Question 1

What level will the world price of a commodity settle at?

Accepted Answer

The world price of a commodity will settle at a level where the excess demand of the importing country is just equal to the excess supply of the exporting country, ensuring market equilibrium.

Question 2

What is the difference between the price the seller receives for a good or service and the minimum price he would be willing to accept for that unit called?

Accepted Answer

The difference between the price a seller receives and the minimum price they would be willing to accept is the gain in producer surplus, which represents the benefit the seller derives from the exchange. Excess supply refers to the situation where the quantity supplied exceeds the quantity demanded at a given price, while the total gains from trading that unit includes both the gain in producer and consumer surplus. The gain in consumer surplus refers to the benefit consumers derive from paying a price that is lower than the maximum they would have been willing to pay for the good or service.

Question 3

In order for mutually beneficial trade to occur,what level must the exchange rate between the goods involved be set at?

Accepted Answer

For mutually beneficial trade, the exchange rate must be set so that each country can export a good at a price above its opportunity cost, allowing them to gain from trade by specializing in goods where they have a comparative advantage.

Question 4

Suppose Canada could produce 4 tonnes of potatoes or 2 tonnes of wheat per worker per year,while Ireland could produce 3 tonnes of potatoes or 2 tonnes of wheat per worker per year.What country has the comparative advantage in producing wheat and the absolute advantage in producing potatoes?

Accepted Answer

Comparative advantage refers to the ability of a country to produce a good or service at a lower opportunity cost than other countries. 
In this case, Ireland can produce 1 tonne of wheat by giving up 1.5 tonnes of potatoes, while Canada can produce 1 tonne of wheat by giving up 2 tonnes of potatoes. Therefore, Ireland has a comparative advantage in wheat production.
Absolute advantage, on the other hand, refers to the ability of a country to produce more of a good or service than another country using the same amount of resources. 
In this case, Canada can produce 4 tonnes of potatoes per worker per year, while Ireland can only produce 3 tonnes of potatoes per worker per year. Therefore, Canada has an absolute advantage in potato production.

Question 5

Suppose an exporter has an upward-sloping supply curve.If a change in import demands in other countries leads it to a decrease in exports,other things equal,what would we expect to occur to prices?

Accepted Answer

When import demand decreases, the world price of the commodity tends to decrease due to lower demand.

Question 6

When markets reach the equilibrium price,all the opportunities for mutually beneficial trade have taken place.What can be said of the sum of consumer and producer surplus at this point?

Accepted Answer

At equilibrium price, the consumer and producer surplus are maximized. This is because, at this price, the quantity supplied by producers is equal to the quantity demanded by consumers, which means that all mutually beneficial trades have been made. The consumer surplus is the difference between the highest price a consumer is willing to pay and the price they actually pay. Similarly, the producer surplus is the difference between the lowest price a producer is willing to accept and the price they actually receive. At equilibrium price, both of these surpluses are maximized, leading to overall maximum surplus. Therefore, Option D is correct.

Question 7

Suppose Canada could produce 4 tons of potatoes or 2 tonnes of wheat per worker per year,while Ireland could produce 2 tonnes of potatoes or 3 tonnes of wheat per worker per year.What country has the comparative advantage and absolute advantage in producing potatoes?

Accepted Answer

Canada has the absolute advantage in potato production because it can produce more potatoes per worker. It also has the comparative advantage because it gives up less wheat to produce potatoes compared to Ireland.

Question 8

According to international trade theory,which of the following actions should a country take?

Accepted Answer

According to international trade theory, a country should import goods in which it has a comparative disadvantage, as this allows it to specialize in producing and exporting goods where it has a comparative advantage, leading to more efficient resource allocation and mutual benefits from trade.

Question 9

Suppose that Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year,but Lavaland can produce 36 units of food per person per year or 18 units of clothing per person per year.Which of the following statements is the most accurate?

Accepted Answer

The answer of Suppose that Iceland can produce 32 units...

Question 10

Suppose that Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year,but Lavaland can produce 24 units of food per person per year or 12 units of clothing per person per year.Which of the following statements is the most accurate?

