Question 1

Suppose that the United States and Spain both produce cognac and handbags. In the United States, cognac sells for $20 a bottle and handbags sell for $80. In Spain, cognac sells for 30 euros a bottle and handbags sell for 40 euros. If the current exchange rate is 0.8 euro to the dollar, then

Accepted Answer

When converted to a common currency, cognac is cheaper in the US ($20 = 16 euros) than in Spain (30 euros), and handbags are cheaper in Spain (40 euros = $50) than in the US ($80). Thus, the US will import handbags from Spain, and Spain will import cognac from the US.

Question 2

Refer to the information provided in Table 20.6 below to answer the question(s) that follow.
Table 20.6 $$\begin{array} { l c c } 
& \text { United States } & \text { France } \
\hline \text { Peas } & \$ 3 & 3 \text { euros } \
\text { Carrots } & \$ 4 & 9 \text { euros } \
\hline
\end{array}$$
-Refer to Table 20.6. If the exchange rate is $1 = 2 euros, then

Accepted Answer

The United States will import peas because they are cheaper in France (3 euros = $1.50) than in the United States ($3). France will import carrots because they are cheaper in the United States ($4) than in France (9 euros = $4.50).

Question 3

The ratio at which one country trades a domestic product for imported product is that country's

Accepted Answer

The terms of trade refer to the ratio at which a country can trade its exports for imports from other countries. It is a measure of the relative prices of a country's export goods to its import goods.

Question 4

If you are traveling in Thailand and you purchase a meal that costs 1,400 baht and the current exchange rate is 35 baht to the dollar, then the price of the meal in U.S. currency is

Accepted Answer

To convert the cost from baht to dollars, divide the amount in baht by the exchange rate: 1,400 baht / 35 baht/dollar = $40.

Question 5

________ allow(s) a country to produce on its production possibility frontier and consume outside it.

Accepted Answer

Specialization and trade allow a country to focus on producing goods in which it has a comparative advantage and then trade for other goods. This can enable a country to consume more than it could produce on its own, effectively consuming outside its production possibility frontier.

Question 6

Assume that Down Slope specializes in producing snow boards and Seven Seas specializes in producing scuba tanks. After trade, Down Slope exports 2,000 snow boards and imports 400 scuba tanks. The terms of trade

Accepted Answer

The terms of trade are determined by the ratio of the quantity of goods exchanged. Here, for every 400 scuba tanks imported, 2,000 snowboards are exported, making the ratio 2000:400 or simplified to 5:1 snowboards to scuba tanks.

Question 7

Initially trade between Australia and the United States is balanced. Then, if a change in the exchange rate increases the U.S. dollar price of Australian goods, ceteris paribus, we would expect

Accepted Answer

If the U.S. dollar price of Australian goods increases, U.S. consumers will likely buy fewer Australian goods, leading to a decrease in U.S. imports from Australia. This can result in a trade deficit for the United States as it imports less from Australia while its exports to Australia may not change as much.

Question 8

When countries specialize in producing those goods in which they have ________, they maximize their combined output and allocate their resources more efficiently.

Accepted Answer

Countries maximize their combined output and allocate resources more efficiently by specializing in the production of goods for which they have a comparative advantage. This means they produce goods at a lower opportunity cost compared to other countries, rather than focusing on goods for which they have the absolute highest productivity or output.

Question 9

When trade is ________, patterns of trade and trade flows result from the independent decisions of thousands of importers and exporters, as well as millions of private households and firms.

Accepted Answer

When trade is free, it means there are no restrictions or minimal restrictions on trade between countries, allowing for the independent decisions of importers, exporters, households, and firms to determine trade patterns and flows.

Question 10

Refer to the information provided in Table 20.6 below to answer the question(s) that follow.
Table 20.6 $$\begin{array} { l c c } 
& \text { United States } & \text { France } \
\hline \text { Peas } & \$ 3 & 3 \text { euros } \
\text { Carrots } & \$ 4 & 9 \text { euros } \
\hline
\end{array}$$
-Refer to Table 20.6. If the exchange rate is $1 = 3 euros, then

Accepted Answer

The answer of Refer to the information provided in Table...

Question 11

If the price of a truck in the United States is $25,000, and the exchange rate between the dollar and the euro falls from $1.50 to $1.30 per euro, then the price of the American truck in the EU will

Accepted Answer

When the exchange rate falls from $1.50 to $1.30 per euro, it means that fewer euros are needed to buy the same amount of dollars. Therefore, the price of the American truck in euros will increase because it becomes more expensive for someone with euros to buy the truck priced in dollars.

Question 12

Suppose a U.S. dollar exchanges for 0.8 euros, then each euro is worth

Accepted Answer

If 1 U.S. dollar exchanges for 0.8 euros, then to find out how much 1 euro is worth in U.S. dollars, you divide 1 by 0.8, which equals 1.25. Therefore, each euro is worth $1.25.

Question 13

For ________, there is a range of exchange rates that can lead automatically to both countries realizing the gains from specialization and comparative advantage.

