Question 1

An example of an acquired comparative advantage is

Accepted Answer

Acquired comparative advantage refers to advantages that are developed through investment, innovation, and improvements in production processes or product quality. Choice B is an example of an acquired comparative advantage because it highlights how Japanese companies have developed a reputation for producing higher-quality TVs, presumably through technological innovation and quality control, rather than through inherent natural resources or geographic advantages.

Question 2

A country with a lot of human capital is likely to have a comparative advantage in highly technical goods.

Accepted Answer

A country with a lot of human capital typically has a well-educated and skilled workforce, which is essential for the production of highly technical goods, thereby giving it a comparative advantage in those sectors.

Question 3

The Heckscher-Ohlin theorem looks to ________ to explain trade flows.

Accepted Answer

The Heckscher-Ohlin theorem explains trade flows based on differences in countries' relative factor endowments, suggesting that countries will export goods that make intensive use of their abundant factors of production.

Question 4

An example of acquired comparative advantage is that

Accepted Answer

Some U.S. consumers prefer German cars over American cars because German cars have a reputation for being very safe. This is an example of acquired comparative advantage because the preference for German cars is not based on any inherent advantage in the production of cars in Germany, but rather on the perception of German cars as being safer.

Question 5

________ portion of actual world trade patterns results from different factor endowments between countries.

Accepted Answer

A significant portion of actual world trade patterns can be attributed to different factor endowments between countries, as countries tend to specialize in and export goods that utilize their abundant and cheap factors of production more efficiently.

Question 6

An example of a(n) ________ comparative advantage is U.S. consumers buying automobiles produced in Japan because Japanese companies have a reputation for producing a higher-quality automobile than those produced in the United States.

Accepted Answer

Acquired comparative advantage refers to advantages that are developed over time, such as through gaining a reputation for quality, innovation, or efficiency, rather than those based on natural resources or inherent factors. In this case, Japanese companies have developed a reputation for producing higher-quality automobiles, which is an acquired advantage.

Question 7

The quantity and quality of ________ of a country are its factor endowments.

Accepted Answer

The term "factor endowments" refers to a country's supply of labor, land, and natural resources, which are key inputs in production and influence its economic activities and comparative advantage in trade.

Question 8

If the domestic price is above the world price of a certain product, the domestic country will import the product.

Accepted Answer

When the domestic price of a product is above the world price, it means that the product can be purchased more cheaply from foreign producers, leading the domestic country to import the product to take advantage of the lower prices.

Question 9

If the opportunity cost of corn to wheat is 3:1 in the United States and 5:1 in France, both countries would benefit from trade if the actual terms of trade between corn and wheat were 4:1.

Accepted Answer

This is because the United States, with a lower opportunity cost for corn (3:1), would specialize in producing corn and trade it for wheat at a rate better than its domestic opportunity cost. France, with a lower opportunity cost for wheat (since its corn to wheat ratio is higher at 5:1), would benefit from trading wheat for corn at a rate better than its domestic opportunity cost. The 4:1 trade ratio falls between both countries' opportunity costs, making trade beneficial for both.

Question 10

An example of a(n) ________ comparative advantage is that some U.S. consumers prefer German beer over American beer because German beer has a reputation for tasting better.

Accepted Answer

Acquired comparative advantage refers to advantages that are developed over time, such as reputation, brand recognition, or technological advancements. In this case, German beer's reputation for better taste is an advantage that has been acquired through years of brewing tradition and quality, not something inherent or natural.

Question 11

The quantity and quality of labor, land, and natural resources of a country are its

Accepted Answer

Factor endowments refer to the quantity and quality of labor, land, and natural resources a country possesses, which are key determinants of its economic potential and productive capacity.

Question 12

If the opportunity cost of corn to wheat is 3:1 in the United States and 5:1 in France, only the United States would benefit from trade if the actual terms of trade between corn and wheat were 2:1.

Accepted Answer

Both countries can benefit from trade if the terms of trade are between their respective opportunity costs. Since the actual terms of trade (2:1) are between the U.S. opportunity cost (3:1) and France's opportunity cost (5:1), both countries can specialize in the production of the good for which they have a comparative advantage and trade based on these terms, thereby gaining from trade.

Question 13

A significant portion of actual world trade patterns results from

Accepted Answer

Different factor endowments between countries lead to comparative advantages, which significantly influence world trade patterns. Countries tend to export goods that use their abundant resources intensively and import goods that require resources they lack.

Question 14

If the opportunity cost of corn to wheat is 3:1 in the United States and 5:1 in France, only France would benefit from trade if the actual terms of trade between corn and wheat were 7:1.

Accepted Answer

Both countries can benefit from trade if the terms of trade are between their respective opportunity costs. Since 7:1 is between the U.S.'s opportunity cost of 3:1 and France's 5:1, both can gain from trade by specializing according to their comparative advantage.

Question 15

Which of the following phenomena can be explained by the simple comparative advantage theory?

Accepted Answer

According to the simple comparative advantage theory, a country will export goods that it can produce more efficiently (at a lower opportunity cost) than other countries. A country with a vast amount of farmland is likely to have a comparative advantage in agricultural goods, leading it to export them.

Question 16

Which of the following phenomena cannot be explained by the simple comparative advantage theory?

Accepted Answer

The simple comparative advantage theory explains trade based on the relative efficiency of producing goods, but it does not directly account for the phenomenon of countries importing and exporting the same goods, which can be due to factors like differences in product varieties, quality, or seasonal production differences.

Question 17

The pharmaceutical industry depends on highly trained workers, who are abundantly available in India. The automobile industry depends on the availability of a large stock of physical capital with which the United States is well endowed. According to Heckscher-Ohlin theorem

Accepted Answer

According to the Heckscher-Ohlin theorem, a country will export goods that use its abundant factors intensively and import goods that use its scarce factors intensively. Since India has an abundance of highly trained workers, it should export pharmaceuticals and import automobiles, which require physical capital that the U.S. has in abundance.

Question 18

The software industry depends on highly trained workers, who are abundantly available in Country A. The heavy equipment industry depends on the availability of a large stock of physical capital with which Country B is well endowed. According to Heckscher-Ohlin theorem

Accepted Answer

The Heckscher-Ohlin theorem suggests that countries will export goods that require resources (factors of production) that are relatively abundant and import goods that require resources that are relatively scarce. Since Country A has an abundance of highly trained workers, it would specialize and export software, which relies on such labor. Conversely, Country B, with its large stock of physical capital, would specialize and export heavy equipment. Thus, Country B would import software, aligning with the theorem's prediction.

Question 19

The ratio at which a country can exchange domestic products for imported products is called the terms of trade.

Accepted Answer

The terms of trade refer to the ratio at which a country can exchange its exports for imports from other countries, essentially measuring the purchasing power of its exports relative to imports.

Question 20

________ looks to relative factor endowments to explain trade flows.

Accepted Answer

The Heckscher-Ohlin theorem posits that countries will export goods that require resources (factors of production) that are abundant domestically and import goods that require resources that are relatively scarce. This theory contrasts with others by focusing on the differences in factor endowments between countries as the basis for trade.

Quiz 20: International Trade, Comparative Advantage, and Protectionism