Deck 2: Comparative Advantage

Question 1

A laissez-faire policy is one in which:

A)The government regulates all aspects of economic activity
B)The government interferes with economic activity to a moderate level
C)The government keeps regulation of economic activity to a minimum
D)The governments interference in economic activity is completely non-existent

Answer 1

C

Question 2

______________ states that the cost or price of a commodity is determined by,or can be inferred exclusively from,its labor content.

A)Mercantilism
B)The law of comparative advantage
C)The labor theory of value
D)The opportunity cost theory

Answer 2

C

Question 3

Adam Smith advocated a policy in which:

A)The government regulates all aspects of economic activity
B)The government interferes with economic activity to a moderate level
C)The government keeps regulation of economic activity to a minimum
D)The governments interference in economic activity is completely non-existent

Answer 3

C

Question 4

The Wealth of Nations was published in 1776 by:

A)David Ricardo
B)Adam Smith
C)The Mercantilists
D)Alfred Marshall

Question 5

The school of thought during the seventeenth and eighteenth centuries proposing that the way for a nation to become richer was to restrict imports and stimulate exports was:

A)Mercantilist
B)Classical School
C)Laissez Faire
D)Opportunity cost

Question 6

The mercantilists would have objected to:

A)the use of tariffs or quotas to restrict imports
B)international trade based on open markets
C)export promotion policies initiated by the government
D)trade policies designed to accumulate gold

Question 7

Which of these economists considered absolute advantage in production to be the basis for trade between nations?

A)Adam Smith
B)Alfred Marshall
C)David Ricardo
D)David Hume

Question 8

The ability of one nation to produce a commodity using fewer resources than another nation is:

A)absolute advantage
B)comparative advantage
C)mercantilism
D)specialization

Question 9

According to the mercantilists:

A)Only one nation can gain from trade,and it is at the expense of other nations.
B)All nations can gain mutually from trade without any reduction in welfare to any nation.
C)No nations gain from trade,as it is necessary for each country to sacrifice more than they gain.
D)Trade has nothing to do with a nation's wealth or well-being.

Question 10

When the amount of a commodity that must be given up to produce each additional unit of another commodity,regardless of the amount of the commodity foregone,is the same at every level of production,which of the following exists?

A)absolute advantage
B)comparative advantage
C)constant opportunity costs
D)increasing opportunity costs.

Question 11

If wage in country A is $6/hour and in country B is £2/hour,and the exchange rate between a $ and a £ is 1£=2$,then given the information in the table,what is the dollar price of a bushel of apple in Country B? $\begin{array}{lcc} & \text { Country A } & \text { Country B } \\ \text { Apple (bushels/hr) } & 8 & 1 \\ \text { Orange (bushels/hr) } & 2 & 3\end{array}$

A)$0.75
B)$1.33
C)$3.00
D)$4.00

Question 12

______________ is the utilization of all of a trading nation's resources in the production of only one commodity.

A)Laissez-faire policy
B)Complete specialization
C)Incomplete specialization
D)Mercantilism

Question 13

Which of these economists considered comparative advantage in production to be the basis for trade between nations?

A)Adam Smith
B)Alfred Marshall
C)David Ricardo
D)David Hume

Question 14

The analysis of economic forces that justify the existence of trade and its degree between two nations is referred to as:

A)basis for trade
B)losses from trade
C)gains from trade
D)pattern of trade

Question 15

If wage in country A is $6/hour and in country B is £2/hour,and the exchange rate between a $ and a £ is 1£=2$,then given the information in the table,which of the following is true? $\begin{array}{|l|c|c|}\hline & \text {Country A} &\text { Country B} \\\hline\text { Apple (bushels/hr) }& 8 & 1 \\\hline\text { Orange (bushels/hr)} & 2 & 3 \\\hline\end{array}$

A)Country A has comparative advantage in apples
B)Country A has comparative advantage in oranges
C)Country B has comparative advantage in apples
D)Country A and B both have comparative advantage in oranges

Question 16

_____________ explains how mutually beneficial trade can take place even when one nation is less efficient than another nation in the production of all commodities.

