Question 1

One reason a country does not specialize completely in production is that production of most goods involves increasing opportunity costs.

Accepted Answer

Specializing completely in one type of production means sacrificing the production of other goods that the country is capable of producing. As production of one good increases, the opportunity cost of producing one additional unit of that good increases as well, because resources must be taken away from the production of other goods. This is known as the law of increasing opportunity cost. Therefore, it is not efficient or practical for a country to specialize completely in one type of production.

Question 2

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

Accepted Answer

The answer of In the real world we don't observe...

Question 3

China has developed a comparative advantage in the production of children's toys.The source of this comparative advantage is

Accepted Answer

China has a large supply of unskilled workers and relatively little capital compared to developed countries, which allows them to produce goods at a lower cost. This gives them a comparative advantage in labor-intensive industries such as toy production. Additionally, the Chinese government has invested in infrastructure and favorable policies for exporting, further boosting their competitiveness in this industry. Superior process technology and investment in capital used to produce toys may also contribute to China's success in the toy industry, but the main driver of their comparative advantage is their abundant supply of low-cost labor. A large supply of natural resources is not a significant factor in the production of children's toys.

Question 4

Autarky is a situation where one country does not trade with other countries.

Accepted Answer

Autarky refers to a self-sufficient economy where a country does not engage in international trade.

Question 5

All of the following are sources of comparative advantage except

Accepted Answer

A strong foreign currency exchange rate is not a source of comparative advantage as it does not relate to a country's ability to produce goods and services efficiently at a lower opportunity cost than other countries. Climate and natural resources, relative abundance of labor and capital, and technology are all sources of comparative advantage.

Question 6

Once an industry becomes established in a certain area firms that locate in that area gain advantages over firms located elsewhere,leading to lower costs of production.Economists refer to the lower costs that result from increases in the size of an industry in a certain area as

Accepted Answer

The term "external economies" refers to the benefits that accrue to firms as a result of being located in a particular geographic area where an industry has become established. These external economies can lower the costs of production for firms in that area, as they are able to take advantage of shared resources or infrastructure, such as skilled labor or transportation networks.

Question 7

Which of the following statements is false?

Accepted Answer

This statement is false because it implies that one country will be worse off overall as a result of international trade, which is not necessarily true. Both countries can benefit overall from international trade, but some individuals within each country may not benefit.

Question 8

Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade.These examples are misleading because

Accepted Answer

While textbook examples of trade may show mutual benefit, in reality some individuals in both countries may be negatively affected by trade, such as those who lose their jobs due to competition from imported goods. It's important to recognize that trade can have winners and losers, and trade policies should seek to address and mitigate these negative impacts.

Question 9

Once a country has a comparative advantage in producing a product,it cannot lose that advantage.

Accepted Answer

A country's comparative advantage can be lost or diminished due to changes in factors such as technology, resource availability, and trade policies.

Question 10

In the past two decades the United States lost its comparative advantage in automobiles to Japan.What factor was most responsible for the development of Japan's comparative advantage in automobiles?

Accepted Answer

Japanese firms excelled in process technology, which allowed them to improve quality while reducing costs. This gave them a significant competitive advantage over American automakers who were struggling to keep up with Japanese production methods. Japan did not have abundant supplies of natural resources or labor, but their focus on innovation and process improvements helped them to dominate the global auto market. Japanese firms also benefited from external economies such as a strong support network and a favorable regulatory environment.

Question 11

One of the main sources of comparative advantage is natural resources.

Accepted Answer

Countries with abundant natural resources, such as oil or minerals, may have a comparative advantage in the production of goods that use those resources, giving them a competitive edge in the global market. However, natural resources are not the only factor that can give a country a comparative advantage. Other factors include technological innovation, skilled labor, and access to capital.

Question 12

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

Accepted Answer

Not all goods and services can be traded internationally due to various reasons like legal restrictions, transportation costs, cultural differences, etc. Therefore, a country cannot specialize completely in production.

Question 13

Trade only occurs if there are only winners,and no losers,as a result of the trade.

Accepted Answer

Trade involves both parties giving up something in exchange for something else. It is likely that one party will obtain more value than the other party, resulting in winners and losers. However, in the long run, trade can benefit both parties by allowing them to specialize in their respective strengths and increase overall productivity.

Question 14

A consequence of increasing marginal costs of producing laptop computers in the United States is

Accepted Answer

The answer of A consequence of increasing marginal costs of...

Question 15

Costa Rica is a leading exporter of bananas.What explains the comparative advantage of this country in banana production?

Accepted Answer

Costa Rica's climate and soil conditions are well-suited for banana production, providing a comparative advantage in this industry. The favorable conditions allow for high yields and quality bananas to be produced at a lower cost compared to other countries. While investment by multinational firms and a supply of unskilled labor may also contribute to the banana industry in Costa Rica, they are not the primary reasons for its comparative advantage. Positive externalities may also exist, but this is not mentioned as a significant factor in this case.

Question 16

Automobiles and many other products are differentiated.As a result

Accepted Answer

Differentiation in automobiles and other products allows for countries to specialize in producing certain types of automobiles based on their comparative advantage in that particular type. This results in more efficient and higher quality production.

Question 17

Pakistan has developed a comparative advantage in the production of clothing.The source of its comparative advantage in these products is

Accepted Answer

Pakistan's comparative advantage in the production of clothing is its large supply of unskilled workers. These workers are relatively low-cost and can be trained quickly to perform the necessary tasks, making Pakistani clothing products competitive in the global market. Additionally, Pakistan has a favorable geographical location, which allows easy access to raw materials and markets. However, technology and natural resources do not play a significant role in Pakistan's clothing industry.

Question 18

The United States has developed a comparative advantage in digital computers,airliners and many prescription drugs.The source of its comparative advantage in these products is

Accepted Answer

The comparative advantage in digital computers, airliners and prescription drugs comes primarily from the United States' superior technology and expertise in these industries. While natural resources may play a role in some cases, they do not fully account for the United States' success in these areas. A strong central government would also not necessarily lead to comparative advantage in these industries.

Question 19

The ratio at which a country can trade its exports for imports from other countries is called comparative advantage.

Accepted Answer

The ratio at which a country can trade its exports for imports from other countries is called the terms of trade, not comparative advantage. Comparative advantage refers to a country's ability to produce a particular good or service at a lower opportunity cost than its trading partners.

Question 20

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

Accepted Answer

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

Quiz 19: Comparative Advantage, international Trade, and Exchange Rates