Question 1

Suppose a U.S. dollar exchanges for 2 British pounds, then each pound is worth

Accepted Answer

If 1 U.S. dollar exchanges for 2 British pounds, then each British pound is worth half a dollar, or $0.50.

Question 2

For any pair of countries, there is

Accepted Answer

The correct answer is A because there is indeed a range of exchange rates that can facilitate both countries in realizing the gains from specialization and comparative advantage. This range allows for the mutual benefit of trade between the two countries, as it accommodates their respective cost structures and competitive positions.

Question 3

Refer to the information provided in Table 20.3 below to answer the question(s) that follow.
Table 20.3 $$\begin{array} { l c c } 
& \text { United States } & \text { Belgium } \
\hline \text { Raspberries } & \$ 9 & 9 \text { euros } \
\text { Chocolate } & \$ 12 & 27 \text { euros }\
\hline
\end{array}$$
-Refer to Table 20.3. If the exchange rate is $1 = 1 euro, then

Accepted Answer

The answer of Refer to the information provided in Table...

Question 4

If the exchange rate between the United States and Japan changes from $1 = 100 yen to $1 = 110 yen, then, ceteris paribus, the price of American goods in Japan

Accepted Answer

When the exchange rate changes from $1 = 100 yen to $1 = 110 yen, it means that the dollar has appreciated relative to the yen. This makes American goods more expensive in Japan, as it now costs more yen to buy the same amount of dollars to purchase American goods.

Question 5

Refer to the information provided in Table 20.3 below to answer the question(s) that follow.
Table 20.3 $$\begin{array} { l c c } 
& \text { United States } & \text { Belgium } \
\hline \text { Raspberries } & \$ 9 & 9 \text { euros } \
\text { Chocolate } & \$ 12 & 27 \text { euros }\
\hline
\end{array}$$
-Refer to Table 20.3. If the exchange rate is $1 = 2 euros, then

Accepted Answer

To determine which country will import which goods, we need to compare the prices in a common currency. At an exchange rate of $1 = 2 euros, the prices in euros can be converted to dollars: - Raspberries in Belgium cost 9 euros, which is equivalent to $4.50 (9 euros / 2 euros per dollar). - Chocolate in Belgium costs 27 euros, which is equivalent to $13.50 (27 euros / 2 euros per dollar). Therefore, the United States will import raspberries since they are cheaper in Belgium ($4.50 vs. $9), and Belgium will import chocolate since it is cheaper in the United States ($12 vs. $13.50).

Question 6

If the price of a car in the United States is $26,000, and the exchange rate between the dollar and the British pound rises from $1.50 to $2.00 per pound, then the price of the American car in Britain will

Accepted Answer

When the exchange rate rises from $1.50 to $2.00 per pound, it means that fewer pounds are needed to buy the same amount of dollars. Therefore, the price of the American car in Britain, when converted to pounds, will fall because it costs fewer pounds to buy the car at $26,000.

Question 7

Assume that Blade Runner specializes in producing in-line skates and Hang Ten specializes in producing surfboards. After trade Blade Runner exports 800 pairs of in-line skates and imports 200 surfboards. The terms of trade

Accepted Answer

The terms of trade are determined by the ratio of goods exchanged. Blade Runner exports 800 pairs of in-line skates and imports 200 surfboards, which simplifies to a 4:1 ratio of in-line skates to surfboards.

Question 8

Suppose that the United States and Italy both produce wine and shoes. In the United States, wine sells for $10 a bottle and shoes sell for $40 a pair. In Italy, wine sells for 15 euros a bottle and shoes sell for 20 euros a pair. Given this information, trade will flow in both directions if the price of a dollar is between

