Question 1

If goods are produced abroad but consumed domestically,
A)those goods are termed imports
B)international trade has not occurred
C)the domestic economy is economically inefficient
D)there are no gains from specialization
E)those goods are termed exports

Accepted Answer

When goods are produced abroad but consumed domestically they are considered imports. This is because they were produced in another country and then imported into the domestic country for consumption.

Question 2

Assume the North Island of New Zealand can produce 2,000 fishing poles or 20 kayaks per day and the South Island can produce 1,000 fishing poles or 5 kayaks per day.The South Island has a comparative advantage in producing kayaks.

Accepted Answer

False

Question 3

Mutually beneficial international trade between two countries depends on
A)each country having an absolute advantage in the production of a different good
B)one country being worse (requiring more resources)than the other in the production of every good
C)at least one country having a zero opportunity cost in the production of at least one good
D)one country being relatively better at producing a good (which makes the other country relatively worse at it)
E)one country being relatively better at producing all goods

Accepted Answer

Mutually beneficial trade is based on comparative advantage, where each country specializes in producing goods for which it has a lower opportunity cost, even if one country is more efficient in producing all goods.

Question 4

Which of the following statements is true?
A)Exports tend to decrease economic efficiency.
B)A nation should specialize in producing a good in which it has an absolute advantage.
C)A nation should specialize in producing a good only when it has both an absolute and a comparative advantage.
D)A nation should specialize in producing a good in which it has a comparative advantage.
E)International trade does not reflect the benefits of specialization.

Accepted Answer

According to the theory of comparative advantage, a nation should specialize in producing a good in which it has a comparative advantage, meaning it can produce at a lower opportunity cost than other nations. This allows for efficient use of resources and increased economic welfare for all nations involved in international trade. Choices A, B, C, and E are all false statements.

Question 5

If Armenia can produce rugs more efficiently than any other country,it does not necessarily benefit from producing rugs for international trade.

Accepted Answer

Even if Armenia can produce rugs more efficiently, it might benefit more from specializing in goods where it has a comparative advantage, not just an absolute advantage, to maximize gains from trade.

Question 6

Assume that India has a comparative advantage in producing a computer game.The United States has an absolute advantage in producing the same game.Mutually advantageous trade will have India producing and exporting the game while the United States will specialize in producing something else.

Accepted Answer

Even though the United States has an absolute advantage in producing the computer game, if India has a comparative advantage in producing the game, then both countries can benefit from trade. India can produce and export more of the game to the United States, while the United States can specialize in producing something else where they have an absolute advantage. This will lead to both countries being better off through trade.

Question 7

A nation has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good than other countries have.

Accepted Answer

This is the definition of comparative advantage.

Question 8

If Japan can produce each unit of steel using fewer resources than Canada uses,
A)Canada has an absolute advantage in steel production
B)Japan has a comparative advantage in steel production
C)Canada has a comparative advantage in steel production
D)Canada may have an absolute advantage in producing steel
E)Japan has an absolute advantage in steel production

Accepted Answer

Japan has an absolute advantage in steel production because it can produce steel using fewer resources than Canada.

Question 9

Which of the following must be true in order to engage in advantageous international trade?
A)It must be producing at a point on its production possibilities frontier.
B)It must be economically efficient.
C)It must have a comparative advantage in producing one of the goods being traded.
D)There must be no potential Pareto improvements available in the economy.
E)It must have an absolute advantage in producing one good being traded.

Accepted Answer

In order to engage in advantageous international trade, a country must have a comparative advantage in producing one of the goods being traded. This means that it can produce that good at a lower opportunity cost than another country. The other options listed may be desirable, but they are not necessarily required for advantageous trade.

Question 10

International trade occurs whenever
A)two nations have achieved internal economic efficiency
B)one of the trading nations is self-sufficient
C)one nation can profit from trade at the expense of another
D)two nations can benefit from trading with each other
E)labor is cheaper in one country than in another

Accepted Answer

International trade occurs when two nations can benefit from trading with each other. This happens when each nation specializes in producing goods or services in which they have a comparative advantage, and then trades those goods or services with each other. This allows both nations to have access to a wider variety of goods and services at lower costs than producing everything domestically.

Question 11

Figure 16-1
Number of workers needed to produce one unit of each of the following goods:
 
-What can be said regarding absolute advantage in production for the two countries shown in Figure 16-1?
A)Colombia has an absolute advantage in producing both calculators and radios.
B)Korea has an absolute advantage only in producing calculators.
C)Korea has an absolute advantage in producing both radios and calculators.
D)Neither country has an absolute advantage in producing radios.
E)Colombia has an absolute advantage only in producing calculators.

Accepted Answer

The answer of Figure 16-1
Number of workers needed to produce...

Question 12

If all we know is that the opportunity cost of a car equals 100 refrigerators in France,and 200 refrigerators in Italy,we can conclude
A)nothing about which nation has the absolute advantage in refrigerator production
B)that France has a comparative advantage in refrigerator production
C)that mutually beneficial international trade might involve the market exchange of 1 car for 80 refrigerators (whereby France would gain more than Italy)
D)that mutually beneficial international trade might involve the market exchange of 1 car for 300 refrigerators (whereby Italy would gain more than France)
E)that France has the absolute advantage in car production

Accepted Answer

Opportunity cost information alone does not provide enough information to determine absolute advantage, which is based on overall productivity, not opportunity cost.

Question 13

Figure 16-1
Number of workers needed to produce one unit of each of the following goods:
 
-What can be said regarding comparative advantage in production for the two countries shown in Figure 16-1?
A)Colombia has a comparative advantage in producing both calculators and radios.
B)Korea has a comparative advantage in producing radios and Colombia has a comparative advantage in producing calculators.
C)Korea has a comparative advantage in producing both radios and calculators.
D)Neither country has a comparative advantage in producing radios.
E)Colombia has a comparative advantage only in producing radios.

