Deck 19: International Trade

Question 1

According to international trade theory, a country should:

A) import goods in which it has an absolute advantage.
B) import goods in which it has a comparative disadvantage.
C) export goods in which it has an absolute advantage.
D) import goods in which it has an absolute disadvantage.

Answer 1

import goods in which it has a comparative disadvantage.

Question 2

In India one person can produce 330 pounds of rice or 110 shirts in one year. In China one person can produce 400 pounds of rice or 200 shirts in one year. Which of the following statements is true?

A) India has a comparative advantage in the production of rice.
B) China has a comparative advantage in the production of rice.
C) China has both an absolute and comparative advantage in the production of rice.
D) India has an absolute advantage in the production of rice.

Answer 2

India has a comparative advantage in the production of rice.

Question 3

The idea behind comparative advantage reflects the possibility that one party:

A) may be able to produce everything relatively more efficiently than another party.
B) may be able to produce something at a lower dollar cost than another party.
C) with an absolute advantage in producing two different may export goods both of those goods to the other party.
D) may be able to produce something at a lower opportunity cost than another party.

Answer 3

may be able to produce something at a lower opportunity cost than another party.

Question 4

The underlying reason why trade benefits both sides of a trading arrangement is rooted in the concept of _______.

A) opportunity cost
B) specialization
C) absolute advantage
D) maximum production

Question 5

Colombia produces coffee with less labor and land than any other country; it therefore necessarily has:

A) a comparative advantage in coffee production.
B) both a comparative and absolute advantage in coffee production.
C) an absolute advantage and comparative disadvantage in coffee production.
D) an absolute advantage in coffee production

Question 6

Alternate Outputs from One Day's Labor Input:
USA: 12 bushels of wheat or 3 yards of textiles. India: 3 bushels of wheat or 12 yards of textiles.
The opportunity cost of one bushel of wheat in India is:

A) 1 yard of textiles.
B) 3 yards of textiles.
C) 4 yards of textiles.
D) 12 yards of textiles.

Question 7

Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 16 units of food per year or 8 units of clothing. Which of the following is true?

A) Georgeland has a comparative advantage, but not an absolute advantage, in producing clothing.
B) Georgeland has both a comparative and absolute advantage in producing clothing.
C) Alland has a comparative advantage, but not an absolute advantage, in producing food.
D) Alland has an absolute advantage, but not comparative advantage, in producing food.

Question 8

Suppose that Canada can produce 100,000 hockey sticks or 10,000 gallons of maple syrup in a typical workweek, while Germany can produce 90,000 hockey sticks or 10,000 gallons of maple syrup in a typical workweek. From these numbers, we can conclude:

A) Canada has a comparative advantage in the production of hockey sticks.
B) Germany has a comparative advantage in the production of hockey sticks.
C) Canada has an absolute advantage in the production of maple syrup.
D) Germany has an absolute advantage in the production of maple syrup.

Question 9

Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. The opportunity cost of producing 1 orange for Alpha and Beta, respectively, are:

A) 0.25 apples; 0.5 apples.
B) 9 apples; 4 apples.
C) 0.5 apples; 0.25 apples.
D) 2 apples; 4 apples

Question 10

Which of the following is true?

A) A nation can have a comparative advantage in the production of a good only if it also has an absolute advantage.
B) A nation can have a comparative advantage in the production of every good, but not an absolute advantage.
C) A nation cannot have an absolute advantage in the production of every good.
D) A nation cannot have a comparative advantage in the production of every good.

Question 11

The slope of the production possibility frontier is determined by the _______ of expanding production of one good, measured by how much of the other good would be lost.

A) absolute advantage
B) relative cost
C) opportunity cost
D) comparative advantage

Question 12

When one nation can produce a product at lower cost relative to another nation, it is said to have a(n) _______ in producing that product.

A) relative advantage
B) absolute advantage
C) economy of scale
D) production efficiency

Question 13

If the USA could produce 1 ton of potatoes or 0.5 tons of wheat per worker per year, while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year, there can be mutual gains from trade if:

A) The USA specializes in potatoes because of its comparative advantage in producing potatoes.
B) The USA specializes in wheat because of its absolute advantage in producing wheat.
C) The USA specializes in wheat because of its comparative advantage in producing wheat.
D) There can be no mutual gains from trade.

