Deck 18: International Trade and Finance

Question 1

Table 18.1
Based on the data in Table 18.1

A) April should specialize in painting kites and trade for snowboards.
B) April should specialize in painting snowboards and trade for kites.
C) Jesse should specialize in both goods.
D) April should specialize in both goods.

Answer 1

April should specialize in painting snowboards and trade for kites.

Question 2

Table 18.1
Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 18.1 shows how much of each good Jesse and April can paint in one hour. Jesse's opportunity cost of painting one kite is painting

A) 1/12 of a snowboard.
B) 1/8 of a snowboard.
C) 1/3 of a snowboard.
D) 3 snowboards.

Answer 2

1/8 of a snowboard.

Question 3

Table 18.3
Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 18.3. Nigel's opportunity cost of producing one hair pin is

A) 1/3 of a bandana.
B) 2.5 bandanas.
C) 3 bandanas.
D) 10 bandanas.

Answer 3

2.5 bandanas.

Question 4

Table 18.3
Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 18.3. Nigel's opportunity cost of producing one bandana is

A) 1/4 of a hair pin.
B) 2/5 of a hair pin.
C) 2.5 hair pins.
D) 4 hair pins.

Question 5

Table 18.3
Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 18.3. Mia's opportunity cost of producing one hair pin is

A) 1/3 of a bandana.
B) 2.5 bandanas.
C) 3 bandanas.
D) 10 bandanas.

Question 6

Table 18.1
Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 18.1 shows how much of each good Jesse and April can paint in one hour. Jesse's opportunity cost of painting one snowboard is painting

A) 1/8 of a kite.
B) 1.5 kites.
C) 8 kites.
D) 12 kites.

Question 7

Table 18.1
The ability of one person or nation to produce a good at a lower opportunity cost than another is called a(n)

A) market advantage.
B) comparative advantage.
C) absolute advantage.
D) specialization advantage.

Question 8

Table 18.2
Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 18.2 shows how much of each good Jesse and April can paint in one hour. Which of the following is TRUE?

A) Jesse has an absolute advantage in painting kites but not snowboards.
B) Jesse has an absolute advantage in painting snowboards but not kites.
C) Jesse has an absolute advantage in painting both goods.
D) Jesse has an absolute advantage in painting neither good.

Question 9

Markets exist

A) so people can buy and sell things.
B) because people are self-sufficient.
C) because each person specializes in the production of many products.
D) as an arrangement where buyers do not interact with sellers.

Question 10

Table 18.1
An individual or country that has a comparative advantage in the production of one good

A) must have an absolute advantage in the good's production.
B) must not have an absolute advantage in the good's production.
C) may or may not have an absolute advantage in the good's production.
D) must not have an absolute advantage in the production of the other good.

Question 11

Table 18.1
Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 18.1 shows how much of each good Jesse and April can paint in one hour. April's opportunity cost of painting one kite is painting

A) 1/12 of a snowboard.
B) 1/4 of a snowboard.
C) 3 snowboards.
D) 4 snowboards.

Question 12

Table 18.1
Based on the data in Table 18.1

A) Jesse should specialize in painting kites and trade for snowboards.
B) Jesse should specialize in painting snowboards and trade for kites.
C) April should specialize in both goods.
D) Jesse should specialize in both goods.

Question 13

Table 18.2
Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 18.2 shows how much of each good Jesse and April can paint in one hour. Which of the following is TRUE?

A) April has a comparative advantage in painting kites but not snowboards.
B) April has a comparative advantage in painting snowboards but not kites.
C) April has a comparative advantage in painting both goods.
D) April does not have a comparative advantage in painting either good.

Question 14

Table 18.2
Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 18.2 shows how much of each good Jesse and April can paint in one hour. Which of the following is TRUE?

A) April has both an absolute and comparative advantage in painting kites.
B) April has both an absolute and comparative advantage in painting snowboards.
C) April has neither an absolute nor comparative advantage in painting kites.
D) April has neither an absolute nor a comparative advantage in painting snowboards.

Question 15

Table 18.2
Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 18.2 shows how much of each good Jesse and April can paint in one hour. Which of the following is TRUE?

A) April has an absolute advantage in painting kites but not snowboards.
B) April has an absolute advantage in painting snowboards but not kites.
C) April has an absolute advantage in painting both goods.
D) April does not have an absolute advantage in painting either good.

Question 16

Table 18.1
Based on the data in Table 18.1, if Jesse and April choose to specialize and trade, then

A) April will specialize in painting kites and trade kites for snowboards.
B) April will specialize in painting snowboards and trade snowboards for kites.
C) Jesse will specialize in painting snowboards and trade snowboards for kites.
D) None of the above; specialization and trade are not beneficial for Jesse and April.