A)Mercantilism
B)The law of comparative advantage
C)The labor theory of value
D)The law of absolute advantage

Question 17

______________ states that the true cost of a commodity is the amount of a second commodity that must be given up to release just enough resources to produce one more unit of the first commodity:

A)Mercantilism
B)The law of comparative advantage
C)The labor theory of value
D)The opportunity cost theory

Question 18

The ratio of one commodity price to the price of another commodity is called (the):

A)absolute advantage
B)relative commodity price
C)constant opportunity costs
D)increasing opportunity costs.

Question 19

The increase in consumption in each nation resulting from specialization in production and trading is referred to as:

A)basis for trade
B)losses from trade
C)gains from trade
D)pattern of trade

Question 20

Commodities exported and imported by each nation constitute the:

A)basis for trade
B)losses from trade
C)gains from trade
D)pattern of trade

Question 21

According to the table below,the opportunity cost of one unit of rice for the US is equal to:

Production Possibility Schedule for Rice and Pudding in the United States and the United Kingdom
$\begin{array}{|cc|cc|}\hline \text { United States } &&\text {United Kingdom } \\\hline \text {Rice} & \text {Pudding} &\text { Rice }& \text {Pudding} \\\hline 140 & 0 & 35 & 0 \\\hline 120 & 10 & 30 & 10 \\\hline 100 & 20 & 25 & 20 \\\hline 80 & 30 & 20 & 30 \\\hline 60 & 40 & 15 & 40 \\\hline 40 & 50 & 10 & 50 \\\hline 20 & 60 & 5 & 60 \\\hline 0 & 70 & 0 & 70 \\\hline\end{array}$

A)1/2 units of pudding
B)5 units of pudding
C)10 units of pudding
D)2 units of pudding

Question 22

The mercantilists measure the wealth of a nation by its stock of:

A)Gold and rubies
B)Gold and silver
C)Human and man-made capital
D)Natural resources available for producing goods and services

Question 23

According to the following table,the UK can gain from trade with the US by giving up how much cloth for 9 bushels of wheat?
$\begin{array}{|l|c|c|}\hline &\text { U.S. }&\text { U.K.} \\\hline \text {Wheat (bushels/hr) }& 9 & 3 \\\hline\text { Cloth (yards/hr) }& 5 & 4 \\\hline\end{array}$

A)Anything less than 12 yards of cloth
B)Anything greater than 9 yards of cloth
C)Only less than 5 yards of cloth
D)Only greater than 10 yards of cloth

Question 24

What is the only Western nation that has ever been completely free of mercantilist ideas for a given period in modern times?

A)United States
B)France
C)Germany
D)England

Question 25

According to the following table,the US can gain from trade with the UK by getting how much cloth for 9 bushels of wheat?
$\begin{array}{|l|c|c|}\hline &\text { U.S. }&\text { U.K.} \\\hline \text {Wheat (bushels/hr) }& 9 & 3 \\\hline\text { Cloth (yards/hr) }& 5 & 4 \\\hline\end{array}$

A)Only less than 12 yards of cloth
B)Only greater than 9 yards of cloth
C)Anything less than 5 yards of cloth
D)Anything greater than 5 yards of cloth

Question 26

According to the following table,the UK has a comparative advantage in: $\begin{array}{|l|c|c|}\hline &\text { U.S. }&\text { U.K.} \\\hline \text {Wheat (bushels/hr) }& 9 & 3 \\\hline\text { Cloth (yards/hr) }& 6 & 4 \\\hline\end{array}$

A)Wheat
B)Cloth
C)Both
D)Neither

Question 27

According to the table below,the opportunity cost of one unit of rice for the UK is equal to:

Production Possibility Schedule for Rice and Pudding in the United States and the United Kingdom
$\begin{array}{|cc|cc|}\hline \text { United States } &&\text {United Kingdom } \\\hline \text {Rice} & \text {Pudding} &\text { Rice }& \text {Pudding} \\\hline 140 & 0 & 35 & 0 \\\hline 120 & 10 & 30 & 10 \\\hline 100 & 20 & 25 & 20 \\\hline 80 & 30 & 20 & 30 \\\hline 60 & 40 & 15 & 40 \\\hline 40 & 50 & 10 & 50 \\\hline 20 & 60 & 5 & 60 \\\hline 0 & 70 & 0 & 70 \\\hline\end{array}$