Question 14

Jethro has a(n) _______ in all aspects of camping: he is faster at carrying a backpack, gathering firewood, paddling a canoe, setting up tents, making a meal, and washing up.

A) relative advantage
B) opportunity cost
C) absolute advantage
D) comparative advantage

Question 15

When nations increase production in their area of _______ and trade with each other, both sides can benefit.

A) relative advantage
B) absolute advantage
C) comparative advantage
D) opportunity cost

Question 16

Alternate Outputs from One Day's Labor Input:
USA: 12 bushels of wheat or 3 yards of textiles. India: 3 bushels of wheat or 12 yards of textiles.
From the data, the USA:

A) has an absolute advantage over India in the production of textiles.
B) has an absolute advantage over India in the production of wheat.
C) has a comparative advantage in the production of textiles.
D) should export textiles to India.

Question 17

The theory of comparative advantage shows that the gains from international trade do not just result from the absolute advantage of producing at lower cost, but also from pursuing comparative advantage and producing at a lower _______.

A) opportunity cost
B) absolute cost
C) relative cost
D) comparative cost

Question 18

The slope of the production possibility frontier is determined by the _______ of expanding production of one good, measured by how much of the other good would be lost.

A) absolute advantage
B) opportunity cost
C) relative advantage
D) specialization

Question 19

The concept of _______ means that as the measure of output goes up, average costs of production decline-at least up to a point.

A) relative advantage
B) economies of scale
C) absolute advantage
D) comparative advantage

Question 20

The idea behind comparative advantage reflects the possibility that one party:

A) may be able to produce everything relatively more efficiently than another party.
B) may be able to produce something at a lower opportunity cost than another party.
C) may be able to produce something at a lower dollar cost than another party.
D) with an absolute advantage in producing two different may export goods both of those goods to the other party.

Question 21

Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 36 units of food per year or 18 units of clothing. Which of the following is true?

A) Georgeland has an absolute but not a comparative advantage in producing clothing.
B) Georgeland has both an absolute and a comparative advantage in producing clothing.
C) Alland has an absolute but not a comparative advantage in producing food.
D) Alland has both an absolute and a comparative advantage in producing food.

Question 22

Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. Which of the following terms of trade between apples and oranges would allow both Alpha and Beta to gain by specialization and exchange?

A) 1 orange for 0.2 apples
B) 2 apples for 3 oranges
C) 3 apples for 3 oranges
D) 1 apple for 3 oranges

Question 23

As measured in 2008, about _______ of U.S. trade and _______ of European trade is intra-industry trade.

A) 10%; 10%
B) 30%; 30%
C) 60%; 60%
D) 90%; 90%

Question 24

International trade currently involves about _______ worth of goods and services thundering around the globe.

A) $200 trillion
B) $20 trillion
C) $2 trillion
D) $200 billion

Question 25

Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 24 units of food per year or 12 units of clothing. Which of the following is true?

A) Alland has both a comparative and absolute advantage in producing food.
B) Alland has comparative advantage, but not an absolute advantage, in producing food.
C) Georgeland has both a comparative and absolute disadvantage in producing clothing.
D) Georgeland has an absolute disadvantage, but not a comparative disadvantage, in producing clothing.

Question 26

Trade allows each country to take advantage of _______ in the other country.

A) economies of scale
B) lower opportunity costs
C) specialization
D) worker productivity

Question 27

Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 24 units of food per year or 12 units of clothing. Which of the following is true?

A) Alland has an absolute advantage in producing food but will not trade with Georgeland.
B) Alland has a comparative advantage, but not an absolute advantage, in producing food.
C) Georgeland has both a comparative and absolute advantage in producing clothing.
D) Georgeland has a comparative advantage, but not an absolute advantage, in producing clothing.

Question 28

What matters most in determining the efficient distribution of production over the world is:

A) absolute advantage.
B) efficiency.
C) the allocation of resources.
D) comparative advantage.

Question 29

Describe "the value chain" and illustrate with an example.

Question 30

Assume that one day's labor in Argentina can produce either 20 units of cloth or 2 units of wine, while in Chile one day's labor can produce either 24 units of cloth or 12 units of wine. If Argentina transfers 2 units of labor from wine to cloth and Chile transfers 1 unit of labor from cloth to wine, the increase in combined output by those two workers will be:

A) 16 wine; 8 cloths
B) 16 wine; 16 cloths
C) 12 wine; 12 cloths
D) 8 wine; 16 cloths

Question 31

Some nations that seek to produce all of their own needs face the problem that:

A) some industries are too small to be efficient if restricted to their domestic markets alone.
B) they can deplete their natural resources as a result.
C) the opportunity cost of producing some of their own goods is lower than that of trading with others for them.
D) they will not be able to satisfy the wants of all of their citizens.