Question 17

Table 18.3
Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 18.3. Mia's opportunity cost of producing one bandana is

A) 1/3 of a hair pin.
B) 2.5 hair pins.
C) 3 hair pins.
D) 9 hair pins.

Question 18

To explore the rationale for specialization, economists use the

A) marginal principle.
B) principle of opportunity cost.
C) real-nominal principle.
D) principle of marginal exchange.

Question 19

Table 18.1
The ability of one person or nation to produce a good at a lower absolute cost than another is called a(n)

A) market advantage.
B) comparative advantage.
C) absolute advantage.
D) specialization advantage.

Question 20

Table 18.1
Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 18.1 shows how much of each good Jesse and April can paint in one hour. April's opportunity cost of painting one snowboard is painting

A) 1.5 kites.
B) 3 kites.
C) 4 kites.
D) 12 kites.

Question 21

Table 18.3
Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 18.3. Which of the following is TRUE?

A) Nigel has a comparative advantage in producing hair pins but not bandanas.
B) Nigel has a comparative advantage in producing bandanas but not hair pins.
C) Nigel has a comparative advantage in producing both goods.
D) Nigel does not have a comparative advantage in producing either good.

Question 22

Outsourcing allows a company to take advantage of the ________ of other countries, and in doing so it can produce its products at a lower cost.

A) comparative advantages
B) diminishing returns
C) trade imbalances
D) market failures

Question 23

Table 18.3
Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 18.3. Which of the following is TRUE?

A) Nigel has an absolute advantage in producing hair pins but not bandanas.
B) Nigel has an absolute advantage in producing bandanas but not hair pins.
C) Nigel has an absolute advantage in producing both goods.
D) Nigel does not have an absolute advantage in producing either good.

Question 24

The cost savings from outsourcing often lead to ________ for consumers and ________ for the outsourcing company.

A) lower prices; less output
B) lower prices; more output
C) higher prices; less output
D) higher prices; more output

Question 25

When a U.S. company shifts some of its production to Mexico, it is engaging in

A) outsourcing.
B) insourcing.
C) self-sufficiency.
D) involuntary exchange.

Question 26

For country A, an import is a good produced in

A) country B and purchased by residents of country B.
B) country B and purchased by residents of country A.
C) country A and purchased by residents of country B.
D) country A and purchased by residents of country A.

Question 27

A rich nation will trade with a poor nation because the

A) rich nation has the absolute advantage in producing all products.
B) poor nation has the absolute advantage in producing all products.
C) poor nation has the comparative advantage in producing a product.
D) rich nation has the comparative advantage in producing all products.

Question 28

For country A, an export is a good produced in

A) country B and purchased by residents of country B.
B) country B and purchased by residents of country A.
C) country A and purchased by residents of country B.
D) country A and purchased by residents of country A.

Question 29

An import is a product

A) produced in and purchased by residents of the home country.
B) produced in and sold to the residents of a foreign country.
C) produced in the home country and sold in another country.
D) produced in a foreign country and purchased by the residents of the home country.

Question 30

Table 18.3
Jimbo has a comparative advantage over Ned in producing a good if

A) Jimbo can produce more of the good than Ned can in a given time period.
B) Jimbo has a lower opportunity cost of producing the good than does Ned.
C) Jimbo has to trade off more than Ned does to produce the good.
D) Jimbo has a higher opportunity cost of producing the good than does Ned.

Question 31

Table 18.4
Consider two individuals, Artie and Deena, who produce wind chimes and sun dials. Artie's and Deena's weekly productivity are shown in Table 18.4. Which of the following is TRUE?

A) Deena has an absolute advantage in producing both goods, and a comparative advantage in producing wind chimes.
B) Deena has an absolute advantage in producing both goods, and a comparative advantage in producing sun dials.
C) Deena has an absolute and a comparative advantage in producing both goods.
D) Deena has an absolute advantage in producing both goods, but no one has a comparative advantage in producing either good.

Question 32

Jobs lost to outsourcing can be partially offset by jobs gained from

A) higher production costs.
B) higher opportunity costs.
C) greater trade imbalances.
D) increased output from another industry.

Question 33

Table 18.3
Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 18.3. Which of the following is TRUE?

A) Nigel has both an absolute and comparative advantage in hair pin production.
B) Nigel has both an absolute and comparative advantage in bandana production.
C) Nigel has neither an absolute nor comparative advantage in hair pin production.
D) Nigel has neither an absolute nor a comparative advantage in bandana production.