Accepted Answer

The answer of Suppose that Iceland can produce 32 units...

Question 11

Suppose Edland can produce either 30 units of good A or 30 units of good Z,and Georgeland can produce either 150 units of good A or 200 units of good Z.For them both to benefit from trade,how much will each unit of Z exchange for?

Accepted Answer

To determine the exchange ratio, we need to compare the opportunity cost of producing one unit of A or Z in each country. 
For Edland, the opportunity cost of producing one unit of A is 1Z/30A, and the opportunity cost of producing one unit of Z is 30A/1Z. 
For Georgeland, the opportunity cost of producing one unit of A is 4/3 Z/A, and the opportunity cost of producing one unit of Z is 3/4 A/Z. 
Comparing the opportunity costs, we can see that Edland has a comparative advantage in producing A while Georgeland has a comparative advantage in producing Z. 
Suppose they agree to trade at an exchange ratio of x A/Z. Then for Edland, producing Z and trading it away should yield at least as much as producing A directly. 
So, 1Z/30A <= x A/Z => x >= 30/1 = 30. 
For Georgeland, producing A and trading it away should yield at least as much as producing Z directly. 
So, 4/3 Z/A >= 1/x A/Z => x >= 4/3. 
Thus, the exchange ratio should be between 30 and 4/3, which is  between 0.75 and 1 unit of A per unit of Z. Therefore, (B) is the correct answer.

Question 12

What is the difference between the price the consumer is willing to pay for a good or service and what he would have to pay for that unit called?

Accepted Answer

The difference between the price a consumer is willing to pay and what they actually have to pay is known as consumer surplus. Therefore, the correct answer is the gain in consumer surplus. Choices A and B do not accurately describe this concept, and excess demand is a situation where quantity demanded exceeds quantity supplied.

Question 13

Suppose Canada could produce 4 tonnes of potatoes or 2 tonnes of wheat per worker per year,while Ireland could produce 3 tonnes of potatoes or 2 tonnes of wheat per worker per year.What country has the comparative advantage and the absolute advantage in producing potatoes?

Accepted Answer

Canada has the comparative advantage in potato production because it can produce more potatoes per worker than Ireland (4 tonnes vs. 3 tonnes). Ireland has the absolute advantage in potato production because it can produce more potatoes per worker than Canada (3 tonnes vs. 2 tonnes).

Question 14

If Canada could produce 1 tonne of potatoes or 0.5 tonnes of wheat per worker per year,while Ireland could produce 3 tonnes of potatoes or 2 tonnes of wheat per worker per year,under what circumstances can there be mutual gains from trade?

Accepted Answer

The answer of If Canada could produce 1 tonne of...

Question 15

Compared to the no-trade situation,what occurs when a country exports a good?

Accepted Answer

When a country exports a good, domestic producers gain from access to larger markets and higher prices, while domestic consumers may face higher prices. The overall gains from trade typically outweigh the losses.

Question 16

Suppose that Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year,but Lavaland can produce 24 units of food per person per year or 12 units of clothing per person per year.Which of the following statements is the most accurate?

Accepted Answer

The answer of Suppose that Iceland can produce 32 units...

Question 17

Suppose Canada could produce 1 tonne of potatoes or 0.5 tonnes of wheat per worker per year,while Ireland could produce 3 tonnes of potatoes or 2 tonnes of wheat per worker per year.What country has the comparative advantage in producing wheat and the absolute advantage in producing potatoes?

Accepted Answer

Ireland has a comparative advantage in wheat production because it has a lower opportunity cost for producing wheat compared to Canada. Ireland also has an absolute advantage in potato production because it can produce more potatoes per worker per year than Canada.

Question 18

Assume that an exporter's supply curve of a commodity is upward sloping.If a change in import demands in other countries leads it to increase its exports,other things equal,what would be the impact on the domestic price of the commodity?

Accepted Answer

An increase in exports will shift the supply curve to the right, leading to an increase in quantity supplied at each price level. As a result, the domestic price of the commodity will rise to achieve equilibrium with the new level of demand.

