Question 1

According to the principle of comparative advantage, a country is realizing gains from trade when it achieves a level of consumption that lies outside of its production possibilities curve.

Accepted Answer

The principle of comparative advantage suggests that countries can gain from trade by specializing in the production of goods for which they have a comparative advantage and then trading these goods. This allows countries to consume at a point that is outside their production possibilities curve, which represents the maximum amount of goods or services that can be efficiently produced with available resources.

Question 2

If you travel in a Boeing 777 jetliner, you are traveling in a product that is assembled entirely with parts and components that are produced in the U.S.

Accepted Answer

The Boeing 777, like many large commercial aircraft, is assembled with parts and components sourced from a global supply chain, including countries such as Japan, Italy, France, and the UK, among others.

Question 3

Canada, Japan, and Mexico are the leading trading partners of the U.S.

Accepted Answer

Canada and Mexico are the United States' first and second-largest trading partners respectively, due to their proximity and the North American Free Trade Agreement (NAFTA), now replaced by the United States-Mexico-Canada Agreement (USMCA). Japan is also a significant trading partner, ranking among the top for both imports to and exports from the U.S., making these countries among the leading trading partners of the U.S.

Question 4

When the North American Free Trade Agreement was adopted, it was predicted that higher-skill and higher-tech businesses in the U.S. would benefit from the elimination of trade barriers with Mexico.

Accepted Answer

The North American Free Trade Agreement (NAFTA) aimed to eliminate barriers to trade and investment between the U.S., Canada, and Mexico. It was predicted that by doing so, higher-skill and higher-tech businesses in the U.S. would benefit from increased access to Mexican markets and the opportunity for cost savings through more efficient supply chains and production arrangements.

Question 5

When the North American Free Trade Agreement was adopted, it was predicted that labor-intensive, import-competing businesses in the U.S. would likely lose from tariffs that were eliminated on competing imports from Mexico.

Accepted Answer

The North American Free Trade Agreement (NAFTA) aimed to eliminate barriers to trade and investment between the U.S., Canada, and Mexico. This included the elimination of tariffs on competing imports, which was expected to negatively impact labor-intensive, import-competing businesses in the U.S. because they would face increased competition from lower-cost Mexican products.

Question 6

Over time, the U.S. has become an increasingly open economy.

Accepted Answer

The U.S. has progressively reduced trade barriers and engaged in numerous trade agreements, leading to a more open economy with increased international trade and investment flows.

Question 7

The U.S. is a major exporter of petroleum and other energy products.

Accepted Answer

The United States has become one of the world's largest producers and exporters of petroleum and natural gas, significantly increasing its exports of these energy products in recent years.

Question 8

Suppose a country produces only two types of goods. If it specializes in the production of one good, then the country will be operating at one of the endpoints of its production possibilities schedules.

Accepted Answer

Specializing in the production of one good means allocating all resources to it, which places the country at one endpoint of its production possibilities frontier, where it produces maximum of one good and none of the other.

Question 9

A good way for a country to develop a comparative advantage in a good is by imposing tariffs on imports of that good.

Accepted Answer

Imposing tariffs on imports protects domestic industries from foreign competition but does not inherently develop a country's comparative advantage, which is based on producing goods at a lower opportunity cost than others.

Question 10

As a result of United States quotas and tariffs imposed on imported Canadian lumber in 1996, thousands of U.S. families were unable to buy a home.

Accepted Answer

The answer of As a result of United States quotas...

Question 11

In 2000, wages in Malaysia were 10 percent of those in the U.S., and labor productivity in Malaysia was also 10 percent of that in the U.S. This means the unit labor costs were about the same in both countries.

Accepted Answer

Unit labor cost is calculated as the cost of labor per unit of output, and if wages are proportional to labor productivity (as in this case, both being 10% of the U.S. levels), the unit labor costs would indeed be about the same in both countries.

Question 12

The "level playing field argument" refers to an argument against free trade that is based on a desire to protect new and developing industries.

Accepted Answer

The "level playing field argument" refers to the desire to ensure fair competition by making sure that all countries adhere to similar standards and regulations, such as labor and environmental protections, rather than specifically focusing on protecting new and developing industries.

Question 13

NAFTA is an example of a regional trading arrangement.

Accepted Answer

NAFTA, the North American Free Trade Agreement, is a regional trading arrangement between the United States, Canada, and Mexico aimed at reducing trade barriers and promoting economic integration among these countries.

Question 14

U.S. tariffs tend to be progressive taxes, which predominately affect wealthy consumers.

Accepted Answer

U.S. tariffs are generally considered regressive taxes because they often raise the prices of goods, disproportionately affecting lower-income consumers who spend a larger share of their income on these goods.

Question 15

According to the principle of comparative advantage, Canada exports those goods and services for which it has a low

Accepted Answer

The principle of comparative advantage suggests that countries will export goods and services for which they have a lower opportunity cost compared to other countries. This allows them to specialize in the production of those goods and services, maximizing efficiency and economic benefit.

Question 16

According to the principle of comparative advantage, France imports those goods and services for which it has a high

Accepted Answer

The principle of comparative advantage suggests that countries should import goods and services for which they have a higher opportunity cost of producing themselves, and export those for which they have a lower opportunity cost. This allows for more efficient global resource allocation.

Question 17

International trade yields effects similar to technological progress because they both

Accepted Answer

Both international trade and technological progress can lead to an increase in the total real income of a nation by allowing more efficient allocation of resources and access to a greater variety of goods and services.

Question 18

Of the following four choices, which country's exports of goods and services constitute the largest share of its gross domestic product?

Accepted Answer

The Netherlands has a highly open economy, heavily reliant on foreign trade, which includes both imports and exports. This trade constitutes a large share of the country's GDP compared to the larger economies of the U.S., Canada, and Japan, which have more diversified and internally driven economies.

Question 19

Specialization increases productivity for all of the following reasons except

Accepted Answer

Specialization increases productivity because it allows workers to focus on a single task, becoming more skilled and efficient, and it fosters innovation. However, it does not result in diseconomies of large-scale production; instead, diseconomies of scale refer to a point where a company grows so large that the costs per unit increase.

Question 20

The degree to which specialization can be practiced is limited the most by the

Accepted Answer

The degree to which specialization can be practiced is most limited by the size of the market because a larger market allows for more specialization due to a greater diversity of needs and wants, as well as the ability to support more niche products and services.

Quiz 16: The United States and the Global Economy