A)1/2 units of pudding
B)5 units of pudding
C)10 units of pudding
D)2 units of pudding

Question 28

An important exception to the Laissez-faire policy mentioned by the author is in:

A)the agricultural industries
B)the steel industry
C)national defense related industries
D)None of the above

Question 29

Mercantilists advocated a policy in which:

A)The government regulates all aspects of economic activity
B)The government interferes with economic activity to a moderate level
C)The government keeps regulation of economic activity to a minimum
D)The governments interference in economic activity is completely non-existent

Question 30

Japan is more efficient in the production of rice,and the United States is more efficient in the production of oranges.In the production of oranges,the United States is said to have a(n):

A)comparative advantage
B)absolute disadvantage
C)absolute advantage
D)comparative disadvantage

Question 31

According to mercantilism,the flow of _____________ would settle the export surplus that results from trade.

A)Gold and diamonds
B)Diamonds and rubies
C)Silver and copper
D)Gold and silver

Question 32

According to the following table,the US has a comparative advantage in:
$\begin{array}{|l|c|c|}\hline &\text { U.S. }&\text { U.K.} \\\hline \text {Wheat (bushels/hr) }& 9 & 3 \\\hline\text { Cloth (yards/hr) }& 6 & 4 \\\hline\end{array}$

A)Wheat
B)Cloth
C)Both
D)Neither

Question 33

Japan is more efficient in the production of rice,and the United States is more efficient in the production of oranges.In the production of rice,Japan is said to have a(n):

A)comparative advantage
B)absolute disadvantage
C)absolute advantage
D)comparative disadvantage

Question 34

Essays and pamphlets on international trade,maintaining that the only way for a nation to become rich and powerful was to export more than it imported,were written during the seventeenth and eighteenth centuries by:

A)David Ricardo
B)Adam Smith
C)the Mercantilists
D)Alfred Marshall

Question 35

According to the following table,if the US trades 9 bushels of wheat to the UK for 8 yards of cloth,the UK gains from trade equal:
$\begin{array}{|l|c|c|}\hline &\text { U.S. }&\text { U.K.} \\\hline \text {Wheat (bushels/hr) }& 9 & 3 \\\hline\text { Cloth (yards/hr) }& 5 & 4 \\\hline\end{array}$

A)4 bushels of wheat
B)3 yards of cloth
C)4 yards of cloth
D)3 bushels of wheat

Question 36

Japan is more efficient in the production of rice,and the United States is more efficient in the production of oranges.In the production of oranges,Japan is said to have a(n):

A)comparative advantage
B)absolute disadvantage
C)absolute advantage
D)comparative disadvantage

Question 37

With respect to international trade,a zero-sum game is one in which:

A)Only one nation can gain from trade,and it is at the expense of other nations
B)All nations can gain from trade mutually without any reduction in welfare to any nation
C)No nations gain from trade,as it is necessary for each country to sacrifice more than they gain.
D)Only the two nations engaged in trade will benefit and the other nations will lose.

Question 38

The concept of absolute advantage provides that the resources of trading partners are utilized most efficiently,and that the output of both commodities will:

A)fall
B)rise
C)stay the same
D)increase initially,then decrease

Question 39

Japan is more efficient in the production of rice,and the United States is more efficient in the production of oranges.In the production of rice,the United States is said to have a(n):

A)comparative advantage
B)absolute disadvantage
C)absolute advantage
D)comparative disadvantage

Question 40

According to the following table,if the US trades 9 bushels of wheat to the UK for 9 yards of cloth,the US gains from trade will equal: $\begin{array}{|l|c|c|}\hline &\text { U.S. }&\text { U.K.} \\\hline \text {Wheat (bushels/hr) }& 9 & 3 \\\hline\text { Cloth (yards/hr) }& 5 & 4 \\\hline\end{array}$

A)4 bushels of wheat
B)3 yards of cloth
C)4 yards of cloth
D)5 bushels of wheat

Question 41

From 1815 to1914,the United States was the only Western nation that was completely free of mercantilist ideas.