Accepted Answer

To determine the correct exchange rate range for trade to flow in both directions, we compare the relative prices of wine and shoes in both countries. In the US, the price ratio of wine to shoes is $10/$40 = 1/4. In Italy, it's 15 euros/20 euros = 3/4. For trade to be beneficial, the cost of wine relative to shoes in one country must be cheaper than in the other, and vice versa, after accounting for the exchange rate.1. For wine to be cheaper in the US than in Italy, the exchange rate must make $10 less than 15 euros. If $1 = x euros, then 10x < 15, so x < 1.5 euros. This means the exchange rate must be less than 1.5 euros per dollar for US wine to be cheaper.2. For shoes to be cheaper in Italy than in the US, 40 dollars must be more expensive than 20 euros. Using the same exchange rate x, 40 < 20/x, so x > 2. Therefore, the exchange rate must be more than 2 euros per dollar for Italian shoes to be cheaper.However, choice B suggests an exchange rate between .67 and 2 euros, which doesn't directly align with the above analysis. The correct analysis should consider how the exchange rate affects the relative prices directly:- For US wine to be cheaper than Italian wine, we need the price in euros of US wine (10x, where x is the dollar to euro exchange rate) to be less than 15 euros. So, 10x < 15, leading to x < 1.5 euros/dollar.- For Italian shoes to be cheaper than US shoes, we need the price in dollars of Italian shoes (20/x, where x is the dollar to euro exchange rate) to be less than 40 dollars. So, 20/x < 40, leading to x > 0.5 euros/dollar.Given this, the correct analysis should focus on finding a range where US wine is cheaper in Italy and Italian shoes are cheaper in the US, which would encourage trade in both directions. However, the explanation provided does not accurately reflect the choices given, indicating a mistake in the analysis. The correct approach involves finding the exchange rate that makes one country's goods cheaper than the other's and vice versa, but the correct answer should be based on the premise that the exchange rate makes trade beneficial for both goods in both directions, which is best represented by the choice that allows for the price of one country's goods to be competitive in the other country after conversion. Choice B suggests an exchange rate that would allow for this competitive trade, but the explanation provided does not accurately justify this choice based on the initial analysis. The correct justification involves recalculating based on the premise of competitive exchange rates for both products, which was not correctly applied in the initial explanation.

Question 9

If the exchange rate between the United States and Mexico changes from $1 = 100 pesos to $1 = 5 pesos, ceteris paribus

Accepted Answer

When the exchange rate changes from $1 = 100 pesos to $1 = 5 pesos, the dollar strengthens significantly against the peso. This means that U.S. goods become more expensive for Mexican consumers, leading to a decrease in U.S. exports to Mexico. However, the question states that U.S. exports to Mexico increase, which seems counterintuitive given the exchange rate movement. The correct interpretation, considering the broader economic implications and the usual effects of such a significant exchange rate change, would be that U.S. imports from Mexico (B) are likely to increase because Mexican goods become cheaper for U.S. consumers. This would also mean Mexican exports to the United States increase. However, without additional context or clarification, the provided answer focuses on the direct implication of the question's wording, which might not fully capture the typical economic outcomes of such a scenario.

Question 10

Refer to the information provided in Table 20.3 below to answer the question(s) that follow.
Table 20.3 $$\begin{array} { l c c } 
& \text { United States } & \text { Belgium } \
\hline \text { Raspberries } & \$ 9 & 9 \text { euros } \
\text { Chocolate } & \$ 12 & 27 \text { euros }\
\hline
\end{array}$$
-Refer to Table 20.3. Trade will flow in both directions between countries only if the price of the euro is between

Accepted Answer

For trade to flow in both directions, the price of raspberries and chocolate in one country must be cheaper than in the other when converted at the exchange rate. For raspberries, the U.S. price in euros (using the exchange rate) must be less than 9 euros for Belgium to import from the U.S., and the Belgium price in dollars (using the exchange rate) must be less than $9 for the U.S. to import from Belgium. For chocolate, the same logic applies but with $12 and 27 euros as the respective prices.1. For raspberries ($9 in the U.S. and 9 euros in Belgium), the exchange rate must make $9 less than 9 euros for Belgium to import from the U.S. and make 9 euros less than $9 for the U.S. to import from Belgium. This means the exchange rate must be more than $1 per euro (9 euros > $9) and less than $1 per euro ($9 < 9 euros) simultaneously, which is not logically possible, indicating a mistake in our initial approach regarding direct comparison without conversion.Correcting the approach: The correct method involves finding the exchange rate that makes the products competitively priced in both markets. For raspberries, the U.S. price in euros (at the correct exchange rate) should be competitive with Belgium's price, and vice versa when converted to dollars for chocolate.2. For chocolate ($12 in the U.S. and 27 euros in Belgium), the exchange rate must make $12 convert to less than 27 euros for Belgium to consider importing from the U.S., and 27 euros must convert to less than $12 for the U.S. to import from Belgium.Given the corrected understanding, we find the exchange rates that satisfy these conditions:- For raspberries to be traded both ways, the exchange rate must make $9 equivalent to less than 9 euros and 9 euros equivalent to less than $9, which is not directly feasible without the specific conversion rates. The correct approach is to find the range where both goods can be traded beneficially, considering their prices in both markets.- For chocolate, the exchange rate must make $12 less than 27 euros when converted, and 27 euros less than $12 when converted back, indicating a range where both conversions are beneficial for trade.The correct answer involves calculating these ranges based on the prices given, which was not accurately done in the initial explanation. The correct range allows for the competitive exchange of both goods, considering their prices in both currencies, which aligns with option D) $.44 and $1.00, as it provides a feasible range for the exchange rates that would allow both raspberries and chocolate to be traded between the U.S. and Belgium, considering the correction towards understanding the competitive pricing and exchange rate impact.

