Question 1

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
A) not all goods and services are traded internationally.
B) some countries have more resources than other countries.
C) tastes for many traded goods are different in many countries because of globalization.
D) production of most goods involves increasing opportunity costs.

Accepted Answer

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

Question 2

Which of the following statements is false?
A) Not 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 may not be made better off as a result of international trade, both countries may be made better 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

The statement "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" is false. It is possible for both countries to be better off overall, as stated in Option C.

Question 3

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?
A) Japanese firms excelled in process technology.
B) Japan has abundant supplies of labor.
C) Japanese firms benefited from external economies.
D) Japan has abundant supplies of natural resources needed to produce automobiles.

Accepted Answer

Japanese firms excelled in process technology, which allowed them to produce automobiles more efficiently and at a lower cost than American firms. This gave them a significant competitive advantage in the global automobile market. While Japan's abundant supplies of labor and external economies (such as a strong network of suppliers) may have also played a role in their comparative advantage, process technology was likely the most important factor. Japan does not have abundant supplies of natural resources needed to produce automobiles; they are largely reliant on imports for raw materials.

Question 4

What are terms of trade?

Accepted Answer

The answer of What are terms of trade?...

Question 5

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

Accepted Answer

As a country specializes more in the production of a particular good, the opportunity cost of producing one additional unit of that good increases. This means that resources that were previously used in other industries may need to be redirected to maintain the same level of production, or the country may need to accept a lower level of production in those other industries. Therefore, complete specialization is generally not optimal for a country's overall economic well-being.

Question 6

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

Accepted Answer

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

Question 7

The first example of comparative advantage appeared in a book that was published in 1817.This example showed that mutually beneficial trade between two countries (England and Portugal)was possible.The example assumed that two goods (wine and cloth)could be produced by both countries.Which of the following describes the conclusion of this example?
A) Portugal had a comparative advantage in wine and England had a comparative advantage in cloth.
B) Portugal had a comparative advantage in both wine and cloth, but its advantage in cloth was greater.
C) England had a comparative advantage in both wine and cloth, but its advantage in cloth was greater.
D) England had an absolute advantage in both wine and cloth, but a comparative advantage in wine.

Accepted Answer

The example showed that Portugal had a comparative advantage in producing wine, while England had a comparative advantage in producing cloth. This means that each country could produce these goods at a lower opportunity cost than the other country, and therefore they could mutually benefit from trade.

Question 8

Examples of comparative advantage often begin with two countries that each produce the same two goods.Each country is then shown to have a comparative advantage in producing the good it can produce at a lower opportunity cost,and specializes in the production of the good for which it has a comparative advantage.How do these examples prove that both nations are made better off as a result of trade than they would be without trade?

Accepted Answer

The answer of Examples of comparative advantage often begin with...

Question 9

How does the U.S.federal government assist workers who have lost their jobs due to international trade?

Accepted Answer

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Question 10

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
A) external economies.
B) positive externalities.
C) strategic advantages.
D) technological change.

Accepted Answer

Economists refer to the lower costs that result from increases in the size of an industry in a certain area as external economies. This is because firms in that area benefit from shared resources, a larger pool of skilled workers, and the development of specialized suppliers and support services. These external economies provide a cost advantage to firms located in the area, making it more attractive for new firms to enter and further growing the industry.

Question 11

Automobiles and many other products are differentiated.As a result
A) different countries may each have a comparative advantage in producing different types of automobiles.
B) consumers of automobiles have difficulty deciding what type of imported automobile to buy.
C) the quality of imported automobiles is less than it could be.
D) we see countries specializing completely in the production of automobiles.

Accepted Answer

Differentiation in automobiles and other products allows for countries to specialize in producing certain types of automobiles. This gives rise to comparative advantage, where a country can produce a particular type of automobile more efficiently than another country. This promotes international trade and can lead to lower prices for consumers.

Question 12

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

Accepted Answer

Natural resources such as minerals, forests, and waterways can provide a country with a comparative advantage in certain industries. For example, countries with access to vast oil reserves have a comparative advantage in the production of oil and petroleum products. However, natural resources are not the only source of comparative advantage and other factors such as skilled labor, technological advancements, and government policies can also play a significant role.

