Question 1

Which of the following phenomena can be explained by the simple comparative advantage theory?

Accepted Answer

According to the simple comparative advantage theory, a country tends to export goods that it can produce more efficiently and at a lower opportunity cost than other countries. In the case of a country with a vast amount of farmland, it is likely to have a comparative advantage in producing agricultural goods and thus tends to export them.

Question 2

The pharmaceutical industry depends on highly trained workers, who are abundantly available in India. The automobile industry depends on the availability of a large stock of physical capital with which the United States is well endowed. According to Heckscher-Ohlin theorem

Accepted Answer

The answer of The pharmaceutical industry depends on highly trained...

Question 3

The Heckscher-Ohlin theorem looks to ________ to explain trade flows.

Accepted Answer

The Heckscher-Ohlin theorem states that countries export goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce. This means that a country's relative factor endowments (such as labor or capital) determine its comparative advantage and, therefore, its trade flows.

Question 4

If the opportunity cost of corn to wheat is 3:1 in the United States and 5:1 in France, only France would benefit from trade if the actual terms of trade between corn and wheat were 7:1.

Accepted Answer

The opportunity cost of corn to wheat is lower in the United States (3:1) than in France (5:1), which means that the U.S. has a comparative advantage in producing corn. If the actual terms of trade between corn and wheat were 7:1, the U.S. would be willing to trade its corn for wheat at that rate since it can produce corn at a lower opportunity cost. Therefore, both the U.S. and France would benefit from trade at a 7:1 exchange rate.

Question 5

Which of the following phenomena cannot be explained by the simple comparative advantage theory?

Accepted Answer

The simple comparative advantage theory assumes that countries will specialize in the production of goods that they have a comparative advantage in, and then trade with other countries for goods that they do not produce as efficiently. This theory does not explain why a country would both import and export the same goods, as this would not provide any benefit from trade. However, this phenomenon can be explained by other theories, such as the theory of competitive advantage, which takes into account factors beyond just comparative advantage, such as innovation, economies of scale, and government policies.

Question 6

For any pair of nations and goods, if each country has a comparative advantage in the production of one product, it is reasonable to expect that specialization and trade will benefit both countries.

Accepted Answer

The answer of For any pair of nations and goods,...

Question 7

The quantity and quality of ________ of a country are its factor endowments.

Accepted Answer

Factor endowments refer to a country's available resources, such as labor, land, and natural resources. Imports and exports, deficits and surpluses, and types of money are not considered factor endowments.

Question 8

An example of an acquired comparative advantage is

Accepted Answer

In this scenario, the comparative advantage is acquired through the reputation of Japanese companies for producing high-quality television sets. This is not a natural advantage, but rather an advantage that has been developed over time through investment in technology and processes, and through their reputation for quality.

Question 9

If the opportunity cost of corn to wheat is 3:1 in the United States and 5:1 in France, only the United States would benefit from trade if the actual terms of trade between corn and wheat were 2:1.

Accepted Answer

Both countries can benefit from trade if the terms of trade are between their respective opportunity costs. Since the actual terms of trade (2:1) are between the U.S. opportunity cost (3:1) and France's opportunity cost (5:1), both countries can specialize in the production of the good for which they have a comparative advantage and trade based on these terms, thereby gaining from trade.

Question 10

________ portion of actual world trade patterns results from different factor endowments between countries.

Accepted Answer

The theory of comparative advantage suggests that a significant portion of actual world trade patterns results from different factor endowments between countries. This means that countries specialize in producing goods that utilize their abundant resources and trade with other countries to obtain goods that require resources they lack.

Question 11

The software industry depends on highly trained workers, who are abundantly available in Country A. The heavy equipment industry depends on the availability of a large stock of physical capital with which Country B is well endowed. According to Heckscher-Ohlin theorem

Accepted Answer

The Heckscher-Ohlin theorem suggests that countries will export goods that require resources (factors of production) that are relatively abundant and import goods that require resources that are relatively scarce. Since Country A has an abundance of highly trained workers, it would specialize and export software, which relies on such labor. Conversely, Country B, with its large stock of physical capital, would specialize and export heavy equipment. Thus, Country B would import software, aligning with the theorem's prediction.

Question 12

An example of a(n) ________ comparative advantage is that some U.S. consumers prefer German beer over American beer because German beer has a reputation for tasting better.

Accepted Answer

Acquired comparative advantage refers to a comparative advantage that a country or business has gained through experience, education, or investment in technology. In this case, German beer has a reputation for tasting better, which can be seen as an acquired comparative advantage as it has been gained through investment in technology, ingredients, and production methods.

Question 13

The quantity and quality of labor, land, and natural resources of a country are its

Accepted Answer

Factor endowments refer to the resources a country possesses including labor, land, and natural resources. Factors A, B, and D are not accurate descriptions of these resources.

Question 14

The ratio at which a country can exchange domestic products for imported products is called the terms of trade.

Accepted Answer

This is a correct definition of terms of trade.

Question 15

A significant portion of actual world trade patterns results from

Accepted Answer

Different factor endowments between countries, such as natural resources and labor, can create a comparative advantage for countries in producing certain goods. This results in trade between countries as they seek to access goods that they do not have a comparative advantage in producing themselves.

Question 16

An example of acquired comparative advantage is that

Accepted Answer

Acquired comparative advantage refers to a country or firm's ability to produce a good or service at a lower opportunity cost than another country or firm, as a result of deliberate actions such as investing in technology, education or research and development. In this case, some U.S. consumers prefer German cars over American cars because of their perception of safety, which creates a market demand for German cars in the U.S. market. This demand provides an incentive for German firms to invest in research and development of safety features on their cars, ultimately giving them a comparative advantage in producing safer cars.

Question 17

If the domestic price is above the world price of a certain product, the domestic country will import the product.

Accepted Answer

When the domestic price of a product is above the world price, it means that the product can be purchased more cheaply from foreign producers, leading the domestic country to import the product to take advantage of the lower prices.

Question 18

An example of a(n) ________ comparative advantage is U.S. consumers buying automobiles produced in Japan because Japanese companies have a reputation for producing a higher-quality automobile than those produced in the United States.

Accepted Answer

In this example, the Japanese companies have acquired a comparative advantage in producing high-quality automobiles, which U.S. consumers value. This is not a natural comparative advantage (e.g. a country with abundant natural resources) or an unwarranted comparative advantage (e.g. due to unfair trade practices or government subsidies). Additionally, there is no indication in the example that any subsidies are involved, so choice D can be ruled out as well.

Question 19

If the opportunity cost of corn to wheat is 3:1 in the United States and 5:1 in France, both countries would benefit from trade if the actual terms of trade between corn and wheat were 4:1.

Accepted Answer

Both countries have a comparative advantage in producing one of the goods, the United States in corn and France in wheat. The opportunity cost of producing one unit of corn in the United States is three units of wheat, while in France is five units of wheat. Thus, the United States has a lower opportunity cost of producing corn and a comparative advantage over France in producing corn. On the other hand, France has a lower opportunity cost of producing wheat and a comparative advantage over the United States in producing wheat. If they trade at a ratio of 4:1, both countries can benefit from the trade. The United States can export corn and import wheat at a lower opportunity cost than producing wheat domestically, while France can export wheat and import corn at a lower opportunity cost than producing corn domestically. Therefore, the terms of trade at 4:1 are beneficial for both countries.

Question 20

A country enjoys an absolute advantage in the production of a good if that good can be produced at a lower cost in terms of other goods.

Accepted Answer

The answer of A country enjoys an absolute advantage in...

Quiz 33: International Trade, Comparative Advantage, and Protectionism