Deck 9: Comparative Advantage and the Gains From International Trade

Question 1

Domestically produced goods and services sold to other countries are referred to as

A)exports.
B)imports.
C)transfer payments.
D)capital outflow.

Answer 1

exports.

Question 2

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)the spread of reliable communications
B)a change in the tariffs charged on many goods
C)a reduction in shipping costs
D)favorable changes in government policies

Answer 2

a change in the tariffs charged on many goods

Question 3

A tax imposed by a government on imports of a good into a country is called

A)an import levy.
B)an import fine.
C)a tariff.
D)an import quota.

Answer 3

a tariff.

Question 4

More than half of Caterpillar's sales are made

A)outside the United States.
B)inside the United States.
C)in Latin America.
D)in China.

Question 5

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

A)Since 1950,both exports and imports have steadily increased as a fraction of U.S.gross domestic product.
B)Overall,about 20 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 6

Although the United States is the leading exporting country,international trade is less important to the U.S.than it is to most other countries.

Question 7

The 1994 agreement that eliminated most tariffs among the United States,Canada,and Mexico is known as

A)the Pacific Trade Association.
B)Trade Without Borders.
C)NAFTA.
D)the Western Trade Union.

Question 8

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

A)only 12 percent
B)less than one-third
C)more than half
D)5 percent

Question 9

Imports are goods and services bought domestically

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

Question 10

In early versions of the 2009 stimulus bill,a "Buy American" provision required

A)tariffs be levied on all imports to the United States.
B)all goods manufactured in the United States be subsidized by the government.
C)all manufactured goods bought with stimulus money to be made in the United States.
D)taxpayers to pay penalties for all purchases of imports.

Question 11

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

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

Question 12

________ is the ability to produce more of a good or service than competitors when using the same amount of resources.

A)Absolute advantage
B)Comparative advantage
C)Trade superiority
D)Trade autarky

Question 13

"Buy American" provisions create winners and losers.Winners include ________ and losers include ________.

A)U.S.consumers and taxpayers; foreign firms that rely on U.S.exports
B)firms sheltered from foreign competition; U.S.consumers and taxpayers
C)U.S.firms that rely on exports to foreign countries; foreign manufacturers
D)the U.S.government; firms sheltered from foreign competition

Question 14

Jim Owens,Caterpillar's CEO,was encouraged that the "Buy American" provision in the 2009 stimulus bill would generate a large increase in Caterpillar's sales.

Question 15

When Sophie,a French citizen,purchases a Dell computer in Paris that was produced in Texas,the purchase is

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

Question 16

Trade restrictions tend to preserve ________ in the protected industries and lead to ________ in other industries.

A)almost all jobs; economic growth
B)well over half of the jobs; price decreases
C)relatively few jobs; job losses
D)no jobs; increased productivity

Question 17

Which of the following statements is false?

A)Japan is less dependent on foreign trade than is the United States.
B)Imports and exports account for over one-half of the GDP of the Netherlands.
C)The United States is the leading exporting country,accounting for almost 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 18

In the 1930s the United States charged an average tariff rate

A)that was less than its average tariff rate in 2007.
B)that cut its exports to other countries by 50 percent.
C)that was less than 2 percent.
D)that exceeded 50 percent.

Question 19

Which of the following statements is false?

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 the United States exports about 50 percent of its wheat crop and 20 percent of its corn crop.
C)Most of the leading exporting countries are large,high-income countries.
D)Not all sectors of the U.S.economy are affected equally by international trade.

Question 20

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

Question 21

Table 9-1
Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find and make their own food.Rob and Bill spent one day each fishing and picking berries.The following table lists the pounds of output Rob and Bill produced.
Refer to Table 9-1.Use the table above to select the statement that accurately interprets the data in the table.

A)Bill has a comparative advantage in catching fish.
B)Rob has a comparative advantage in picking berries.
C)Rob has a comparative advantage in catching fish and picking berries.
D)Bill has a comparative advantage in picking berries.

Question 22

The terms of trade refers to

A)the rules and regulations that countries must adhere to when trading.
B)the ratio at which a country can trade its exports for imports from other countries.
C)the role of the government in overseeing international trade.
D)a legal document that specifies the trade quantities agreed to by two countries.

Question 23

Assume that Honduras has a comparative advantage in producing bananas and exports bananas to Brazil.We can conclude that

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

Question 24

Table 9-1
Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find and make their own food.Rob and Bill spent one day each fishing and picking berries.The following table lists the pounds of output Rob and Bill produced.
Refer to Table 9-1.Use the table above to select the statement that accurately interprets the data in the table.

