Deck 13: Comparative Advantage and the Gains From International Trade

Question 1

Why do firms offshore?

A)To obtain a higher quality product regardless of the cost.
B)Because domestic resources cannot do the job.
C)To escape tariffs.
D)Because costs of production are lower if the firm uses resources in another country.

Answer 1

Because costs of production are lower if the firm uses resources in another country.

Question 2

In what sector is the largest proportion of world trade?

A)Agriculture
B)Manufacturing
C)Mining
D)Services

Answer 2

Manufacturing

Question 3

What is the difference between imports and exports?

Answer 3

Imports are goods and services bought domestically but produced in other countries.
Exports are goods and services produced domestically but sold in other countries.

Question 4

In 2009, Australia accounted for what proportion of world merchandise trade?

A)1%
B)12%
C)8%
D)5%

Question 5

A tariff is a tax imposed by a government on

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

Question 6

Twenty-seven countries in Europe have formed the European Union (EU).After the EU was formed, it

A)greatly decreased imports and exports among its member countries.
B)barred imports of 747 jumbo jets by its member countries; all EU countries must now buy jets from Airbus, a European company.
C)eliminated all tariffs among its member countries.
D)completed a trade treaty (NAFTA)that reduced tariff rates between the EU and North American countries.

Question 7

Imports are goods and services bought domestically

A)but produced in other countries.
B)and resold at a profit.
C)and produced domestically.
D)and not subject to tariffs.

Question 8

Over the past several decades there has been a rapid growth in international trade.This growth has been due to all except one of the following factors.Which factor has not contributed to the growth of international trade?

A)A favourable change in government policies
B)The spread of reliable communications
C)A reduction in shipping costs
D)An increase in the tariffs charged on many goods

Question 9

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 10

Which of the following is used to describe an 'open' economy?

A)One which has few or no barriers to international trade
B)One that exports a small proportion of its output
C)One that is open to technological ideas from other countries
D)One that is open to immigration from other countries

Question 11

A tariff is a tax imposed by a government on its own exports.

Question 12

What are three primary reasons for the growth of international trade over the past 50 years?

Question 13

Between 1960 and 2010, Australia's imports increased from approximately

A)15% of GDP to 20% of GDP.
B)10% of GDP to 18% of GDP.
C)24% of GDP to 30% of GDP.
D)35% of GDP to 50% of GDP.

Question 14

What is a tariff?

Question 15

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 16

What is offshoring?

A)When workers in a foreign country are hired by a domestic firm to produce something sold domestically.
B)Importing a manufactured goods made by a foreign firm.
C)Exporting a good or service to buyers in other countries.
D)When domestic workers are hired by a domestic firm to produce something sold exclusively in other countries.

Question 17

What are domestically produced goods and services sold to other countries?

A)Capital outflow.
B)Exports.
C)Imports.
D)Transfer payments.

Question 18

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 19

Why do domestic firms offshore production processes?

Question 20

What is a tax imposed by a government on imports of a good into a country?

A)An import fine.
B)An import quota.
C)A tariff.
D)An import levy.

Question 21

Table 13.1 Linda and Sandy own The Preppy Puppy, a dog grooming business.Table 13.1 lists the number of dogs Linda and Sandy can each bathe and groom in one week.
Refer to Table 13.1.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 22

What is absolute advantage?

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 23

Table 13.2 Sarita and Gabriel own S&G Bakery.Table 13.2 lists the number of pies and cakes Sarita and Gabriel can each bake in one day.
Refer to Table 13.2.Select the statement that accurately interprets the data in the table.

A)Sarita has a comparative advantage in baking pies.
B)Gabriel has an absolute advantage in baking cakes.
C)Gabriel has a comparative advantage in baking pies.
D)Gabriel has a comparative advantage in baking pies and baking cakes.

Question 24

Table 13.1 Linda and Sandy own The Preppy Puppy, a dog grooming business.Table 13.1 lists the number of dogs Linda and Sandy can each bathe and groom in one week.
Refer to Table 13.1.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 25

Table 13.1 Linda and Sandy own The Preppy Puppy, a dog grooming business.Table 13.1 lists the number of dogs Linda and Sandy can each bathe and groom in one week.
Refer to Table 13.1.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 26

Table 13.1 Linda and Sandy own The Preppy Puppy, a dog grooming business.Table 13.1 lists the number of dogs Linda and Sandy can each bathe and groom in one week.
Refer to Table 13.1.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 27

What is an 'open economy'?

Question 28

Table 13.2 Sarita and Gabriel own S&G Bakery.Table 13.2 lists the number of pies and cakes Sarita and Gabriel can each bake in one day.
Refer to Table 13.2.Select the statement that accurately interprets the data in the table.