Question 32

Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. If the terms of trade are established as 1 apple for 4 oranges, then:

A) there are no incentives for Beta to engage in international specialization and trade with Alpha.
B) it is in the interest of Beta to grow oranges and trade for apples.
C) it is in the interest of both countries to specialize and trade with one another.
D) there are no incentives for Alpha or Beta to specialize and trade with one another.

Question 33

Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. If the terms of trade are established as 1 apple for 2 oranges, then:

A) there are no incentives for Alpha to specialize and trade with Beta.
B) it is in the interest of both countries to specialize and trade with one another.
C) it is in the interest of Beta to grow oranges and trade for apples.
D) there are no incentives for Beta to engage in international specialization and trade of apples and oranges.

Question 34

Suppose that the USA can make 15,000,000 cars or 20,000,000 bottles of wine with one year's worth of labor. France can make 10,000,000 cars or 18,000,000 bottles of wine with one year's worth of labor. From these numbers, we can conclude:

A) The USA has a comparative advantage in the production of wine.
B) France has a comparative advantage in the production of cars.
C) The USA has an absolute advantage in the production of cars.
D) France has an absolute advantage in the production of wine.

Question 35

Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. Which of the following statements is true?

A) Alpha should export to Beta, but Beta should not export to Alpha.
B) Since Alpha has an absolute advantage in both goods, no mutual gains from trade are possible.
C) If Alpha specializes in growing oranges and Beta specializes in growing apples, they could both gain by specialization and trade.
D) If Alpha specializes in growing apples and Beta specializes in growing oranges, they could both gain by specialization and trade.

Question 36

The reasons that nations trade includes the fact that:

A) no one country produces all of what citizens within the country want.
B) the wants of their citizens exceeds their productive capacity.
C) different countries have different levels of greed.
D) labor costs are too high in some countries to efficiently produce goods.

Question 37

Intra-industry trade between similar trading partners allows the gains from _______
That arise when firms and workers specialize in the production of a certain product.

A) comparative advantage
B) learning and innovation
C) creating the value chain
D) relative advantage

Question 38

What benefits are to be gained from countries producing according to the concept of comparative advantage? What if a country is absolutely more productive in all goods?

Question 39

If a nation has a comparative disadvantage in the production of some commodity:

A) it cannot gain from international trade unless it has an absolute advantage in every other commodity.
B) it cannot gain from international trade in the commodity.
C) it can still gain from international trade in that commodity, by getting it at a lower opportunity cost than if it produced it domestically.
D) it can gain from international trade in that commodity only if it has an absolute advantage in that commodity.

Question 40

The opportunity cost of producing a pair of pants in the USA is 5 bushels of wheat, while in China, it is 2 bushels of wheat. As a result:

A) there can be mutual gains from trade to the two countries if the USA exports wheat to China in exchange for pants.
B) The USA has a comparative advantage over China in the production of pants.
C) China has a comparative advantage over the USA in the production of wheat.
D) there can be mutual gains from trade to the two countries if the USA exports pants to China in exchange for wheat.

Question 41

Steve and Craig have been shipwrecked on a deserted island in the South Pacific. Their economic activity consists of either gathering pineapples or fishing. We know Steve can catch four fish in one hour or harvest two baskets of pineapples. In the same time Craig can reel in two fish or harvest two baskets of pineapples. If they each spend four hours a day fishing and four hours a day harvesting pineapples, how many of each will Steve produce? How many will Craig produce? What will their total production be?

Question 42

Define "splitting up the value chain." List some factors that have allowed this trend to accelerate in recent years.

Question 43

Define the term in economics "absolute advantage" and illustrate with an example.

Question 44

The gains from expanding trade are probably most important for the low-income economies in the world as opposed to the gains though trade benefitting the USA. Why might this be so? Offer at least three different reasons comparing and contrasting the USA economy with that of smaller nations.

Question 45

A skeptic about the gains from global trade might offer up some challenging counterpoint questions regarding trade. Ask at least two questions that counter the numeric benefits of globalization.

Question 46

What is comparative advantage, and why is it important in international trade?