Question 1

In justifying its production outsourcing strategy,Apple Inc.notes that American workers lack the speed and flexibility the firm needs to produce its electrical products such as Ipod and Ipad.

Accepted Answer

Apple has stated that American workers lack the speed and flexibility needed to produce its products, which is one of the reasons for their outsourcing strategy.

Question 2

Adam Smith and David Ricardo reasoned that in a world of two countries,at least one country will be worse off as the result of trade.

Accepted Answer

Adam Smith and David Ricardo's theory of comparative advantage suggests that both countries can benefit from trade by specializing in the production of goods and services in which they have a comparative advantage. Therefore, in a world of two countries, both countries can be better off as the result of trade.

Question 3

If Mexico was to realize an increase in its factors of production,its production possibilities curve would shift inward toward the origin of the diagram.

Accepted Answer

If Mexico experiences an increase in its factors of production, such as resources, labor, and capital, then its production possibilities curve would shift outward away from the origin of the diagram. This means that Mexico would be able to produce more goods and services than before, indicating economic growth and development. An inward shift of the production possibilities curve would represent a decrease in factors of production or a decrease in efficiency, resulting in a decrease in the level of output that the economy can produce.

Question 4

Critics maintain that outsourcing by American businesses results in jobs moving to low-wage countries,to the disadvantage of American workers.

Accepted Answer

Critics have argued that outsourcing by American businesses results in jobs moving to low-wage countries, which puts American workers at a disadvantage.

Question 5

Analysts wide agree that Boeing's use of production outsourcing for its 787 has been highly successful in generating greater efficiencies in jetliner production.

Accepted Answer

Many analysts have criticized Boeing's outsourcing strategy for the 787, citing delays, cost overruns, and quality control issues as significant problems.

Question 6

Answer questions 205 and 206 using the information in the following table
 Output per labor hour (tons)
 Steel Aluminum
 Germany 30 80
 Brazil 20 40
-Germany has the comparative advantage in producing steel.

Accepted Answer

Comparative advantage is determined by which country can produce a good at a lower opportunity cost compared to others. Without specific data comparing Germany's production costs and opportunity costs to those of other countries, it's impossible to definitively state that Germany has the comparative advantage in producing steel. Comparative advantage can vary depending on various factors including technology, resources, and labor efficiency.

Question 7

If an economy is characterized by increasing opportunity costs,increasing the production of steel by constant amounts results in a constant rate of decrease in the production of autos.

Accepted Answer

In an economy with increasing opportunity costs, increasing the production of steel by constant amounts would result in an increasing rate of decrease in the production of autos, not a constant rate, because resources are not equally efficient in all uses.

Question 8

The gains from trade are closely related to the difference between the autarky price and the international terms of trade (international price).

Accepted Answer

The gains from trade are the benefits derived by countries engaging in trade with each other. These gains are closely related to the difference between the autarky price (the price at which a country can produce a good or service domestically without engaging in trade) and the international terms of trade (the price at which a country can trade its goods or services with other countries). When a country can purchase a good or service at a lower price on the international market than what it would cost to produce domestically, it can benefit from trade and experience gains.

Question 9

A country with high wages can export to a country with low wages,given sufficiently high labor productivity in the exporting country.

Accepted Answer

The high labor productivity in the exporting country can compensate for the high wages and make the exports competitive in the market of the country with lower wages.

Question 10

According to the trade model of David Ricardo,the direction of trade is determined by absolute advantage.

Accepted Answer

According to the trade model of David Ricardo, the direction of trade is determined by comparative advantage, not absolute advantage. Comparative advantage is based on the opportunity cost of producing a certain good, whereas absolute advantage is based on who can produce more of a good in a given amount of time.

Question 11

Answer questions 205 and 206 using the information in the following table
 Output per labor hour (tons)
 Steel Aluminum
 Germany 30 80
 Brazil 20 40
-Germany has the absolute advantage in producing both steel and aluminum.

Accepted Answer

The production possibilities frontier indicates that Germany can produce more steel and aluminum than Italy with the same amount of resources, meaning Germany has the absolute advantage in producing both goods.

Question 12

In his empirical test of the principle of comparative advantage,G.MacDougall found that relatively high export ratios are associated with relatively high labor productivity.

Accepted Answer

According to the statement, there is a positive correlation between export ratios and labor productivity, which means that relatively high export ratios are associated with relatively high labor productivity.

Question 13

Mercantilism refers to a system of restraints on imports and the promotion of exports,as used by governments in the 1600s and 1700s.

Accepted Answer

Mercantilism was indeed a system used by governments in the 1600s and 1700s that emphasized the importance of exporting more than importing and implementing policies such as tariffs and subsidies to achieve that goal.

Question 14

As international trade proceeds,a country will produce more of its import- competing product.

Accepted Answer

This statement is false. As international trade proceeds, a country will produce more of its export-oriented products, not its import-competing products. This is because the country can specialize in producing the goods where it has a comparative advantage and can trade them for the goods it is less efficient at producing.

Question 15

If Canada produces computers at a lower relative cost than Germany,Canada is said to have a comparative disadvantage in computers.

Accepted Answer

If Canada produces computers at a lower relative cost than Germany, Canada has a comparative advantage in computers, not a comparative disadvantage.

Quiz 2: Foundations of Modern Trade Theory: Comparative Advantage