Question 1

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

When a country loses its comparative advantage and switches to importing the good, it can allocate resources more efficiently to other sectors where it has a comparative advantage, potentially increasing overall income and efficiency.

Question 2

Beginning in ________, the government of China adopted market-based reforms of the economy and began exporting significant quantities of goods to the United States and other countries.
A)1949
B)the 1970s
C)the 1990s
D)2001

Accepted Answer

China began adopting market-based reforms in the late 1970s under the leadership of Deng Xiaoping, which led to significant economic growth and increased exports.

Question 3

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

Accepted Answer

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

Question 4

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 is due to its advanced technology. Japan has been a leader in investing heavily in research and development of advanced manufacturing technologies, such as robotics and automation, which have enabled its automobile industry to produce high-quality products at low costs. This has resulted in Japan gaining a competitive edge in the global automobile market.

Question 5

A Federal Reserve publication proclaimed that "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

The statement is true because it refers to countries as a whole, but it may not necessarily apply to individuals within those countries who may experience job losses or other negative effects as a result of international trade.

Question 6

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 concept of comparative advantage, as illustrated by the example of England and Portugal, shows that mutually beneficial trade is possible even if one country has an absolute advantage in producing both goods. The key is that each country should specialize in the good for which it has a comparative advantage, meaning it can produce at a lower opportunity cost.

Question 7

Table 9-6
Output per hour Production and Production
of work Consumption without Trade with Trade
  
Denmark and Belize can produce both clocks and hats. Each country has a total of 200 available labor hours for the production of clocks and hats. Table 9-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 9-6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Belize gain compared to the "without trade" numbers?
A)-100
B)100
C)120
D)250

Accepted Answer

Without trade, Belize produces 50 clocks and 100 hats, and with trade, it produces 70 clocks and 80 hats. This means that Belize gains 20 clocks from trade. Since 1 hat is traded for 1.8 clocks, Belize trades 150/1 = 150 hats. Thus, Belize gains (150/1.8) = 83.33 clocks. However, since Belize can only produce a maximum of 200 labor hours worth of goods, it can only produce a total of (200/2) = 100 clocks and 100 hats. Therefore, Belize can only gain a maximum of 50 clocks. Subtracting the 20 clocks gained from trade from this maximum, Belize gains 30 clocks compared to the "without trade" numbers. Therefore, the answer is C) 120.

Question 8

The United States is a leading exporter of wheat.What explains the source of the comparative advantage of the United States in wheat production?
A)positive externalities
B)investment by multinational firms such as Archer-Daniels-Midland and Tyson Foods Inc.
C)climate and soil conditions in the United States which are well-suited for wheat production
D)a large supply of unskilled labor

Accepted Answer

The comparative advantage of the United States in wheat production can be attributed to the favorable climate and soil conditions which are well-suited for wheat production.

Question 9

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

According to the principle of comparative advantage, each country as a whole will benefit from international trade. However, some individuals within each country may be negatively affected if they lose their jobs or face competition from foreign imports. Therefore, option D is the correct statement.

Question 10

________ 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)Autarkic dominance
D)Streamlining

Accepted Answer

External economies refer to reductions in costs that result from an increase in the size of an industry. These cost reductions can come from shared infrastructure, a larger labor pool, or lower input costs due to increased bargaining power with suppliers. Internal economies, on the other hand, refer to cost reductions that come from efficiency gains within a firm, such as economies of scale or scope. Autarkic dominance is not a term commonly used in economics, while streamlining refers to a company's efforts to improve efficiency by eliminating non-essential processes or reducing workforce size, and is not directly related to economies of scale or industry size.

Question 11

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

Accepted Answer

While many goods and services are traded internationally, not all of them are. Therefore, a country may choose not to specialize completely in production in order to also provide for domestic consumption and demand for non-traded goods and services.

Question 12

Trade only occurs if all individuals win, and no individuals lose, as a result of the trade.

Accepted Answer

Trade can involve winners and losers, as one party can gain more value from the trade than the other. However, it is generally assumed that both parties believe they will benefit from the trade, otherwise they would not engage in it.

Question 13

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

Accepted Answer

A strong foreign currency exchange rate is not a source of comparative advantage. Comparative advantage refers to a country's ability to produce a particular good or service at a lower opportunity cost than another country. This can be achieved through factors such as relative abundance of labor and capital, technology, and climate and natural resources. A strong foreign currency exchange rate can affect international trade and competitiveness but is not a direct source of comparative advantage.

Question 14

Economists studying the effect of the China shock on the U.S.economy point out that the firms most hurt by Chinese imports have been
A)evenly distributed across the United States.
B)almost exclusively located in the Northeast.
C)concentrated in certain states, particularly in the Midwest and Southeast.
D)located primarily along the Pacific coast.

Accepted Answer

Studies have found that the firms most affected by the China shock are concentrated in certain states, particularly in the Midwest and Southeast. These states have a higher share of manufacturing employment and have more industries that compete directly with Chinese imports.

Question 15

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)because some countries also have an absolute advantage in the production of those goods.
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 that as a country produces more of a good, the opportunity cost of producing that good increases. Therefore, it becomes less efficient for a country to specialize completely in the production of one good, as the opportunity cost of producing that good becomes higher and higher. Additionally, other factors such as transportation costs, trade barriers, and differences in technology and resources also affect the degree to which countries specialize in certain goods.

Question 16

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 17

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 producing clothing comes from having a large supply of unskilled workers and relatively little capital. With a large population and lower wages, China can produce clothing at a lower cost than many other countries. This advantage has allowed China to become a leading exporter of clothing, with around 40% of the world's clothing production.

Question 18

By 2016, the U.S.trade deficit with China
A)had fallen to almost zero.
B)was nearly $300 billion.
C)had decreased to the same level of the early 2000s.
D)had become a trade surplus.

Accepted Answer

According to data from the U.S. Census Bureau, the U.S. trade deficit with China was almost $300 billion in 2016.

Question 19

The United States has developed a comparative advantage in film production due to the film industry being long-established in southern California, and lower costs result from the size of the industry in the area.This source of comparative advantage is referred to as
A)the abundance of natural resources.
B)superior process technology.
C)external economies.
D)best practices of unskilled labor.

Accepted Answer

External economies refer to benefits that businesses receive from being located in close proximity to other businesses in the same industry or supply chain. In this case, the film industry in southern California has developed external economies resulting in lower costs due to access to specialized equipment, skilled labor, and support services. This has given the US a comparative advantage in film production. The other choices do not accurately describe the source of comparative advantage in this case.

Question 20

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

Since tastes for products such as beer differ, different countries may each have a comparative advantage in producing different types of beer. This means that certain countries may excel in producing certain types of beer, leading to a diverse range of options for consumers.

Quiz 9: Comparative Advantage and the Gains From International Trade

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.

Beginning in ________, the government of China adopted market-based reforms of the economy and began exporting significant quantities of goods to the United States and other countries.

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

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

A Federal Reserve publication proclaimed that "Trade is a win-win situation for all countries that participate." This statement is

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

The United States is a leading exporter of wheat.What explains the source of the comparative advantage of the United States in wheat production?

Which of the following statements is true?

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

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

Trade only occurs if all individuals win, and no individuals lose, as a result of the trade.

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

Economists studying the effect of the China shock on the U.S.economy point out that the firms most hurt by Chinese imports have been

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

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

By 2016, the U.S.trade deficit with China

The United States has developed a comparative advantage in film production due to the film industry being long-established in southern California, and lower costs result from the size of the industry in the area.This source of comparative advantage is referred to as

Tastes for products such as beer differ.As a result