Question 1

Suppose in Finland a worker can produce either 32 cell phones or 4 kayaks, while in Canada a worker can produce either 40 cell phones or 10 kayaks.
a.Which country has an absolute advantage in cell phone production? In kayak production?
b.What is the opportunity cost of 1 cell phone in Finland? In Canada?
c.What is the opportunity cost of 1 kayak in Finland? In Canada?
d.Which country has a comparative advantage in cell phone production? In kayak production?
e.Suppose each country has 1,000 workers.Currently, each country devotes 40 percent of its labour force to cell phone production and 60 percent to kayak production.What is the output of cell phones and kayaks for each country and what is the total output of cell phones and kayaks between the two countries?
f.Suppose each country specializes in the production of the good in which it has a comparative advantage.What is the total output of cell phones and kayaks in the two countries?
g.Provide a numerical example to show how Finland and Canada can both gain from trade.Assume that the terms of trade are established at 6 cell phones for 1 kayak.

Accepted Answer

The answer of Suppose in Finland a worker can produce...

Question 2

Canada is a leading exporter of wheat.What explains the comparative advantage of Canada in wheat production?
A)positive externalities
B)investment by large firms such as Viterra and Pioneer
C)climate and soil conditions in Canada which are well-suited for wheat production
D)a large supply of unskilled labour

Accepted Answer

Canada's climate and soil conditions are well-suited for wheat production, which gives them a comparative advantage in this area. This means that Canada can produce wheat at a lower opportunity cost than other countries, making them a leading exporter. Positive externalities and investment by large firms may contribute to increasing productivity and efficiency, but are not the main factors driving Canada's comparative advantage in wheat production. A large supply of unskilled labor may also help keep production costs low, but is not as significant as favorable natural conditions.

Question 3

A consequence of increasing marginal costs of producing digital music players in Japan is
A)Japan will not export digital music players.
B)Japan will stop short of complete specialization in the production of digital music players.
C)Japan will import digital music players from countries that don't experience increasing marginal costs.
D)Japan will likely impose trade restrictions on imported digital music players.

Accepted Answer

Increasing marginal costs mean that the cost of producing each additional unit of digital music player will increase. As a result, it becomes less profitable for Japan to specialize solely in the production of digital music players. Instead, they may choose to produce a variety of goods and services to maximize their profits. This means that Japan will stop short of complete specialization (Option B). Option A and D are unlikely outcomes as Japan is a major exporter and advocate of free trade. Option C is possible, but it is not the only consequence of increasing marginal costs. Therefore, the best choice is B.

Question 4

In the 1970s and 1980s, North America lost its comparative advantage in consumer electronics goods to Japan.What factor was most responsible for the development of Japan's comparative advantage in consumer electronics goods?
A)Japanese firms benefited from external economies.
B)Japan has abundant supplies of labour.
C)Japanese firms excelled in process technology.
D)Japan has abundant supplies of natural resources needed to produce electronics goods.

Accepted Answer

Japanese firms excelled in process technology, which gave them a competitive edge in producing high-quality, innovative consumer electronics goods. This enabled Japanese firms to create economies of scale and develop a reputation for producing reliable, high-quality electronic goods. These external economies, along with Japanese industrial policies and government support, allowed Japanese firms to dominate the global market for consumer electronics in the 1970s and 1980s. Japan does not have abundant supplies of labour or natural resources needed to produce electronics goods, indicating that options B and D are not valid choices.

Question 5

What is autarky?

Accepted Answer

The answer of What is autarky?...

Question 6

Tastes for products such as beer differ.As a result
A)we see countries specializing completely in the production of beer.
B)consumers of beer have difficulty deciding what type of imported beer to buy.
C)the quality of imported beer is less than it could be.
D)different countries may each have a comparative advantage in producing different types of beer.

Accepted Answer

Tastes for beer differ among consumers, which means that different countries may each have a comparative advantage in producing different types of beer that cater to specific tastes. This is why we see a variety of beer styles originating from different countries. Therefore, choice D is the best option.

Question 7

What are the four main sources of comparative advantage? Briefly explain each source and provide examples.