Accepted Answer

According to Figure 16-1, Korea requires fewer workers to produce one unit of radios compared to Colombia, whereas Colombia requires fewer workers to produce one unit of calculators. This implies that Korea has a comparative advantage in producing radios and Colombia has a comparative advantage in producing calculators. Therefore, option B is the correct choice.

Question 14

For each watch Switzerland produces,it gives up the opportunity to produce 50 pounds of cheese.Germany can produce one watch at a cost of 100 pounds of cheese.Which of the following is true?
A)The opportunity cost of producing watches is greater in Switzerland.
B)The opportunity cost of producing cheese is greater in Switzerland.
C)The opportunity cost of producing cheese is the same in both countries.
D)It is impossible to compare costs because the two countries use different technologies.
E)In the two countries combined,the cost of producing one watch is 150 pounds of cheese.

Accepted Answer

According to the given information, for each watch Switzerland produces, it gives up the opportunity to produce 50 pounds of cheese. This means that the opportunity cost of producing one watch in Switzerland is 50 pounds of cheese. On the other hand, Germany can produce one watch at a cost of 100 pounds of cheese. Therefore, the opportunity cost of producing one watch in Germany is 100 pounds of cheese. Since the opportunity cost of producing cheese is lower in Switzerland (1 watch = 50 pounds of cheese) compared to Germany (1 watch = 100 pounds of cheese), it can be concluded that the opportunity cost of producing watches is lower in Switzerland. Therefore, the best choice is B.

Question 15

Since World War II,there has been a worldwide movement away from free trade policies.

Accepted Answer

Since World War II, there has been a worldwide movement towards free trade policies, with organizations like the World Trade Organization and numerous trade agreements promoting free trade among countries.

Question 16

In general,a society will benefit more,the more interdependent it is.

Accepted Answer

Interdependence means that members of a society rely on each other for goods, services, and support. When there is a high level of interdependence, people can specialize in certain tasks and use their skills to benefit the society as a whole. This leads to greater efficiency and productivity, and ultimately a higher standard of living for everyone. In contrast, a society with low interdependence may experience inefficiencies and struggles as individuals try to fulfill all their needs on their own.

Question 17

If Panama has a high opportunity cost of producing salmon steaks,then it should export salmon steaks.

Accepted Answer

If Panama has a high opportunity cost of producing salmon steaks, it means it sacrifices a lot of other goods to produce them, so it should import salmon steaks and export goods for which it has a lower opportunity cost.

Question 18

Suppose that a nation has an absolute advantage in the production of all goods.In this instance,it
A)has no incentive to engage in international trade
B)is producing at a point on its production possibilities frontier
C)has no unemployment
D)also has a comparative advantage in the production of those goods
E)should specialize in producing the goods for which it has a lower opportunity cost than other countries

Accepted Answer

Even if a nation has an absolute advantage in all goods, it should specialize in producing goods for which it has a comparative advantage, meaning a lower opportunity cost, to maximize gains from trade.

Question 19

Assume that Spain can produce a commodity using fewer resources than any other country.Spain will export this commodity even if other countries have a lower opportunity cost of producing it.

Accepted Answer

Spain will export the commodity if it has a comparative advantage, meaning it has a lower opportunity cost compared to other countries, not just because it uses fewer resources (absolute advantage).

Question 20

In general,a society will benefit more,the more self-sufficient it is.

Accepted Answer

A society may benefit from trading and interacting with other societies, sharing resources, knowledge, and ideas, and collaborating on global issues. Self-sufficiency can lead to isolation, limited resources, and a lack of diversity and innovation. While some level of self-sufficiency may be beneficial for certain resources, it is not generally true that complete self-sufficiency is the most beneficial for a society.

Quiz 17: Comparative Advantage and the Gains From International Trade

If goods are produced abroad but consumed domestically,

Assume the North Island of New Zealand can produce 2,000 fishing poles or 20 kayaks per day and the South Island can produce 1,000 fishing poles or 5 kayaks per day.The South Island has a comparative advantage in producing kayaks.

Mutually beneficial international trade between two countries depends on

Which of the following statements is true?

If Armenia can produce rugs more efficiently than any other country,it does not necessarily benefit from producing rugs for international trade.

Assume that India has a comparative advantage in producing a computer game.The United States has an absolute advantage in producing the same game.Mutually advantageous trade will have India producing and exporting the game while the United States will specialize in producing something else.

A nation has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good than other countries have.

If Japan can produce each unit of steel using fewer resources than Canada uses,

Which of the following must be true in order to engage in advantageous international trade?

International trade occurs whenever

Figure 16-1 Number of workers needed to produce one unit of each of the following goods: -What can be said regarding absolute advantage in production for the two countries shown in Figure 16-1?

If all we know is that the opportunity cost of a car equals 100 refrigerators in France,and 200 refrigerators in Italy,we can conclude

Figure 16-1 Number of workers needed to produce one unit of each of the following goods: -What can be said regarding comparative advantage in production for the two countries shown in Figure 16-1?

For each watch Switzerland produces,it gives up the opportunity to produce 50 pounds of cheese.Germany can produce one watch at a cost of 100 pounds of cheese.Which of the following is true?

Since World War II,there has been a worldwide movement away from free trade policies.

In general,a society will benefit more,the more interdependent it is.

If Panama has a high opportunity cost of producing salmon steaks,then it should export salmon steaks.

Suppose that a nation has an absolute advantage in the production of all goods.In this instance,it

Assume that Spain can produce a commodity using fewer resources than any other country.Spain will export this commodity even if other countries have a lower opportunity cost of producing it.

In general,a society will benefit more,the more self-sufficient it is.