

Question 73

Which of the following is the best example of a tariff?

A) a subsidy from the U.S. government to domestic manufacturers of residential air conditioners to enable them to compete more effectively with foreign producers
B) a limit on the quantity of residential air conditioners that can be imported from a foreign country
C) a $150 fee imposed on all imported residential air conditioners
D) a tax placed on all residential air conditioners sold in the domestic market to help offset the impact of emissions on the environment

Question 74

A tariff

A) makes domestic consumers worse off.
B) makes both domestic producers and consumers worse off.
C) makes everyone better off.
D) makes domestic producers worse off.

Question 75

Which of the following is not an example of a trade restriction?

A) tariffs
B) quotas and voluntary export restraints
C) legislation requiring that cars sold in a country have a 50 percent domestic content
D) consumer preferences for goods produced domestically

Question 76

A tariff is

A) a limit placed on the quantity of goods that can be imported into a country.
B) a tax imposed by a government on goods imported into a country.
C) a subsidy granted to importers of a vital input.
D) a health and safety restriction imposed on an imported product.

Question 77

A numerical limit imposed by a government on the quantity of a good that can be imported into the country is called a

A) tariff.
B) quota.
C) quantity floor.
D) barricade.

Question 78

Figure 9-2

Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff.
Refer to Figure 9-2.The tariff causes domestic consumption of rice

A) to fall by 27 million pounds.
B) to fall by 11 million pounds.
C) to rise by 6 million pounds.
D) to rise by 16 million pounds.

Question 79

Figure 9-1

Figure 9-1 shows the U.S. demand and supply for leather footwear.
Refer to Figure 9-1.Suppose the government allows imports of leather footwear into the United States.What happens to the market price and what is the quantity of imports?

A) The price equals $24 and imports equal 20 units.
B) The price falls to $24 and imports equal 5 units.
C) The price falls to $18 and imports equal 15 units.
D) The price equals $18 and imports equals 10 units.

Question 80

Figure 9-2

Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff.
Refer to Figure 9-2.The increase in domestic producer surplus as a result of the tariff is equal to the area

A) C.
B) C + G.
C) A + C + G.
D) C + D + G + H + I.