Question 1

Which of the following is not a basis for trade between two nations?

Accepted Answer

One nation's absolute advantage is actually a basis for trade between two nations. Therefore, the correct option is B, which is not a basis for trade between two nations.

Question 2

Which of the following is not true of the terms of trade?

Accepted Answer

The General Agreement on Tariffs and Trade (GATT) does not specifically begin negotiations on the terms of trade. GATT's main focus is on reducing tariffs and other barriers to trade. Negotiations on the terms of trade are typically conducted through bilateral or multilateral negotiations between the trading partners themselves.

Question 3

The basis of the benefits of specialization is

Accepted Answer

The basis of the benefits of specialization is comparative advantage, which is the ability to produce a good or service at a lower opportunity cost than another producer. Specialization allows countries to focus on producing goods and services in which they have a comparative advantage, leading to increased efficiency and productivity. Absolute advantage, the ability to produce a good or service more efficiently than any other country, is not directly related to specialization. The size of the country, identical production costs between two countries, and self-sufficiency are also not directly related to the benefits of specialization.

Question 4

International trade is most likely to occur whenever

Accepted Answer

International trade is most likely to occur when both trading nations can benefit from the exchange. Each country has a comparative advantage in producing certain goods and services, and by trading with each other, they can specialize in what they produce best, lower their costs, and increase their overall output. Therefore, both countries will gain from trade.

Question 5

For each bow the Romans are producing,they give up the opportunity to make 10 arrows.The Dacians are giving up producing 2 bows for every 40 arrows they are producing.Which of the following is true regarding opportunity cost?

Accepted Answer

The answer of For each bow the Romans are producing,they...

Question 6

For each bow the Romans are producing,they give up the opportunity to make 10 arrows.The Dacians are giving up producing 2 bows for every 40 arrows they are producing.Which of the following is true regarding the production possibilities frontier?

Accepted Answer

The Romans give up 10 arrows for 1 bow, while the Dacians give up 20 arrows for 1 bow (40 arrows for 2 bows). This means the Romans have a higher opportunity cost for arrows, making their PPF steeper when bows are on the vertical axis.

Question 7

In New Zealand one worker can produce 40 walking sticks or 10 boomerangs each hour.What is the opportunity cost of producing one walking stick?

Accepted Answer

The answer of In New Zealand one worker can produce...

Question 8

The opportunity cost of producing one car in Germany is 2,000 bushels of wheat,and the opportunity cost of producing one car in Canada is 1,200 bushels of wheat.The two countries can realize mutual gains from trade if they agree on terms of trade that are

Accepted Answer

In this case, the opportunity cost of producing one car in Germany is higher than the opportunity cost of producing one car in Canada (2,000 bushels of wheat vs. 1,200 bushels of wheat). This means that Germany has a comparative advantage in producing wheat, while Canada has a comparative advantage in producing cars. For both countries to benefit from trade, they need to agree on terms of trade where both gain. Since Germany has a comparative advantage in producing wheat, it should be willing to trade wheat for cars at a lower opportunity cost than its own (i.e. less than 2,000 bushels of wheat per car). Similarly, Canada should be willing to trade cars for wheat at a lower opportunity cost than its own (i.e. greater than 1,200 bushels of wheat per car). Therefore, the terms of trade should be between 1,200 bushels of wheat per car and 2,000 bushels of wheat per car. Choice C satisfies this condition.

Question 9

Absolute advantage

Accepted Answer

Absolute advantage means that a country can produce more of two goods than another country can, regardless of the opportunity cost. It is different from comparative advantage, which is based on opportunity cost, and it does not imply autarky (economic self-sufficiency). Therefore, choices A, B, and C are incorrect. Choice E is also incorrect, as it implies that the country with absolute advantage can produce less, which is not true.

Question 10

It is possible for one country to have a comparative advantage in the production of all products.