A)Sarita has an absolute advantage in baking cakes and Gabriel has an absolute advantage in baking pies.
B)Sarita has an absolute advantage in baking pies and Gabriel has an absolute advantage in baking cakes.
C)Sarita has an absolute advantage in baking pies and cakes.
D)Gabriel has an absolute advantage in baking pies and cakes.

Question 29

Table 13.2 Sarita and Gabriel own S&G Bakery.Table 13.2 lists the number of pies and cakes Sarita and Gabriel can each bake in one day.
Refer to Table 13.2.Select the statement that accurately interprets the data in the table.

A)Sarita has a greater opportunity cost than Gabriel for baking cakes.
B)Sarita's opportunity cost for baking cakes is less than Gabriel's.
C)Gabriel has a greater opportunity cost than Sarita for baking pies.
D)Gabriel's opportunity cost for baking cakes and baking pies are both greater than Sarita's.

Question 30

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 31

Table 13.3 Bryce and Tina are artisans who produce homemade candles and soap.Table 13.3 lists the number of candles and bars of soap Bryce and Tina can each produce in one month.
Refer to Table 13.3.Select the statement that accurately interprets the data in the table.

A)Bryce has an absolute advantage in making candles and Tina has an absolute advantage in making soap.
B)Bryce has an absolute advantage in making soap and Tina has an absolute advantage in making candles.
C)Bryce has an absolute advantage in making soap.
D)Tina has an absolute advantage in making candles.

Question 32

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 33

Table 13.2 Sarita and Gabriel own S&G Bakery.Table 13.2 lists the number of pies and cakes Sarita and Gabriel can each bake in one day.
Refer to Table 13.2.Select the statement that accurately interprets the data in the table.

A)Sarita has a comparative advantage in baking pies.
B)Gabriel has a comparative advantage in baking cakes.
C)Sarita has a comparative advantage in baking pies and baking cakes.
D)Sarita has a comparative advantage in baking cakes.

Question 34

Table 13.3 Bryce and Tina are artisans who produce homemade candles and soap.Table 13.3 lists the number of candles and bars of soap Bryce and Tina can each produce in one month.
Refer to Table 13.3.Select the statement that accurately interprets the data in the table.

A)Tina has a comparative advantage in making candles.
B)Bryce has an absolute advantage in making soap.
C)Bryce has a comparative advantage in making candles.
D)Bryce has a comparative advantage in making candles and making soap.

Question 35

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)labour costs are higher for corn producers in Japan than in China.

Question 36

________ 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)Specialisation
C)Autarky
D)Comparative advantage

Question 37

Table 13.3 Bryce and Tina are artisans who produce homemade candles and soap.Table 13.3 lists the number of candles and bars of soap Bryce and Tina can each produce in one month.
Refer to Table 13.3.Select the statement that accurately interprets the data in the table.

A)Bryce has an absolute advantage in making candles and soap.
B)Tina has an absolute advantage in making candles and soap.
C)Neither Bryce nor Tina has an absolute advantage in making candles.
D)Neither Bryce nor Tina has an absolute advantage in making soap.

Question 38

Table 13.3 Bryce and Tina are artisans who produce homemade candles and soap.Table 13.3 lists the number of candles and bars of soap Bryce and Tina can each produce in one month.
Refer to Table 13.3.Select the statement that accurately interprets the data in the table.

A)Tina has a comparative advantage in making soap.
B)Bryce has a comparative advantage in making soap.
C)Tina has a comparative advantage in making candles and making soap.
D)Neither Bryce nor Tina has a comparative advantage in making soap.

Question 39

Assume that Bulgaria has a comparative advantage in producing sandals and Finland imports sandals from Bulgaria.We can conclude that

A)Bulgaria also has an absolute advantage in producing sandals relative to Finland.
B)Bulgaria has a lower opportunity cost of producing sandals relative to Finland.
C)Finland has an absolute disadvantage in producing sandals relative to Bulgaria.
D)labour costs are higher for sandal producers in Finland than in Bulgaria.

Question 40

Table 13.3 Bryce and Tina are artisans who produce homemade candles and soap.Table 13.3 lists the number of candles and bars of soap Bryce and Tina can each produce in one month.
Refer to Table 13.3.Select the statement that accurately interprets the data in the table.

A)Bryce has a greater opportunity cost than Tina for making candles.
B)Bryce's opportunity cost for making candles is less than Tina's.
C)Tina has a greater opportunity cost than Bryce for making candles.
D)Bryce's opportunity cost for making candles and making soap are both greater than Tina's.

Question 41

If a country has a comparative advantage in producing a product, it may not have an absolute advantage in producing that product.

Question 42

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.The country which has an absolute advantage in producing hats is

A)Denmark
B)Belize
C)both countries
D)neither country

Question 43

If a country has an absolute advantage in producing a product, it must also have a comparative advantage in producing that product.