Question 11

If you are traveling in China and you purchase a meal that costs 140 yuan and the current exchange rate is 7 yuan to the dollar, then the price of the meal in U.S. currency is

Accepted Answer

To convert the cost from yuan to dollars, divide the cost in yuan by the exchange rate: 140 yuan / 7 yuan per dollar = 20 dollars.

Question 12

When trade is free, patterns of trade and trade flows result from

Accepted Answer

Trade patterns and flows in a free trade environment are determined by the independent decisions of thousands of importers and exporters, along with the choices made by millions of private households and firms, without direct government intervention dictating those decisions.

Question 13

The United States would have an absolute advantage compared to Canada in the production of wheat if

Accepted Answer

Absolute advantage refers to the ability of a country to produce a good using fewer resources than another country. Choice C directly addresses this by stating that the United States uses fewer resources to produce wheat than Canada does.

Question 14

Suppose that the United States and Italy both produce wine and shoes. In the United States, wine sells for $10 a bottle and shoes sell for $40 a pair. In Italy, wine sells for 15 euros a bottle and shoes sell for 20 euros a pair. If the current exchange rate is 0.8 euro to the dollar, then

Accepted Answer

When converted, the price of shoes in Italy is cheaper than in the US, and the price of wine in the US is cheaper than in Italy, leading to the US importing shoes and Italy importing wine.

Question 15

The purpose of the ________ was to discourage imports and encourage exports, and thus keep the price of food high.

Accepted Answer

The Corn Laws were tariffs and restrictions on imported food and grain ("corn") enforced in Great Britain between 1815 and 1846. They were designed to keep grain prices high to favour domestic producers, and their primary purpose was indeed to discourage imports and encourage exports, thereby keeping the price of food high within the country.

Question 16

Refer to the information provided in Figure 20.2 below to answer the question(s) that follow.  Figure 20.2
-Refer to Figure 20.2. The United States has an absolute advantage in producing

Accepted Answer

The answer of Refer to the information provided in Figure...

Question 17

Refer to the information provided in Table 20.3 below to answer the question(s) that follow.
Table 20.3 $$\begin{array} { l c c } 
& \text { United States } & \text { Belgium } \
\hline \text { Raspberries } & \$ 9 & 9 \text { euros } \
\text { Chocolate } & \$ 12 & 27 \text { euros }\
\hline
\end{array}$$
-Refer to Table 20.3. If the exchange rate is $1 = 3 euros, then

Accepted Answer

The answer of Refer to the information provided in Table...

Question 18

Initially trade between the United States and Canada is balanced. Then, if a change in the exchange rate reduces the U.S. dollar price of Canadian goods, ceteris paribus, we would expect

Accepted Answer

When the U.S. dollar price of Canadian goods decreases, Canadian goods become cheaper for U.S. consumers, leading to an increase in U.S. imports from Canada. This results in a trade surplus for Canada, as it exports more to the U.S. than it imports from it, ceteris paribus.

Question 19

Refer to the information provided in Figure 20.2 below to answer the question(s) that follow.  Figure 20.2
-Refer to Figure 20.2. England has an absolute advantage in producing

Accepted Answer

England has a lower opportunity cost of producing trucks than cars, as it can produce more trucks with the same resources.

Question 20

If the price of a car in the United States is $22,000, and the exchange rate between the dollar and the Japanese yen falls from 125 yen to 105 yen per dollar, then the price of the American car in Japan will

Accepted Answer

The answer of If the price of a car in...

Quiz 20: International Trade, Comparative Advantage, and Protectionism