Question 1

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 Denmark gain compared to the "without trade" numbers?
A)30
B)100
C)150
D)900

Accepted Answer

The answer of Table 9-6
Output per hour Production and Production
of...

Question 2

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 3

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 4

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 can benefit both countries, but it does not necessarily benefit all individuals within those countries equally. Some individuals may lose their jobs or face lower wages due to competition from foreign producers. However, on a macroeconomic level, countries as a whole are likely to benefit from international trade by gaining access to a greater variety of goods and services at lower prices.

Question 5

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

Accepted Answer

Trade involves a distribution of goods and resources, which can result in winners and losers depending on the terms and conditions of the trade. It is possible for all parties involved in a trade to benefit, but it is not guaranteed.

Question 6

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

The source of comparative advantage described in the scenario is external economies, which refer to the benefits that arise from the presence of a large industry in a specific area, such as lower costs due to shared infrastructure and skilled labor. The other options - abundance of natural resources, superior process technology, and best practices of unskilled labor - are not relevant to the film industry and do not accurately describe the source of comparative advantage.

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 hats will Belize gain compared to the "without trade" numbers?
A)-100
B)0
C)150
D)250

Accepted Answer

Without trade, Belize produces 120 hats, but with trade, it only needs to produce 90 hats (150 hats traded / 1.8 hat per clock). This means Belize can free up 30 hours of labor, which can be used to produce additional clocks. With the extra labor, Belize can produce an additional 16.67 clocks (30 hours x 0.556 clocks per hour). Therefore, with trade, Belize can produce 116.67 clocks and 90 hats, which is greater than the 100 clocks and 120 hats it could produce without trade. Thus, Belize gains 30 hats in comparison to the "without trade" numbers.

Question 8

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

The production of most goods involves increasing opportunity costs, meaning that as a country specializes in the production of a certain good, the opportunity cost of producing that good increases over time. This makes it less efficient and less profitable for a country to specialize completely in one good, as they will eventually face diminishing returns and increasing costs. Therefore, most countries do not completely specialize in the production of goods for which they have a comparative advantage.

Question 9

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 10

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

While international trade can bring benefits to countries overall, there can be individual workers or industries that may suffer job losses or reduced wages as a result. Thus, the statement that "trade is a win-win situation for all countries that participate" is not entirely accurate. However, it is true that overall, countries that participate in international trade often see increased economic growth and benefits for their economies.

Question 11

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 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 factors such as regulations, cultural differences, and infrastructure limitations. Therefore, countries may need to produce certain goods and services domestically to meet domestic demand.

Question 13

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 clothing production is derived from its large supply of unskilled workers and relatively little capital, which allows for low labor costs and inexpensive production. This has made China a leading exporter of clothing worldwide.

Question 14

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

Accepted Answer

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

Question 15

In the 1970s and 1980s, the United States 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 labor.
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 allowed them to produce high-quality consumer electronics goods at lower costs compared to their American counterparts. Additionally, Japanese firms benefited from external economies, such as a highly skilled workforce and government support. However, labor and natural resources availability did not play a significant role in Japan's comparative advantage in consumer electronics goods.

Question 16

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 has developed advanced technology in the design and production of automobiles, which has allowed them to produce high-quality and reliable cars at a lower cost than their competitors. This has led to a comparative advantage in this industry.

Question 17

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 good or service at a lower opportunity cost than another country. A strong foreign currency exchange rate can make a country's exports relatively more expensive and imports relatively cheaper, which could actually make it more difficult for a country to compete internationally and have a comparative advantage. Factors such as relative abundance of labor and capital, technology, climate, and natural resources can contribute to a country's comparative advantage.

Question 18

The United States is a leading exporter of wheat.What explains 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 climate and soil conditions in the United States are well-suited for wheat production, giving the country a comparative advantage in this industry.

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 as a result of increased industry size. These cost savings can arise from factors such as access to specialized suppliers, skilled labor pools, and knowledge spillovers. Internal economies, on the other hand, refer to cost savings that result from a specific firm's size and scale of operations. Autarkial dominance is not a relevant concept in this context, and streamlining refers to specific efforts to reduce costs within a firm rather than industry-wide changes.

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 taste for beer differs among consumers, different countries can have a comparative advantage in producing different types of beer that cater to specific tastes. This is why we see countries specializing in the production of beer, and why consumers of beer may have difficulty deciding what type of imported beer to buy. The quality of imported beer may vary, but it is not necessarily less than it could be.

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.

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

Which of the following statements is true?

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

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

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

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

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

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

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

In the 1970s and 1980s, the United States 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?

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

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

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

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

Tastes for products such as beer differ.As a result