Question 1

China has developed a comparative advantage in the production of children's toys.The source of this comparative advantage is

Accepted Answer

China's comparative advantage in the production of children's toys comes from a large supply of unskilled workers and relatively little capital. This allows them to produce toys at a lower cost than other countries with higher labor costs and more capital-intensive production processes. Additionally, China has established clusters of toy manufacturers and suppliers, which results in economies of scale and lower production costs.

Question 2

The United States has developed a comparative advantage in digital computers,airliners,and many prescription drugs.The source of its comparative advantage in these products is

Accepted Answer

The source of comparative advantage in digital computers, airlines, and prescription drugs is technology. The United States has invested heavily in research and development, leading to technological advancements and innovations in these industries, giving them a comparative advantage over other countries. Neither a favorable climate nor abundant natural resources nor a strong central government has been the driving force behind these industries' comparative advantage in the United States.

Question 3

Costa Rica is a leading exporter of bananas.What explains the comparative advantage of this country in banana production?

Accepted Answer

Costa Rica's climate and soil conditions are well-suited for banana production, which explains its comparative advantage in this area.

Question 4

Which of the following statements is false?

Accepted Answer

The statement "within each country, some individuals are made better off as a result of international trade, but one of the countries will be worse off overall" is false. It is possible for both countries to be better off overall, as stated in Option C.

Question 5

Automobiles and many other products are differentiated.As a result

Accepted Answer

When products are differentiated, there may be variations in the characteristics, quality, and features that appeal to different consumer preferences. This means that different countries can specialize in producing specific types of automobiles that cater to the varying preferences of consumers globally. For example, Japan might make small, fuel-efficient cars, while the United States produces bigger, more powerful SUVs. This way, nations can trade these specialized products with other nations and have a comparative advantage.

Question 6

The increase in unemployment in the United States that resulted from the China shock

Accepted Answer

The increase in unemployment resulting from the China shock recovered at a slower pace than it had from import increases in previous decades.

Question 7

Table 7-6
Output per hour Production and Production
of work Consumption without Trade with Trade
  Estonia and Morocco can produce both swords and belts.Each country has a total of 40 available labor hours for the production of swords and belts.Table 7-6 shows the output per hour of work,the production and consumption quantities without trade,and the production numbers with trade.
-Refer to Table 7-6.If the actual terms of trade are 1 belt for 1.5 swords and 50 belts are traded,how many swords will Morocco gain compared to the "without trade" numbers?

Accepted Answer

Without trade, Morocco can produce 24 swords and 16 belts. With trade, Morocco will produce 15 belts (and 24 swords) in exchange for 22.5 swords (1.5 swords per belt traded x 15 belts traded). So, compared to the "without trade" numbers, Morocco will gain 22.5 swords - 24 swords = -1.5 swords (or 1.5 swords less). Therefore, the answer is B) 15 swords gained compared to the "without trade" numbers.

Question 8

One of the main sources of comparative advantage is natural resources.

Accepted Answer

Natural resources such as minerals, oil, and gas, can provide a country with a competitive edge in certain industries, allowing them to produce goods more efficiently and at a lower cost than other countries, which is a key aspect of comparative advantage.

Question 9

One reason a country does not specialize completely in production is that production of most goods involves increasing opportunity costs.

Accepted Answer

When a country specializes completely in production, it means it is focusing all its resources and efforts on producing a particular good, which may lead to increasing opportunity costs. This is because the resources that are best suited for producing that good will be used up first or will become scarce, leading to higher costs of production, and the resources that are less productive in producing that good will have to be used, resulting in decreasing returns to scale. As a result, a country may choose to not specialize completely in production to avoid increasing opportunity costs and to maintain a diverse economy.

Question 10

All of the following are sources of comparative advantage except

Accepted Answer

A strong foreign currency exchange rate is not a source of comparative advantage. Comparative advantage refers to a country's ability to produce a particular good or service at a lower opportunity cost than another country. Climate and natural resources, relative abundance of labor and capital, and technology are all factors that can contribute to a country's comparative advantage.

Question 11

The first example of comparative advantage appeared in a book that was published in 1817.This example showed that mutually beneficial trade between two countries (England and Portugal)was possible.The example assumed that two goods (wine and cloth)could be produced by both countries.Which of the following describes the conclusion of this example?

Accepted Answer

The example showed that Portugal had a comparative advantage in producing wine and England had a comparative advantage in producing cloth. This means that even though Portugal could produce both wine and cloth, it could produce wine at a lower opportunity cost compared to England, while England could produce cloth at a lower opportunity cost compared to Portugal. Therefore, both countries could benefit from trade by specializing in the production of the goods in which they had a comparative advantage and then trading with each other.

Question 12

Autarky is a situation where one country does not trade with other countries.

Accepted Answer

Autarky is defined as an economic policy or situation where a country aims to be self-sufficient and does not engage in international trade. Therefore, the statement is true.

Question 13

In the real world we don't observe countries completely specializing in the production of goods for which they have a comparative advantage.All of the following are reasons for this except

Accepted Answer

Countries having more resources than others is not a reason for lack of complete specialization; rather, it affects absolute advantage, not comparative advantage.

Question 14

In the past two decades the United States lost its comparative advantage in automobiles to Japan.What factor was most responsible for the development of Japan's comparative advantage in automobiles?

Accepted Answer

Japanese firms excelled in process technology, which allowed them to produce high-quality automobiles at a lower cost than American firms. This was achieved through advancements in manufacturing techniques such as just-in-time inventory systems and total quality management. This gave Japanese firms a significant competitive advantage in the global market for automobiles. The other options, labor, external economies, and natural resources, although important, were not the primary factor that led to Japan's comparative advantage in automobiles.

Question 15

As percentage of imports,the largest product category of U.S.imports from China is

Accepted Answer

According to recent data, electronic products make up around 35% of total U.S. imports from China, making it the largest product category. The other options mentioned are also significant product categories, but not as large as electronic products in terms of percentage of imports.

Question 16

Examples of comparative advantage show how trade between two countries can make each better off.Compared to their pre-trade positions,trade makes both countries better off because in each country

Accepted Answer

Trade allows countries to specialize in the production of goods for which they have a comparative advantage, leading to an increase in total consumption of goods due to more efficient resource allocation.

Question 17

From 1944 to 2001,the number of workers employed in manufacturing in the United States

Accepted Answer

The text states that from 1944 to 2001, the number of workers employed in manufacturing in the United States fell from about 38 percent to about 12 percent, making choice A the correct answer. Choices B, C, and D are all incorrect as they do not align with the information given in the text.

Question 18

Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade.These examples are misleading because

Accepted Answer

While textbook examples of trade often show mutual benefits, in reality, some individuals may be negatively impacted by trade. It is possible for certain sectors of the economy to experience job losses or wage reductions due to increased competition from imports, and this can harm some workers in both countries engaged in trade. While trade is generally seen as beneficial, it is important to recognize that it can have both winners and losers.

Question 19

Pakistan has developed a comparative advantage in the production of clothing.The source of its comparative advantage in this product is

Accepted Answer

Pakistan's comparative advantage in clothing production is based on the availability of a large supply of unskilled workers who can produce cheap and efficient labor. The country lacks technology and natural resources to produce high-end clothing, but it can produce a great volume of low-cost clothing due to its vast labor supply.

Question 20

A consequence of increasing marginal costs of producing laptop computers in the United States is

Accepted Answer

Increasing marginal costs mean that as more laptops are produced, the cost of producing each additional laptop rises. This makes it inefficient to completely specialize in laptop production, leading to a halt before full specialization.

Quiz 7: Comparative Advantage and the Gains From International Trade