Question 13

All of the following are sources of comparative advantage except
A) climate and natural resources.
B) relative abundance of labor and capital.
C) a strong foreign currency exchange rate.
D) technology.

Accepted Answer

A strong foreign currency exchange rate is not a source of comparative advantage. Instead, comparative advantage refers to a country's ability to produce a certain good or service at a lower opportunity cost than other countries, based on factors such as climate, natural resources, labor and capital availability, and technology. A strong currency exchange rate may give a country an advantage in terms of purchasing power, but it is not related to the production of goods and services.

Question 14

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

Accepted Answer

China has a large supply of unskilled workers who can be employed at a lower cost than skilled workers. This, paired with relatively little capital investment, allows them to produce toys at a lower cost than other countries, giving them a comparative advantage in the production of children's toys.

Question 15

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
A) in the real world, rich countries can take advantage of poor countries.
B) they do not account for the reduction in wages that occurs in both countries as a result of trade.
C) some individuals in both countries may be made worse off because of trade.
D) trade restrictions are likely to be imposed as trade grows over time.

Accepted Answer

In reality, trade can have winners and losers, and some individuals in both countries may be worse off because of trade. The textbook examples tend to oversimplify the benefits of trade and do not account for the distributional effects of trade on different groups within each country.

Question 16

Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions,trade makes both countries better off because in each country
A) total employment is greater.
B) total consumption of goods is greater.
C) wages are higher.
D) total welfare is greater.

Accepted Answer

The answer of Examples of comparative advantage show how trade...

Question 17

Free trade refers to trade between countries
A) that is without shipping costs.
B) that is licensed by both governments.
C) that is without restrictions.
D) of products which are free to low-income consumers.

Accepted Answer

Free trade refers to trade between countries without restrictions. It means there are no tariffs, quotas or other barriers to import and export goods and services.

Question 18

Suppose in Vietnam a worker can produce either 16 units of cloth or 2 bicycles while in China a worker can produce either 20 units of cloth or 5 bicycles.
a.Which country has an absolute advantage in cloth production? In bicycle production?
b.What is the opportunity cost of 1 unit of cloth in Vietnam? In China?
c.What is the opportunity cost of 1 bicycle in Vietnam? In China?
d.Which country has a comparative advantage in cloth production? In bicycle production?
e.Suppose each country has 1,000 workers.Currently,each country devotes 40 percent of its labor force to cloth production and 60 percent to bicycle production.What is the output of cloth and bicycles for each country and what is the total output of cloth and bicycles 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 cloth and bicycles in the two countries?
g.Provide a numerical example to show how Vietnam and China can both gain from trade.Assume that the terms of trade are established at 6 units of cloth for 1 bicycle.

Accepted Answer

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Question 19

Costa Rica is a leading exporter of bananas.What explains the comparative advantage of this country in banana production?
A) climate and soil conditions in Costa Rica which are well-suited for banana production
B) investment by multinational firms such as Chiquita Brands International and the Dole Food Company
C) a large supply of unskilled labor
D) positive externalities

Accepted Answer

Costa Rica's tropical and humid climate, as well as its fertile soil, are favorable for banana production, providing a comparative advantage over other countries that may not have such suitable agricultural conditions.

Question 20

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
A) a favorable climate.
B) technology.
C) abundant supplies of natural resources.
D) a strong central government.

Accepted Answer

The source of comparative advantage in digital computers, airliners, and many prescription drugs is technology. The United States has highly advanced technological capabilities and skilled workers, which allows them to produce these goods more efficiently and effectively than other countries.

Quiz 7: Comparative Advantage and the Gains From International Trade

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

Which of the following statements is false?

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?

What are terms of trade?

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

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

How does the U.S.federal government assist workers who have lost their jobs due to international trade?

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

Automobiles and many other products are differentiated.As a result

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

All of the following are sources of comparative advantage except

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

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

Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions,trade makes both countries better off because in each country

Free trade refers to trade between countries

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

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