Question 19

Suppose that Iceland can produce 40 units of food per person per year or 16 units of clothing per person per year,but Lavaland can produce 16 units of food per person per year or 8 units of clothing per person per year.Which of the following statements is the most accurate?

Accepted Answer

Lavaland has a comparative advantage in producing clothing because it has a lower opportunity cost for clothing compared to Iceland, but it does not have an absolute advantage since Iceland can produce more clothing per person.

Question 20

In order for mutually beneficial trade to occur,at what level must the exchange rate between the goods involved be set at?

Accepted Answer

For mutually beneficial trade to occur, the exchange rate between the goods involved must be set in a way that each country can import a good at a price below the opportunity cost of producing the good in the domestic market. This means that each country can specialize in producing the goods they are relatively efficient at, while importing goods they are less efficient at producing, leading to overall gains in productivity and welfare for both countries.

Quiz 14: International Trade

What level will the world price of a commodity settle at?

What is the difference between the price the seller receives for a good or service and the minimum price he would be willing to accept for that unit called?

In order for mutually beneficial trade to occur,what level must the exchange rate between the goods involved be set at?

Suppose Canada could produce 4 tonnes of potatoes or 2 tonnes of wheat per worker per year,while Ireland could produce 3 tonnes of potatoes or 2 tonnes of wheat per worker per year.What country has the comparative advantage in producing wheat and the absolute advantage in producing potatoes?

Suppose an exporter has an upward-sloping supply curve.If a change in import demands in other countries leads it to a decrease in exports,other things equal,what would we expect to occur to prices?

When markets reach the equilibrium price,all the opportunities for mutually beneficial trade have taken place.What can be said of the sum of consumer and producer surplus at this point?

Suppose Canada could produce 4 tons of potatoes or 2 tonnes of wheat per worker per year,while Ireland could produce 2 tonnes of potatoes or 3 tonnes of wheat per worker per year.What country has the comparative advantage and absolute advantage in producing potatoes?

According to international trade theory,which of the following actions should a country take?

Suppose that Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year,but Lavaland can produce 36 units of food per person per year or 18 units of clothing per person per year.Which of the following statements is the most accurate?

Suppose that Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year,but Lavaland can produce 24 units of food per person per year or 12 units of clothing per person per year.Which of the following statements is the most accurate?

Suppose Edland can produce either 30 units of good A or 30 units of good Z,and Georgeland can produce either 150 units of good A or 200 units of good Z.For them both to benefit from trade,how much will each unit of Z exchange for?

What is the difference between the price the consumer is willing to pay for a good or service and what he would have to pay for that unit called?

Suppose Canada could produce 4 tonnes of potatoes or 2 tonnes of wheat per worker per year,while Ireland could produce 3 tonnes of potatoes or 2 tonnes of wheat per worker per year.What country has the comparative advantage and the absolute advantage in producing potatoes?

If Canada could produce 1 tonne of potatoes or 0.5 tonnes of wheat per worker per year,while Ireland could produce 3 tonnes of potatoes or 2 tonnes of wheat per worker per year,under what circumstances can there be mutual gains from trade?

Compared to the no-trade situation,what occurs when a country exports a good?

Suppose that Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year,but Lavaland can produce 24 units of food per person per year or 12 units of clothing per person per year.Which of the following statements is the most accurate?

Suppose Canada could produce 1 tonne of potatoes or 0.5 tonnes of wheat per worker per year,while Ireland could produce 3 tonnes of potatoes or 2 tonnes of wheat per worker per year.What country has the comparative advantage in producing wheat and the absolute advantage in producing potatoes?

Assume that an exporter's supply curve of a commodity is upward sloping.If a change in import demands in other countries leads it to increase its exports,other things equal,what would be the impact on the domestic price of the commodity?

Suppose that Iceland can produce 40 units of food per person per year or 16 units of clothing per person per year,but Lavaland can produce 16 units of food per person per year or 8 units of clothing per person per year.Which of the following statements is the most accurate?

In order for mutually beneficial trade to occur,at what level must the exchange rate between the goods involved be set at?