Question 34

When a U.S. company shifts its call-center operations overseas to reduce costs, it is applying the economic concept of

A) thinking at the margin.
B) comparative advantage.
C) diminishing returns.
D) using assumptions to simplify.

Question 35

Trade results from

A) comparative advantage.
B) absolute advantage.
C) self-sufficiency.
D) diminishing returns.

Question 36

Recall the Application about productivity in the nation of Latvia in the 1990s to answer the following question(s).
According to this Application, in the 1990s EU countries had ________ in the production of all products compared to Latvia.

A) an absolute advantage and a comparative advantage
B) an absolute advantage but not a comparative advantage
C) a comparative advantage but not an absolute advantage
D) neither an absolute advantage nor a comparative advantage

Question 37

Table 18.3
Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 18.3. Which of the following is TRUE?

A) Mia has an absolute advantage in producing hair pins but not bandanas.
B) Mia has an absolute advantage in producing bandanas but not hair pins.
C) Mia has an absolute advantage in producing both goods.
D) Mia does not have an absolute advantage in producing either good.

Question 38

An export is a product

A) produced in and purchased by residents of the home country.
B) produced in and sold to the residents of a foreign country.
C) produced in the home country and sold in another country.
D) produced in a foreign country and purchased by the residents of the home country.

Question 39

A U.S. company is attempting to cut costs by shifting some of its services to Thailand. This process of shifting production of products or services overseas to cut costs often results in

A) greater potential for market failure for those products and services.
B) greater economic uncertainty in the market for those products and services.
C) lower consumer prices on those products or services.
D) lower production quantities of those products or services.

Question 40

Table 18.4
Consider two individuals, Artie and Deena, who produce wind chimes and sun dials. Artie's and Deena's weekly productivity are shown in Table 18.4. Which of the following is TRUE?

A) Artie has a comparative advantage in producing wind chimes but not sun dials.
B) Artie has a comparative advantage in producing sun dials but not wind chimes.
C) Artie has a comparative advantage in producing both goods.
D) Artie does not have a comparative advantage in producing either good.

Question 41

What does it mean for a nation to have an absolute advantage in producing a product?

Question 42

A comparative advantage is the ability of one person or nation to produce a good at an opportunity cost that is lower than that of another person or nation.

Question 43

If Eddie can produce 40 milk shakes or 20 banana splits in an hour, and Tina can produce 30 milk shakes or 16 banana splits in an hour, then Eddie has a comparative advantage in producing milk shakes.

Question 44

Recall the Application about productivity in the nation of Latvia in the 1990s to answer the following question(s).
According to this Application, workers in the EU were more productive than workers in Latvia in the 1990s, yet despite this, EU nations chose to trade with Latvia. Engaging in trade with Latvia allowed ________ to become more productive.

A) workers in the EU but not workers in Latvia
B) workers in Latvia but not workers in the EU
C) neither workers in the EU nor in Latvia
D) workers in both the EU and in Latvia

Question 45

If Eddie can produce 40 milk shakes or 20 banana splits in an hour, and Tina can produce 30 milk shakes or 16 banana splits in an hour, then Tina has a comparative advantage in producing banana splits.

Question 46

Consider two individuals, Ozzy and Sharon, who produce toy boats and yoyos. Ozzy's and Sharon's hourly productivity are as follows:
Who has the absolute advantage or comparative advantage in the production of yoyos or boats?

Question 47

If Eddie can produce 40 milk shakes or 20 banana splits in an hour, and Tina can produce 30 milk shakes or 16 banana splits in an hour, then Eddie has a comparative advantage in producing banana splits.

Question 48

Exports are products produced in the home country and sold in another country.

Question 49

If a person has a comparative advantage in some activity, she must have an absolute advantage in that activity as well.

Question 50

Explain what is meant by the economic principle of voluntary exchange.

Question 51

What does it mean for a person or nation to have a comparative advantage in producing a product?

Question 52

The principles of comparative advantage and specialization only apply to trade between different nations.

Question 53

Imports are products produced in the home country and sold in another country.

Question 54

Trade is only beneficial if a nation has an absolute advantage in producing all products.

Question 55

Recall the Application about productivity in the nation of Latvia in the 1990s to answer the following question(s).
According to this Application, workers in the EU were more productive than workers in Latvia in the 1990s, yet EU nations still purchased products from Latvia. This is because Latvia ________ in the production of the products it sold to EU nations.

A) had an absolute advantage
B) had a comparative advantage
C) used fewer resources
D) had a higher opportunity cost

Question 56

If Libby can produce 20 gallons of beer or 5 gallons of wine per hour, her opportunity cost of one gallon of beer is 4 gallons of wine.

