Question 1

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

Accepted Answer

This is because some goods and services may only be in demand domestically or may not be able to be traded due to various barriers such as regulations or logistics. Therefore, it makes sense for a country to maintain some level of diversification in their production.

Question 2

What is autarky?

Accepted Answer

The answer of What is autarky?...

Question 3

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 4

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

When a country specializes in producing a good for which it has a comparative advantage, it faces increasing opportunity costs as it produces more of that good. This means that at some point, it will become more efficient to produce a different good for which it also has a comparative advantage. Therefore, countries are unlikely to completely specialize in one good because it would become increasingly costly to do so.

Question 5

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 the 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 United States has a comparative advantage in wheat production due to the favorable climate and soil conditions which are well-suited for wheat cultivation.

Question 6

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 labor 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 7

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 8

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 technology, specifically its advanced engineering and robotics. Japan has invested heavily in research and development, allowing it to create innovative designs and production processes that are more efficient and cost-effective than those of many other countries. This has helped Japanese automakers to achieve high levels of quality and reliability, allowing them to compete successfully in global markets.

Question 9

Wall Street,in the borough of Manhattan in New York City,is the heart of the U.S.financial system,where banks,brokerage houses,other financial firms,and the New York Stock Exchange are all located.What is the reason for New York City's comparative advantage in the financial market?
A) the development of superior information technology
B) an abundant supply of skilled labor
C) New York City has one of the largest sea ports in the world.
D) external economies

Accepted Answer

New York City's comparative advantage in the financial market is due to external economies, which are benefits that firms receive from being located in close proximity to other firms in the same industry. This creates a cluster of expertise, talent, and resources, which allows for greater efficiency, productivity, and innovation in the financial sector. Additionally, the concentration of financial institutions in New York City makes it easier for firms to interact with each other and for investors to access the market.

Question 10

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 each additional unit produced increases. This can make production less profitable and may cause producers to reduce output. In the case of digital music players in Japan, increasing marginal costs would likely lead to a decrease in specialization and production of these devices. Japan may still continue to export digital music players, but perhaps to a lesser extent than before. However, it is unlikely that Japan would import digital music players as this would not make economic sense given their previous comparative advantage in producing them. Trade restrictions are also unlikely as they would harm Japan's overall economic well-being by limiting trade and potentially leading to retaliatory trade measures by other countries.

Question 11

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

The relative strength of a country's foreign currency exchange rate is not a source of comparative advantage. It can affect a country's competitiveness in international trade, but it is not a factor that determines a country's comparative advantage. The other options, such as relative abundance of labor and capital, technology, and climate and natural resources, can all contribute to a country's comparative advantage in certain industries or sectors.

Question 12

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

Accepted Answer

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

Question 13

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 products such as beer differ, which means that different countries may each have a comparative advantage in producing different types of beer. This is why we see a variety of beers being produced and exported from different countries, each catering to different tastes and preferences.

Question 14

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 15

________ 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 reductions in a firm's costs that result from an increase in the size of an industry, such as access to specialized labor, suppliers, or infrastructure. Internal economies, on the other hand, refer to cost savings that result from within the firm itself, such as economies of scale or scope. Autarkial dominance is not a relevant term in this context, and streamlining refers to the process of improving a firm's efficiency by reducing unnecessary steps or operations.

Question 16

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 17

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 18

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 some individuals may lose their jobs as a result of international trade, the statement refers to countries as a whole. In the long run, a country that participates in international trade typically benefits from increased efficiency and lower prices. However, it is important to acknowledge that not all individuals within a country may benefit equally and that there may be short-term disruptions.

Question 19

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, with a focus on improving production efficiency, product quality, and innovation. This allowed them to produce high-quality consumer electronics goods at lower costs, giving them a comparative advantage over US firms.

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 clothing production is due to its large supply of unskilled workers who are willing to work for lower wages than skilled workers. This allows Chinese manufacturers to produce clothing at a lower cost than other countries with higher labor costs. Additionally, China has invested in infrastructure and policies specifically to support its clothing industry, further strengthening its comparative advantage in the field.

Quiz 7: Comparative Advantage and the Gains From International Trade

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

What is autarky?

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.

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

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

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

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

Wall Street,in the borough of Manhattan in New York City,is the heart of the U.S.financial system,where banks,brokerage houses,other financial firms,and the New York Stock Exchange are all located.What is the reason for New York City's comparative advantage in the financial market?

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

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

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

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.

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

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.

Which of the following statements is true?

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

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?

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