Question 1

Opportunity cost refers to whatever is given up to obtain some item.

Accepted Answer

Opportunity cost is the value of the next best alternative foregone in order to make a decision. It is the cost of the trade-off for choosing one option over another.

Question 2

An export subsidy is a payment by the government to exporters to permit them to charge lower prices.

Accepted Answer

An export subsidy is a type of financial assistance or incentive offered by the government to domestic companies to encourage them to export more goods and services. This subsidy can take various forms, including cash grants, tax breaks, or loans at preferential rates. The purpose of an export subsidy is to lower the cost of production or increase the competitiveness of exporters, allowing them to offer lower prices in foreign markets. However, this practice can distort trade and create unfair advantages for certain industries, which is why international organizations like the WTO discourage or limit the use of export subsidies.

Question 3

A tariff is a tax on imports imposed by the country that is importing the goods.

Accepted Answer

A tariff is in fact a tax on imports imposed by the country that is importing the goods.

Question 4

The principle of comparative advantage states that countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners.

Accepted Answer

The principle of comparative advantage states that countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners. This allows countries to trade with one another and both benefit from the exchange.

Question 5

An export subsidy helps reduce the selling price of a product by allowing individual producers to charge less and still cover all of their production costs.

Accepted Answer

An export subsidy is a government payment to firms for each unit of a product they export. This payment effectively lowers the cost of production for the firm and allows them to charge a lower price for their product while still covering their costs. This can lead to increased exports and can stimulate economic growth, but it can also result in market inefficiencies and distortions.

Question 6

Large gains from trade are most likely when countries are very different.

Accepted Answer

When two countries have different resources, skills, and technologies, they have a comparative advantage in producing different goods. By specializing in their area of comparative advantage and trading with each other, both countries can benefit from gains from trade, resulting in larger overall gains compared to if both countries were similar in their production capabilities.

Question 7

A country's comparative advantage can be illustrated by the graph of the production possibilities frontier.

Accepted Answer

A country's comparative advantage is demonstrated by its ability to produce a good or service at a lower opportunity cost than another country. This can be illustrated by the production possibilities frontier, which shows the different combinations of goods or services a country can produce with its available resources. Through analysis, we can identify which goods a country has a comparative advantage in producing, and can specialize in producing and trading those goods with others.

Question 8

If two countries voluntarily trade two goods with one another, the rate of exchange between the goods must fall in between the price ratios that would prevail in the two countries in the absence of trade.

Accepted Answer

This statement reflects the principle of comparative advantage, which suggests that each country will specialize in producing the good for which they have a lower opportunity cost and trade for the other good with the country that has a comparative advantage in producing it. The price ratios for the two goods will be somewhere in between the countries' domestic prices, reflecting the gains from trade.

Question 9

Dumping means selling goods in a foreign market at lower prices than those charged in the home market.

Accepted Answer

Dumping refers to the act of selling goods in a foreign market at prices lower than those charged in the home market. This can harm local competitors and domestic industries.

Question 10

Even though international trade is more complicated, supply and demand are still at the center of the price determination mechanism.

Accepted Answer

Supply and demand still play a central role in determining prices in international trade, even though factors such as tariffs, currency exchange rates, and political regulations can also impact prices.

Question 11

Equilibrium price in international trade is the common price between exporting and importing countries.

Accepted Answer

Equilibrium price is the price at which the demand for a product from importing countries and the supply from exporting countries intersect. This results in a common price that both parties agree to trade at.

Question 12

Trade adjustment assistance provides special unemployment benefits, loans, retraining programs, and other aid to workers and firms that are harmed by foreign competition.

Accepted Answer

Trade adjustment assistance provides special assistance to workers and firms that have been negatively impacted by foreign competition.

Question 13

Quotas and tariffs provide the same outcome: restriction of international trade and higher prices for consumers.

Accepted Answer

Both quotas and tariffs are forms of protectionism that limit the amount of goods that can be imported into a country. This restriction of international trade leads to higher prices for consumers, as there is less competition and fewer options in the domestic market.

Question 14

The United States is known worldwide as being a low-tariff nation.

Accepted Answer

The United States is generally considered a low-tariff nation, especially in comparison to its historical tariff levels and those of many other countries, as it has pursued policies of trade liberalization and participated in numerous international trade agreements aimed at reducing tariffs and other barriers to trade.

Question 15

The United States has relatively low tariffs.

Accepted Answer

The United States has overall low tariff rates compared to other developed countries. However, there are individual products and industries that may have higher tariffs.

Question 16

A quota sets the maximum amount of a good that is permitted into a country.

Accepted Answer

A quota is a restriction on the quantity of a good allowed to be imported into a country, so it does set a maximum limit.

Question 17

If a country's productivity doubles for everything it produces, this will not alter its prior pattern of specialization because it has not altered its comparative advantage.

Accepted Answer

The statement is correct because comparative advantage is determined by the relative cost of producing goods and services. If a country's productivity doubles for everything it produces, its relative cost of producing goods and services will remain the same, and hence, its comparative advantage will not change.

Question 18

Talented people who are best at everything have a comparative advantage in the production of everything.

Accepted Answer

The answer of Talented people who are best at everything...

Question 19

The quantity supplied by domestic producers in an importing country must be less than the quantity demanded by its population.

Accepted Answer

The answer of The quantity supplied by domestic producers in...

Question 20

Comparative advantage is illustrated by the slopes of production possibilities frontiers.

Accepted Answer

Comparative advantage exists when one country (or individual) can produce a good or service at a lower opportunity cost than another country (or individual). This is shown on a production possibilities frontier by a flatter slope in the production of a particular good or service, indicating that the country (or individual) can produce more of that good or service at a lower opportunity cost compared to another country (or individual).

Quiz 21: International Trade and Comparative Advantage