Question 57

Trade will be beneficial for a nation with a comparative advantage in producing a certain product.

Question 58

If a person has an absolute advantage in some activity, she must have a comparative advantage in that activity as well.

Question 59

If Eddie can produce 40 milk shakes or 20 banana splits in an hour, and Tina can produce 30 milk shakes or 16 banana splits in an hour, then Tina has a comparative advantage in producing milk shakes.

Question 60

Absolute advantage occurs when one producer has greater productivity compared to another producing the same product.

Question 61

Import bans, import quotas, voluntary export restraints, and tariffs on goods all

A) increase equilibrium quantity and prices.
B) decrease equilibrium quantity and prices.
C) increase equilibrium quantities, but decrease prices.
D) decrease equilibrium quantities, but increase prices.

Question 62

Which of the following situations will arise in the domestic market following the imposition of an import ban?

A) imports increase, domestic production increases, prices increase
B) imports increase, domestic production decreases, prices decrease
C) imports decrease, domestic production increases, prices increase
D) imports decrease, domestic production increases, prices decrease

Question 63

An import ban results in

A) a decrease in the supply of the product.
B) an increase in the product's price.
C) a decrease in the quantity of the product bought and sold.
D) all of the above.

Question 64

Which of the following situations will arise in the domestic market following the imposition of a tariff?

A) imports decrease, domestic production increases, prices increase
B) imports increase, domestic production increases, prices increase
C) imports increase, domestic production decreases, prices decrease
D) imports decrease, domestic production increases, prices decrease

Question 65

Define the term "import."

Question 66

Define the term "export."

Question 67

Exporting nations often agree to voluntary export restraints in an attempt to

A) employ more workers in the importing nation.
B) avoid more restrictive trade policies.
C) increase global welfare.
D) decrease inflation.

Question 68

Figure 18.1
Refer to Figure 18.1. With free trade, what is the equilibrium quantity of gloves in Duckland?

A) 100
B) 80
C) 60
D) 40

Question 69

Which of the following situations will arise in the domestic market following the imposition of an import quota?

A) imports increase, domestic production decreases, prices decrease
B) imports decrease, domestic production increases, prices decrease
C) imports decrease, domestic production decreases, prices increase
D) imports decrease, domestic production increases, prices increase

Question 70

Import bans, import quotas, voluntary export restraints, and tariffs on goods all

A) increase imports and raise prices for consumers.
B) reduce imports and prices for consumers.
C) reduce imports and raise prices for consumers.
D) increase imports and reduce prices for consumers.

Question 71

In An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith listed three reasons for productivity to increase with specialization. What are these three reasons?

Question 72

Which of the following situations will arise in the domestic market following the removal of an import quota?

A) imports increase, domestic production increases, prices increase
B) imports increase, domestic production decreases, prices decrease
C) imports decrease, domestic production increases, prices decrease
D) imports decrease, domestic production decreases, prices increase

Question 73

Which of the following situations will arise in the domestic market following the imposition of a voluntary export restraint?

A) imports increase, domestic production increases, prices increase
B) imports decrease, domestic production increases, prices increase
C) imports increase, domestic production decreases, prices decrease
D) imports decrease, domestic production increases, prices decrease

Question 74

A(n) ________ is a trade policy by which a nation agrees to limit its exports of a good in order to avoid more restrictive trade policies.

A) tariff
B) voluntary export restraint
C) import quota
D) import ban

Question 75

Consider two individuals, Celia and Sondra, who produce bracelets and pendants. Celia's and Sondra's hourly productivity are as follows:
Who has the absolute advantage or comparative advantage in the production of bracelets or pendants?

Question 76

Voluntary export restraints

A) have the same effect as an import ban.
B) are illegal under the international trading rules.
C) violate the spirit of international trade agreements.
D) all of the above.

Question 77

An import quota

A) limits the amount of a good that can be imported, thus decreasing prices.
B) limits the amount of a good that can be imported, thus increasing prices.
C) increases the amount of a good imported, thus decreasing prices.
D) increases the amount of a good imported, thus increasing prices.

Question 78

Imagine two countries, Zorba and Anduluvia. Zorba is producing everything at a lower resource cost than Anduluvia. If the two countries trade what is the reason?

Question 79

A(n) ________ is a tax on an imported good.

A) tariff
B) import quota
C) voluntary export restraint
D) export quota

Question 80

Which of the following benefits from a quota or VER?

A) consumers
B) domestic producers
C) the government
D) all of the above