A)Rob has an absolute advantage in picking berries and Bill has an absolute advantage in catching fish.
B)Bill has an absolute advantage in picking berries and Rob has an absolute advantage in catching fish.
C)Bill has an absolute advantage in picking berries and catching fish.
D)Rob has an absolute advantage in picking berries and catching fish.

Question 25

Table 9-1
Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find and make their own food.Rob and Bill spent one day each fishing and picking berries.The following table lists the pounds of output Rob and Bill produced.
Refer to Table 9-1.Use the table above to select the statement that accurately interprets the data in the table.

A)Bill has a greater opportunity cost than Rob for picking berries.
B)Bill's opportunity cost for catching fish is less than Rob's.
C)Rob has a greater opportunity cost than Bill for picking berries.
D)Bill's opportunity cost for picking berries and catching fish are both greater than Rob's.

Question 26

Countries gain from specializing in producing goods in which they have ________ and trading for goods in which other countries have ________.

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

Question 27

If the ________ cost of production for two goods is different between two countries then mutually beneficial trade is possible.

A)marginal
B)explicit
C)opportunity
D)implicit

Question 28

If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden,which of the following would explain this pattern of trade?

A)Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter.
B)The opportunity cost of producing butter in Denmark is higher than the opportunity cost of producing butter in Sweden.
C)Sweden must have an absolute advantage in producing cell phones and Denmark must have an absolute advantage in producing butter.
D)Sweden has a higher opportunity cost of producing cell phones than Denmark,and Denmark has a higher opportunity cost of producing butter.

Question 29

If Norwegian workers are more productive than Albanian workers,then trade between Norway and Albania

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

Question 30

Table 9-1
Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find and make their own food.Rob and Bill spent one day each fishing and picking berries.The following table lists the pounds of output Rob and Bill produced.
Refer to Table 9-1.Use the table above to select the statement that accurately interprets the data in the table.

A)Rob has a comparative advantage in catching fish.
B)Bill has an absolute advantage in catching fish.
C)Bill has a comparative advantage in catching fish.
D)Rob has a comparative advantage in picking berries and catching fish.

Question 31

Table 9-2
Output Per Hour of Work
Table 9-2 shows the output per hour of work for light bulbs and flash drives in Mexico and in Canada.
Refer to Table 9-2.
a.Which country has an absolute advantage in the production of light bulbs and flash drives?
b.Which country has a comparative advantage in the production of light bulbs?
c.Which country has a comparative advantage in the production of flash drives?

Question 32

Autarky is a situation in which a country

A)only exports products.
B)only imports products.
C)does not trade with other countries.
D)has no absolute advantage in any production.

Question 33

If Brazil has a comparative advantage relative to Cuba in the production of sugar cane,then

A)the average cost of production for sugar cane is lower in Brazil than in Cuba.
B)the implicit costs of production for sugar cane are lower in Brazil than in Cuba.
C)the opportunity cost of production for sugar cane is lower in Brazil than in Cuba.
D)the explicit cost of production for sugar cane is lower in Brazil than in Cuba.

Question 34

Trade that is within a country or between countries is based on the principle of

A)absolute advantage.
B)scarcity.
C)competition.
D)comparative advantage.

Question 35

The first discussion of comparative advantage appears in a book written by

A)Adam Smith.
B)Paul Samuelson.
C)David Portugal.
D)David Ricardo.

Question 36

Whenever a buyer and a seller agree to trade,both must believe they will be made better off

A)unless the buyer resides in a different country than the seller resides in.International trade may make the buyer or seller worse off.
B)unless one party is richer than the other.
C)only if the buyer and seller live in countries with market economies.
D)whether the buyer and seller live in the same city or different countries.

Question 37

An economic principle that explains why people pursue different occupations is

A)absolute advantage.
B)international trade.
C)comparative advantage.
D)NAFTA.

Question 38

If Finland has an absolute advantage in the production of two goods compared to Latvia,Finland can still benefit from trade with Latvia.

Question 39

Table 9-2
Output Per Hour of Work
Table 9-2 shows the output per hour of work for light bulbs and flash drives in Mexico and in Canada.
Refer to Table 9-2.Fill in the following table with the opportunity costs of producing light bulbs and flash drives for Mexico and Canada.

Question 40

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

Question 41

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

A)not all goods and services are traded internationally.
B)some countries have more resources than other countries.
C)tastes for many traded goods are different in many countries because of globalization.
D)production of most goods involves increasing opportunity costs.