Accepted Answer

The answer of What are the four main sources of...

Question 8

Once a country has lost its comparative advantage in producing a good, its income will be ________ and its economy will be ________ if it switches from producing the good to importing it.
A)higher; less efficient
B)higher; more efficient
C)lower; less efficient
D)lower; more efficient

Accepted Answer

The answer of Once a country has lost its comparative...

Question 9

Japan has developed a comparative advantage in designing and producing automobiles.The source of its comparative advantage in these products is
A)abundant supplies of natural resources.
B)a favorable climate.
C)a strong central government.
D)technology.

Accepted Answer

Japan's comparative advantage in designing and producing automobiles comes from its advanced technology in the field. Japan's companies are known for their innovative designs and efficient production methods, which give them a competitive edge in this industry. While Japan does have access to natural resources such as steel and aluminum, they are not the main source of its comparative advantage. Climate or government also do not play a significant role in this industry.

Question 10

One of the main sources of comparative advantage is internal economies.

Accepted Answer

The answer of One of the main sources of comparative...

Question 11

Which of the following is not a source of comparative advantage?
A)relative abundance of labour and capital
B)technology
C)climate and natural resources
D)a strong foreign currency exchange rate

Accepted Answer

A strong foreign currency exchange rate does not necessarily provide a country with a comparative advantage in producing goods and services, as it does not directly impact their ability to produce more efficiently or effectively than other countries. The other options (relative abundance of labor and capital, technology, climate and natural resources) can all contribute to a country's comparative advantage.

Question 12

The first example used to explain comparative advantage used two countries (England and Portugal)and two goods (wine and cloth)to show that
A)each country would be better off from trade if it had an absolute advantage in producing one of the goods.
B)each country would have a comparative advantage in the production of the good for which it had an absolute advantage.
C)mutually beneficial trade was possible between two countries even if one had an absolute advantage in the production of both goods.
D)mutually beneficial trade was possible between two countries even if one had a comparative advantage in the production of both goods.

Accepted Answer

The answer of The first example used to explain comparative...

Question 13

In the real world we don't observe countries completely specializing in the production of goods for which they have a comparative advantage.One reasons for this is
A)comparative advantage works better in theory than in practice.
B)some countries have more resources than other countries.
C)tastes for many traded goods are similar in many countries because of globalization.
D)production of most goods involves increasing opportunity costs.

Accepted Answer

Production of most goods involves increasing opportunity costs, which means as a country specializes more in a particular good, the opportunity cost of producing each additional unit of that good increases. Therefore, it becomes more expensive to produce all the goods a country consumes which makes complete specialization impractical.

Question 14

Which of the following statements is true?
A)All individuals in both countries are made better off as a result of international trade.
B)Within each country, some individuals are made better off as a result of international trade, but one of the countries will be worse off overall.
C)Although some individuals are made better off as a result of international trade, both countries may be made worse off overall.
D)Each country as a whole is made better off as a result of international trade, but individuals within each country may be made worse off.

Accepted Answer

International trade allows each country to specialize in producing the goods and services in which they have a comparative advantage, leading to increased efficiency and economic growth. However, certain industries or individuals within each country may be negatively affected by the influx of foreign competition. Therefore, while each country as a whole benefits from international trade, there may be winners and losers within each country.

Question 15

Bay Street, in Toronto, is the heart of the Canadian financial system, where banks, brokerage houses, other financial firms, and the Toronto Stock Exchange are all located.What is the reason for Toronto's comparative advantage in the financial market?
A)the development of superior information technology
B)an abundant supply of skilled labour
C)Toronto has a central location in the country
D)external economies

Accepted Answer

Toronto benefits from external economies in the financial industry as firms tend to cluster together in order to share resources and benefit from a larger pool of skilled workers and knowledge spillovers. This creates a self-reinforcing cycle that attracts even more firms to the area, further enhancing the agglomeration effects. This is supported by studies which have shown that cities with larger financial sectors tend to have higher levels of productivity and growth, and Toronto's financial district is one of the largest in the world. While factors such as information technology and skilled labour are also important, they are not sufficient on their own to explain Toronto's comparative advantage in finance.