Question 42

Among the following 4,which one do you think is the most powerful trade theories?

A)Theory of Absolute Advantage
B)Theory of Comparative Advantage
C)Mercantilism
D)Neo-mercantilism

Question 43

In the table below both countries produce at the bold levels of output without trade.Assume the US and UK initiate trade and begin to completely specialize in the commodity in which they have a comparative advantage.Identify the gains from trade if the US trades 50 units of rice to the UK for 50 units of pudding.
Production Possibility Schedule for Rice and Pudding in the United States and the United Kingdom
$\begin{array}{|cc|cc|}\hline \text { United States } &&\text {United Kingdom } \\\hline \text {Rice} & \text {Pudding} &\text { Rice }& \text {Pudding} \\\hline 140 & 0 & 35 & 0 \\\hline 120 & 10 & 30 & 10 \\\hline 100 & 20 & 25 & 20 \\\hline 80 & 30 & 20 & 60 \\\hline 60 & 40 & 15 & 80 \\\hline 40 & 50 & 10 & 100 \\\hline 20 & 60 & 5 & 120 \\\hline 0 & 70 & 0 & 140 \\\hline\end{array}$

A)US: 10 units of pudding,20 units of rice
B)US: 30 units of pudding,30 units of rice
C)UK: 10 units of pudding,20 units of rice
D)UK: 30 units of pudding,30 units of rice

Question 44

Merchants,bankers,and government officials from Spain,France,and Portugal outline the principles and ideas of mercantilism in the publication The Wealth of Nations.

Question 45

The production possibilities frontier shows the various combinations of two commodities that a nation can produce by utilizing anywhere from none of its resources to all of them.

Question 46

The theory of absolute advantage was how David Ricardo explained basis for trade between nations.

Question 47

According to the law of comparative advantage,the less efficient of the two trading countries should specialize in and export the commodity in which it manages to have an absolute advantage.

Question 48

Could a country which has no absolute advantage in anything still trade and benefit from trade?

Question 49

According to opportunity cost theory,the cost or price of a commodity is determined by,or can be inferred exclusively from,its labor content.

Question 50

In the table below both countries produce at the bold levels of output without trade.Assume the US and UK initiate trade and begin to completely specialize in the commodity in which they have a comparative advantage.What would the gains from trade be if the US trades 50 units of rice to the UK for 50 units of pudding?
Production Possibility Schedule for Rice and Pudding in the United States and the United Kingdom
$\begin{array}{|cc|cc|}\hline \text { United States } &&\text {United Kingdom } \\\hline \text {Rice} & \text {Pudding} &\text { Rice }& \text {Pudding} \\\hline 140 & 0 & 35 & 0 \\\hline 120 & 10 & 30 & 20 \\\hline 100 & 20 & 25 & 40 \\\hline 80 & 30 & 20 & 60 \\\hline 60 & 40 & 15 & 80 \\\hline 40 & 50 & 10 & 100 \\\hline 20 & 60 & 5 & 120 \\\hline 0 & 70 & 0 & 140 \\\hline\end{array}$

A)US: 10 units of pudding,20 units of rice
B)US: 20 units of pudding,10 units of rice
C)UK: 10 units of pudding,20 units of rice
D)UK: 20 units of pudding,10 units of rice

Question 51

Describe the major points of the mercantilists' view of trade and how they differ from today's views.

Question 52

Even if Country A has an absolute advantage in the production of all commodities over country B,David Ricardo claimed that the basis for mutually beneficial trade could still exist.

Question 53

In the presence of trade,a nation's consumption frontier is the same as the production possibilities frontier.

Question 54

According to Adam Smith,in order for two countries to voluntarily trade,both nations must gain.

Question 55

Adam Smith strongly advocated a policy of laissez-faire.

Question 56

The theory of absolute advantage was how Adam Smith explained basis for trade between nations.