Deck 2: Comparative Advantage: How Nations Can Gain From International Trade

Question 1

A nation-s production possibilities frontier is a graph of the various possible combinations of total feasible production rates for two items within that country.

Answer 1

True

Question 2

The slope of a line tangent to a nation-s production possibilities frontier reflects the opportunity cost of producing more of the good on the vertical axis.

Answer 2

False

Question 3

In country A, the opportunity cost of producing 2,000 pounds of microprocessors is 4,000 tablet devices. In country B, the opportunity cost of 3,000 tablet devices is 4,000 pounds of microprocessors. Both countries can experience gains from trade if the exchange rate for a ton of cereal is 3 tablet devices per pound of microprocessors.

Answer 3

True

Question 4

Absent any trade, a country's residents either can produce 1,000 laptop computers and 500 computer servers per week, or can produce 750 laptop computers and 750 computer servers per week. After trade takes place, its residents either can consume both 1,000 laptop computers and 600 computer servers, or can consume both 850 laptop computers and 750 computer servers. These outcomes represent:

A) gains from international trade.
B) absolute advantage in international trade.
C) redistributive effects of international trade.
D) points on a production possibilities frontier.

Question 5

If technology improves or the amounts of available resources increase, the:

A) absolute advantage of producing goods and services declines.
B) redistribution effects of international trade disappear.
C) production possibilities frontier shifts outward.
D) potential for gains from international trade disappears.

Question 6

The production possibilities frontier is __________ because, as more of a country's fixed resources are used to produce an item using the same technology, the opportunity cost of producing the item usually __________.

A) convex; rises
B) convex; falls
C) concave; rises
D) concave; falls

Question 7

If there is international trade, then a nation's consumption possibilities are __________ its production possibilities.

A) the same as
B) less than
C) greater than
D) steeper than

Question 8

The points at which a country-s production possibilities frontier touches each of the coordinate axes measure:

A) the redistributive effect of opting for one technology over another.
B) the redistributive effect of trading one item rather than another.
C) the levels of output that can be produced if resources that otherwise could produce other items are left idle and unused.
D) the maximum quantities of each good that residents can produce using all resources.

Question 9

Consider two nations, country A and country B, that produce goods X and Y. The production possibility frontiers for the two nations are graphed with units of good Y measured vertically and units of good X measured horizontally. At the two nation-s current points along their frontiers, the slope of a tangent line is steeper for country A than for country B. We can conclude that:

A) country A has an absolute advantage in producing good X.
B) country B has an absolute advantage in producing good X.
C) country A has a comparative advantage in producing good X.
D) country B has a comparative advantage in producing good X.

Question 10

A redistribution effect of international trade unambiguously involves:

A) a shift of income from people affiliated with one set of industries to people associated with other industries.
B) an equiproportionate expansion of consumption possibilities for all of a nation-s residents.
C) a situation in which the nation has no comparative advantage.
D) a situation in which the nation experiences no absolute advantage.

Question 11

Gains from trade occur for an individual nation when international trade results in:

A) constraining consumption possibilities to the nation-s individual production possibilities
B) an increase in the nation-s consumption possibilities beyond its individual production possibilities
C) an absolute advantage
D) gains from trade

Question 12

If one nation-s production possibilities frontier is always located inside another country-s production possibilities frontier, then the two nations may nevertheless experience gains from international trade.

Question 13

Absolute advantage exists when residents of one country can produce a good or service at lower opportunity cost than residents of another country.

Question 14

The value of each and every alternative value sacrificed in order to obtain an item is the item's opportunity cost.

Question 15

The slope of a line tangent to a country's production possibilities frontier measures the opportunity cost its residents incur when they opt to produce an additional unit of a good or service.

Question 16

The opportunity cost of producing an additional unit of an item typically decreases as the more units of that item are produced.

Question 17

If the opportunity cost of producing an additional good is always the same to residents of a nation, no matter how many units they produce, the production possibilities frontier would be a convex curve.

Question 18

Without trade, the production possibilities frontier also depicts a nation-s consumption possibilities.

Question 19

Absolute advantage is the term for a situation in which engaging in international trade redistributes more income from one industry to another than is the case in other countries.

Question 20

Absolute advantage is required for residents of nations to gain from international trade.

Question 21

In country A, the opportunity cost of 50 flash drives is 100 e-books. In country B, the opportunity cost of 50 flash drives is 40 e-books. Country A has a comparative advantage in flash drive production.

Question 22

The possession of redistribution advantage in the production of two different items by residents of two countries suggests that specialization and international trade can boost the two nations' combined total output.

Question 23

After residents of two nations specialize in producing different items and engage in international trade, each country's economy's consumption possibilities are typically located at points outside their production possibilities frontiers.

Question 24

If a nation has an absolute advantage in producing a good:

A) it necessarily has a comparative advantage.
B) it will export that good.
C) it necessarily has a comparative disadvantage.
D) it may export or import that good, depending on whether it has a comparative advantage.