Question 16

Many proponents of globalization claim "Trade is a win-win situation for all countries that participate." This statement is
A)false since it ignores the workers who lose their jobs as result of international trade.
B)false since not all countries participate in international trade.
C)true because it refers to countries; individuals may be losers as a result of international trade.
D)true because all consumers and workers benefit from international trade.

Accepted Answer

While individuals may be negatively impacted by international trade, the statement is referring to countries as a whole. In general, international trade can benefit all participating countries by creating a more efficient allocation of resources and increasing overall economic growth. However, this does not mean that all individuals within those countries will benefit equally or that there won't be some negative consequences, such as job losses in certain industries.

Question 17

The simple trade model demonstrates that countries can expand consumption by specializing in the production of goods and services in which they have a comparative advantage.In reality we do not see complete specialization in production.State three reasons why this is case.

Accepted Answer

The answer of The simple trade model demonstrates that countries...

Question 18

One reason a country does not specialize completely in production is that not all goods and services are traded internationally.

Accepted Answer

This is true because not all goods and services have demand in the global market or can be easily transported. Therefore, a country may need to produce certain goods and services for domestic consumption or for regional trade.

Question 19

________ refers to reductions in a firm's costs that result from an increase in the size of an industry.
A)Internal economies
B)External economies
C)Autarkial dominance
D)Streamlining

Accepted Answer

External economies refer to cost reductions that occur for all firms in an industry due to factors outside of their control, such as improvements in transportation infrastructure or a larger pool of specialized labor. In contrast, internal economies refer to cost reductions that result from a firm's own actions, such as increasing efficiency or implementing better technology. Autarkial dominance and streamlining are not relevant to the concept of economies of scale.

Question 20

China has developed a comparative advantage in the production of clothing.The source of this comparative advantage is
A)a large supply of natural resources.
B)a large supply of unskilled workers and relatively little capital.
C)investment in capital used to produce clothing.
D)superior process technology.

Accepted Answer

China's comparative advantage in the production of clothing is due to its large supply of unskilled workers and a relatively low amount of capital required for clothing production. China has a large population, and many workers are available to work in the garment industry. Additionally, the garment industry does not require highly skilled labor or significant capital investment, making it a suitable industry for China.

Quiz 7: Comparative Advantage and the Gains From International Trade

Canada is a leading exporter of wheat.What explains the comparative advantage of Canada in wheat production?

A consequence of increasing marginal costs of producing digital music players in Japan is

In the 1970s and 1980s, North America lost its comparative advantage in consumer electronics goods to Japan.What factor was most responsible for the development of Japan's comparative advantage in consumer electronics goods?

What is autarky?

Tastes for products such as beer differ.As a result

What are the four main sources of comparative advantage? Briefly explain each source and provide examples.

Once a country has lost its comparative advantage in producing a good, its income will be and its economy will be if it switches from producing the good to importing it.

Japan has developed a comparative advantage in designing and producing automobiles.The source of its comparative advantage in these products is

One of the main sources of comparative advantage is internal economies.

Which of the following is not a source of comparative advantage?

The first example used to explain comparative advantage used two countries (England and Portugal) and two goods (wine and cloth) to show that

In the real world we don't observe countries completely specializing in the production of goods for which they have a comparative advantage.One reasons for this is

Which of the following statements is true?

Bay Street, in Toronto, is the heart of the Canadian financial system, where banks, brokerage houses, other financial firms, and the Toronto Stock Exchange are all located.What is the reason for Toronto's comparative advantage in the financial market?

Many proponents of globalization claim "Trade is a win-win situation for all countries that participate." This statement is

The simple trade model demonstrates that countries can expand consumption by specializing in the production of goods and services in which they have a comparative advantage.In reality we do not see complete specialization in production.State three reasons why this is case.

One reason a country does not specialize completely in production is that not all goods and services are traded internationally.

________ refers to reductions in a firm's costs that result from an increase in the size of an industry.

China has developed a comparative advantage in the production of clothing.The source of this comparative advantage is