Accepted Answer

The theory of comparative advantage suggests that any pair of countries can benefit from trade by specializing in the production of goods for which they have a comparative advantage, regardless of their level of industrialization or political system. This implies that there is a range of exchange rates that can facilitate such trade benefits for any pair of countries.

Question 14

Refer to the information provided in Table 20.6 below to answer the question(s) that follow.
Table 20.6 $$\begin{array} { l c c } 
& \text { United States } & \text { France } \
\hline \text { Peas } & \$ 3 & 3 \text { euros } \
\text { Carrots } & \$ 4 & 9 \text { euros } \
\hline
\end{array}$$
-Refer to Table 20.6. If the exchange rate is $1 = 1 euro, then

Accepted Answer

The answer of Refer to the information provided in Table...

Question 15

If the exchange rate between the United States and Mexico changes from $1 = 8 pesos to $1 = 9 pesos, then, ceteris paribus, the price of American goods in Mexico

Accepted Answer

The answer of If the exchange rate between the United...

Question 16

Refer to the information provided in Table 20.6 below to answer the question(s) that follow.
Table 20.6 $$\begin{array} { l c c } 
& \text { United States } & \text { France } \
\hline \text { Peas } & \$ 3 & 3 \text { euros } \
\text { Carrots } & \$ 4 & 9 \text { euros } \
\hline
\end{array}$$
-Refer to Table 20.6. Trade will flow in both directions between countries only if the price of the euro is between

Accepted Answer

The answer of Refer to the information provided in Table...

Question 17

If the price of a truck in the United States is $18,000, and the exchange rate between the dollar and the Argentine peso falls from 10 pesos to 8 pesos per dollar, then the price of the American truck in Argentina will

Accepted Answer

The answer of If the price of a truck in...

Question 18

If the exchange rate between the United States and India changes from $1 = 60 rupees to $1 = 10 rupees, ceteris paribus

Accepted Answer

When the exchange rate changes from $1 = 60 rupees to $1 = 10 rupees, the dollar has depreciated relative to the rupee. This makes U.S. goods cheaper for Indian consumers, likely increasing U.S. exports to India.

Question 19

According to ________, trade between two countries allows each of the trading countries to allocate its resources most efficiently.

Accepted Answer

The theory of comparative advantage explains how trade between two countries allows each country to allocate its resources most efficiently by specializing in the production of goods for which it has a comparative advantage, leading to increased overall efficiency and economic welfare.

Question 20

The main advantage of ________ is the ability to move out beyond previous resource and production constraints.

Accepted Answer

The main advantage of trade between two countries is that it allows both countries to move beyond their own resource and production constraints by specializing in the production of goods for which they have a comparative advantage and trading them for other goods. This enables countries to consume more than they would be able to produce on their own.

Quiz 20: International Trade, Comparative Advantage, and Protectionism

Suppose that the United States and Spain both produce cognac and handbags. In the United States, cognac sells for $20 a bottle and handbags sell for $80. In Spain, cognac sells for 30 euros a bottle and handbags sell for 40 euros. If the current exchange rate is 0.8 euro to the dollar, then

The ratio at which one country trades a domestic product for imported product is that country's

If you are traveling in Thailand and you purchase a meal that costs 1,400 baht and the current exchange rate is 35 baht to the dollar, then the price of the meal in U.S. currency is

________ allow(s) a country to produce on its production possibility frontier and consume outside it.

Assume that Down Slope specializes in producing snow boards and Seven Seas specializes in producing scuba tanks. After trade, Down Slope exports 2,000 snow boards and imports 400 scuba tanks. The terms of trade

Initially trade between Australia and the United States is balanced. Then, if a change in the exchange rate increases the U.S. dollar price of Australian goods, ceteris paribus, we would expect

When countries specialize in producing those goods in which they have ________, they maximize their combined output and allocate their resources more efficiently.

When trade is ________, patterns of trade and trade flows result from the independent decisions of thousands of importers and exporters, as well as millions of private households and firms.

If the price of a truck in the United States is $25,000, and the exchange rate between the dollar and the euro falls from $1.50 to $1.30 per euro, then the price of the American truck in the EU will

Suppose a U.S. dollar exchanges for 0.8 euros, then each euro is worth

For ________, there is a range of exchange rates that can lead automatically to both countries realizing the gains from specialization and comparative advantage.

If the exchange rate between the United States and Mexico changes from $1 = 8 pesos to $1 = 9 pesos, then, ceteris paribus, the price of American goods in Mexico

If the price of a truck in the United States is $18,000, and the exchange rate between the dollar and the Argentine peso falls from 10 pesos to 8 pesos per dollar, then the price of the American truck in Argentina will

If the exchange rate between the United States and India changes from $1 = 60 rupees to $1 = 10 rupees, ceteris paribus

According to ________, trade between two countries allows each of the trading countries to allocate its resources most efficiently.

The main advantage of ________ is the ability to move out beyond previous resource and production constraints.