Accepted Answer

This is not theoretically possible according to the principle of comparative advantage, which suggests that countries specialize in the production of goods and services in which they have a lower opportunity cost and trade with other countries to mutually gain from such specialization. Each country will have different factors of production and efficiencies, resulting in different areas of comparative advantage.

Question 11

For each watch Denmark produces,it gives up the opportunity to make 50 pounds of cheese.Germany can produce one watch for every 100 pounds of cheese it produces.Which of the following is true concerning production possibilities curves in both countries?

Accepted Answer

Since Denmark must give up 50 pounds of cheese for each watch produced, its production possibilities frontier for watches will have a steeper slope than its production possibilities frontier for cheese. On the other hand, Germany can produce 1 watch for every 100 pounds of cheese, so its production possibilities frontier for watches will have a shallower slope than its production possibilities frontier for cheese. Therefore, on a graph with cheese on the vertical axis, the slope of Germany's production possibilities frontier is steeper than Denmark's.

Question 12

For each bow the Romans are producing,they give up the opportunity to make 10 arrows.The Dacians are giving up producing 2 bows for every 40 arrows they are producing.Which of the following is true regarding comparative advantage?

Accepted Answer

The answer of For each bow the Romans are producing,they...

Question 13

Whenever the opportunity costs of goods are significantly different in different countries,there are gains from specialization and trade.

Accepted Answer

When opportunity costs vary between countries, each country can specialize in producing the goods they have a lower opportunity cost in producing. By trading with each other, both countries benefit from being able to obtain the goods they have a higher opportunity cost in producing at a lower cost than if they attempted to produce everything domestically. This is commonly referred to as the theory of comparative advantage.

Question 14

Which of the following factors is the most significant in determining the pattern of international trade?

Accepted Answer

Comparative advantage, which refers to a country's ability to produce a good or service at a lower opportunity cost than another country, is the most significant factor in determining the pattern of international trade. Countries will specialize in producing the goods and services that they have a comparative advantage in, and then trade with other countries to obtain the goods and services that they do not have a comparative advantage in producing.

Question 15

U.S.consumers would be better off if they bought only U.S.-produced goods.

Accepted Answer

U.S. consumers may not necessarily be better off if they only buy U.S.-produced goods as it may limit their options and lead to higher prices. Additionally, many products rely on global supply chains and may not be available or affordable if restricted to only domestic options.

Question 16

If a country has an absolute advantage in the production of every good,it cannot benefit from trade with other countries.

Accepted Answer

Even if a country has an absolute advantage in the production of every good, it can still benefit from trade with other countries through comparative advantage. Comparative advantage is when a country can produce a good at a lower opportunity cost than another country. By specializing in producing the good they have a comparative advantage in and trading with other countries, they can maximize their overall production and consumption of goods.

Question 17

In autarky,

Accepted Answer

In autarky, a country does not engage in international trade and therefore its consumption is limited to what it produces. This means that its consumption possibilities are the same as its production possibilities.

Question 18

The basis for international trade is

Accepted Answer

Comparative advantage is the basis for international trade. It refers to a country's ability to produce a good or service at a lower opportunity cost than another country. By specializing in producing the goods or services they have a comparative advantage in, countries can increase their efficiency, output, and overall economic welfare through international trade. Established trade patterns, gold holdings, and shipping costs may all impact international trade, but they are not the basis for it. Absolute advantage refers to a country's ability to produce a good or service more efficiently than another country, but it does not necessarily lead to mutually beneficial international trade.

Question 19

If the United States has an absolute advantage in producing computer components,it should export them worldwide.

Accepted Answer

The answer of If the United States has an absolute...

Question 20

Mutually beneficial trade will occur between two countries for all of the following reasons except one.Which is the exception?

Accepted Answer

Mutually beneficial trade does not necessarily require one country to have an absolute advantage over the other. Rather, it is based on comparative advantage, which means that each country has a lower opportunity cost of producing one good over another.

Quiz 19: International Trade