Question 42

Automobiles and many other products are differentiated.As a result

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

Question 43

The first example of comparative advantage appeared in a book that was published in 1817.This example showed that mutually beneficial trade between two countries (England and Portugal)was possible.The example assumed that two goods (wine and cloth)could be produced by both countries.Which of the following describes the conclusion of this example?

A)Portugal had a comparative advantage in wine and England had a comparative advantage in cloth.
B)Portugal had a comparative advantage in both wine and cloth,but its advantage in cloth was greater.
C)England had a comparative advantage in both wine and cloth,but its advantage in cloth was greater.
D)England had an absolute advantage in both wine and cloth,but a comparative advantage in wine.

Question 44

The United States has developed a comparative advantage in digital computers,airliners and many prescription drugs.The source of its comparative advantage in these products is

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

Question 45

Costa Rica is a leading exporter of bananas.What explains the comparative advantage of this country in banana production?

A)climate and soil conditions in Costa Rica which are well-suited for banana production
B)investment by multinational firms such as Chiquita Brands International and the Dole Food Company
C)a large supply of unskilled labor
D)positive externalities

Question 46

One of the main sources of comparative advantage is natural resources.

Question 47

A consequence of increasing marginal costs of producing laptop computers in the United States is

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

Question 48

How does the U.S.federal government assist workers who have lost their jobs due to international trade?

Question 49

In the past two decades the United States lost its comparative advantage in automobiles to Japan.What factor was most responsible for the development of Japan's comparative advantage in automobiles?

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

Question 50

All of the following are sources of comparative advantage except

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

Question 51

Examples of comparative advantage show how trade between two countries can make each better off.Compared to their pre-trade positions,trade makes both countries better off because in each country

A)total employment is greater.
B)total consumption of goods is greater.
C)wages are higher.
D)total welfare is greater.

Question 52

Which of the following statements is false?

A)Not 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 may not be made better off as a result of international trade,both countries may be made better 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 53

Free trade refers to trade between countries

A)that is without shipping costs.
B)that is licensed by both governments.
C)that is without restrictions.
D)of products which are free to low-income consumers.

Question 54

China has developed a comparative advantage in the production of children's toys.The source of this comparative advantage is

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

Question 55

Once an industry becomes established in a certain area firms that locate in that area gain advantages over firms located elsewhere,leading to lower costs of production.Economists refer to the lower costs that result from increases in the size of an industry in a certain area as

A)external economies.
B)positive externalities.
C)strategic advantages.
D)technological change.

Question 56

One reason a country does not specialize completely in production is that production of most goods involves increasing opportunity costs.

Question 57

What are terms of trade?

Question 58

Examples of comparative advantage often begin with two countries that each produce the same two goods.Each country is then shown to have a comparative advantage in producing the good it can produce at a lower opportunity cost,and specializes in the production of the good for which it has a comparative advantage.How do these examples prove that both nations are made better off as a result of trade than they would be without trade?

Question 59

Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade.These examples are misleading because

A)in the real world,rich countries can take advantage of poor countries.
B)they do not account for the reduction in wages that occurs in both countries as a result of trade.
C)some individuals in both countries may be made worse off because of trade.
D)trade restrictions are likely to be imposed as trade grows over time.

Question 60

Suppose in Vietnam a worker can produce either 16 units of cloth or 2 bicycles while in China a worker can produce either 20 units of cloth or 5 bicycles.
a.Which country has an absolute advantage in cloth production? In bicycle production?
b.What is the opportunity cost of 1 unit of cloth in Vietnam? In China?
c.What is the opportunity cost of 1 bicycle in Vietnam? In China?
d.Which country has a comparative advantage in cloth production? In bicycle production?
e.Suppose each country has 1,000 workers.Currently,each country devotes 40 percent of its labor force to cloth production and 60 percent to bicycle production.What is the output of cloth and bicycles for each country and what is the total output of cloth and bicycles 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 cloth and bicycles in the two countries?
g.Provide a numerical example to show how Vietnam and China can both gain from trade.Assume that the terms of trade are established at 6 units of cloth for 1 bicycle.

Question 61

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

A)$30; consumer surplus = area R; producer surplus = area S + V
B)$30; consumer surplus = area R + S + V; producer surplus = area T + W+ X
C)$24; consumer surplus = area R + S; producer surplus = area V
D)$30; consumer surplus = area R; producer surplus = area S + T + V + W + X

Question 62

Figure 9-2 Suppose the U.S.government imposes a $0.75 per pound tariff on coffee imports.Figure 9-2 shows the impact of this tariff.
Refer to Figure 9-2.The tariff revenue collected by the government equals

A)$10 million.
B)$15 million.
C)$19.875 million.
D)$35 million.