Question 44

What do economists call the amount of imports that can be purchased per unit of exports?

A)A trade barrier.
B)The terms of trade.
C)Autarky.
D)A free trade agreement.

Question 45

Table 13.5 Table 13.5 shows the output per week for bows and arrows by Ahmet and MyLinh.
Refer to Table 13.5.Fill in the following table with the opportunity costs of producing bows and arrows for Ahmet and MyLinh.

Question 46

Table 13.4
Output Per Hour of Work Table 13.4 shows the output per hour of work for handbags and jackets in Cambodia and in Thailand.
Refer to Table 13.4.
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 47

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.Prior to trade, what was the opportunity cost to produce 1 hat in Denmark?

A)1/6 of a clock
B)2/3 of a clock
C)1)5 clocks
D)6 clocks

Question 48

Table 13.5 Table 13.5 shows the output per week for bows and arrows by Ahmet and MyLinh.
Refer to Table 13.5.
a.Which person has an absolute advantage in the production of bows? arrows?
b.Which person has a comparative advantage in the production of bows?
c.Which person has a comparative advantage in the production of arrows?

Question 49

Countries that engage in trade will tend to specialise 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 50

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

Question 51

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 52

Table 13.4
Output Per Hour of Work Table 13.4 shows the output per hour of work for handbags and jackets in Cambodia and in Thailand.
Refer to Table 13-4.Fill in the following table with the opportunity costs of producing handbags and jackets for Cambodia and Thailand.

Question 53

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

Question 54

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.The country which has a comparative advantage in producing clocks is

A)Denmark
B)Belize
C)both countries
D)neither country

Question 55

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 56

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.The country which has an absolute advantage in producing clocks is

A)Denmark
B)Belize
C)both countries
D)neither country

Question 57

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.The country which has a comparative advantage in producing hats is

A)Denmark
B)Belize
C)both countries
D)neither country

Question 58

Explain whether it is possible for a country to have an absolute advantage in the production of a product without having a comparative advantage in the production of that product.

Question 59

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 60

What do economists call a situation where a country does not engage in international trade?

A)Autarky.
B)Self-actualisation.
C)Autonomy.
D)Independence.

Question 61

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Denmark consume?

A)270
B)900
C)930
D)1200

Question 62

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 63

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many hats will Belize consume?

A)100
B)130
C)250
D)400

Question 64

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.Prior to trade, what was the opportunity cost to produce 1 clock in Denmark?

A)1/6 of a hat
B)2/3 of a hat
C)1)5 hats
D)6 hats

Question 65

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many hats will Denmark consume?

A)150
B)180
C)270
D)400

Question 66

In the real world we don't observe countries completely specialising 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 globalisation.
D)production of most goods involves increasing opportunity costs.

Question 67

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Denmark gain compared to the 'without trade' numbers?

A)30
B)100
C)150
D)900

Question 68

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Belize gain compared to the 'without trade' numbers?

A)-100
B)100
C)120
D)250

Question 69

Tastes for products such as beer differ.As a result

A)we see countries specialising 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 70

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.With trade, what is the total gain in clock production?

A)150
B)300
C)2100
D)2250

Question 71

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.All of the following are terms of trade that could possibly benefit both countries except

A)1/5 of a hat : 1 clock.
B)1/3 of a hat : 1 clock.
C)1/2 of a hat : 1 clock.
D)3/4 of a hat : 1 clock.

Question 72

What is a consequence of increasing marginal costs of producing digital music players in Japan?

A)Japan will not export digital music players.
B)Japan will stop short of complete specialisation 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 73

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.All of the following are terms of trade that could possibly benefit both countries except

A)1 hat : 2 clocks.
B)1 hat : 4 clocks.
C)1 hat : 5 clocks.
D)1 hat : 8 clocks.

Question 74

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.Prior to trade, what was the opportunity cost to produce 1 clock in Belize?

A)1/6 of a hat
B)2/3 of a hat
C)1)5 hats
D)6 hats

Question 75

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many hats will Denmark gain compared to the 'without trade' numbers?

A)-150
B)0
C)150
D)1050

Question 76

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Belize consume?

A)150
B)270
C)930
D)1200

Question 77

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.Prior to trade, what was the opportunity cost to produce 1 hat in Belize?

A)1/6 of a clock
B)2/3 of a clock
C)1)5 clocks
D)6 clocks

Question 78

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.With trade, what is the total gain in hat production?

A)150
B)300
C)400
D)650

Question 79

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 80

Table 13.6
Production and
Consumption Production
Without Trade With Trade Denmark and Belize can produce both clocks and hats.Table 13.6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 13.6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many hats will Belize gain compared to the 'without trade' numbers?

A)-100
B)0
C)150
D)250