Question 63

Figure 9-2 Suppose the U.S.government imposes a $0.75 per pound tariff on coffee 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 20 million pounds of coffee.
B)imports 12 million pounds of coffee.
C)imports 18 million pounds of coffee.
D)exports 38 million pounds of coffee.

Question 64

Figure 9-3 Since 1953 the United States has imposed a quota to limit the imports of peanuts.Figure 9-3 illustrates the impact of the quota.
Refer to Figure 9-3.Without the quota,the domestic price of peanuts equals the world price which is $2.00 per pound.What is the quantity of peanuts demanded by domestic consumers in the absence of a quota?

A)10 million pounds
B)28 million pounds
C)30 million pounds
D)40 million pounds

Question 65

Figure 9-2 Suppose the U.S.government imposes a $0.75 per pound tariff on coffee 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

A)$11.25 million.
B)$18 million.
C)$32.5 million.
D)$45 million.

Question 66

Figure 9-2 Suppose the U.S.government imposes a $0.75 per pound tariff on coffee 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)6 million pounds of coffee.
B)18 million pounds of coffee.
C)26 million pounds or coffee.
D)38 million pounds of coffee.

Question 67

A tariff

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

Question 68

In order to avoid the imposition of other types of trade barriers,foreign producers will sometimes agree to limit their exports to a country.What are these types of agreements called?

A)involuntary export restraints
B)voluntary export restraints
C)implicit quotas
D)sanctions

Question 69

Figure 9-2 Suppose the U.S.government imposes a $0.75 per pound tariff on coffee 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

A)$5 million.
B)$19.875 million.
C)$24.875 million.
D)$31.125 million.

Question 70

Which of the following is an example of a trade restriction?

A)Japan places a tax on all Korean automobiles.
B)Domestic wine is more expensive than wine imported from Chile.
C)The United States,Canada,and Mexico sign the NAFTA agreement.
D)Consumers prefer German beer to domestic beer.

Question 71

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

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 72

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 $24.What areas represent consumer surplus and domestic producer surplus?

A)Consumer surplus = R + S; producer surplus = V.
B)Consumer surplus = R + S + T + U; producer surplus = V.
C)Consumer surplus = R + S + T + U; producer surplus = V + W + X + Y.
D)Consumer surplus = R + S + T; producer surplus = W + X + Y.

Question 73

A quota 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 74

In the 1980s Japan agreed to limit the quantity of automobiles it would export to the United States.Why did the Japanese government agree to this trade restriction?

A)Japanese automobile producers lobbied for the restrictions in order to increase the price of their exports to the United States.
B)The Japanese government wanted to limit sales to the United States in order to make more automobiles available for Japanese consumers.
C)The Japanese government feared that the alternative would be a tariff or quota on imports of Japanese automobiles imposed by the U.S.government.
D)The Japanese government wanted more automobiles to be available for export to countries other than the United States.

Question 75

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 Q₂ units.
B)The price falls to $24 and imports equal Q₂ - Q₁ units.
C)The price falls to $24 and imports equal Q₁ - Q₀ units.
D)The price equals $24 and imports equals Q₂ - Q₀ units.

Question 76

A voluntary export restraint is an agreement negotiated by two countries that places ________ that can be imported by one country from another country.

A)a tax on goods
B)a minimum quantity of a good
C)quality standards on goods
D)a numerical limit on the quantity of a good

Question 77

A tax imposed by a government on imports of a good into a country is called a

A)tariff.
B)quota.
C)value added tax.
D)sales tax.

Question 78

International trade

A)harms consumers but helps exporting firms.
B)helps consumers but harms exporting firms and their workers.
C)helps consumers but hurts firms that are less efficient than their foreign competitors.
D)helps consumers and firms that compete with their foreign competitors.

Question 79

Figure 9-2 Suppose the U.S.government imposes a $0.75 per pound tariff on coffee imports.Figure 9-2 shows the impact of this tariff.
Refer to Figure 9-2.The tariff causes domestic consumption of coffee

A)to fall by 27 million pounds.
B)to fall by 7 million pounds.
C)to rise by 6 million pounds.
D)to rise by 20 million pounds.

Question 80

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

A)a limit imposed on the number of sports utility vehicles that the United States can import from Japan
B)a subsidy granted by the U.S.government to domestic garment manufacturers so they can compete more effectively with foreign garment manufacturers
C)a tax placed on all sports utility vehicles sold in the domestic market
D)a $5,000 per-car fee imposed on all sports utility vehicles imported into the United States