Question 1

What is productivity?

Accepted Answer

The amount of output from a unit of an input

Question 2

A country will gain relatively more from trade when
A)trade is regulated.
B)the world price is close to the country's opportunity cost of the good.
C)the world price is below the country's opportunity cost of the good.
D)the world price is much greater than the country's opportunity cost for the good.

Accepted Answer

A country gains more from trade when the world price is much greater than its opportunity cost because it can produce the good at a lower cost and sell it at a higher price, maximizing its profit and trade benefits.

Question 3

The table above shows United States and United Kingdom production of wheat (bushels per hour)and cloth (yards per hour).
In order for both countries to gain from trade,one bushel of wheat must trade for
A)between 6 and 18 yards of cloth.
B)between 1/2 and 2 yards of cloth.
C)between 1/3 and 3 yards of cloth.
D)between 1/2 and 1/3 yards of cloth.

Accepted Answer

D

Question 4

Which economist introduced the simple trade model and the concept of trade based on comparative advantage?

Accepted Answer

The answer of Which economist introduced the simple trade model...

Question 5

In the simple trade model,what is assumed about labor?

Accepted Answer

The answer of In the simple trade model,what is assumed...

Question 6

Suppose Mexico can produce 5 autos or 10 corn.Suppose the United States can produce 4 autos or 20 corn.If opportunity costs are constant for both countries,which of the following would NOT be a potential terms of trade?
A)1 auto for 3 corn
B)1 auto for 4 corn
C)1 corn for 1/3 of an auto
D)1 corn for 1 auto

Accepted Answer

Mexico has a comparative advantage in producing corn, as its opportunity cost of producing 1 corn is 1/2 auto, while for the US, the opportunity cost of producing 1 corn is 1/5 auto. Meanwhile, the US has a comparative advantage in producing autos, since its opportunity cost of producing 1 auto is 5 corn, while for Mexico, the opportunity cost of producing 1 auto is 2 corn. 
In order for a trade to benefit both countries and be mutually advantageous, the exchange rate must fall between the opportunity cost ratios for the two countries. 
Based on these opportunity cost ratios, potential terms of trade would fall between 1 auto for 2 corn (Mexico's opportunity cost ratio) and 1 auto for 5 corn (US's opportunity cost ratio). 
Therefore, options A, B, and C are all possible terms of trade. Option D, 1 corn for 1 auto, is not possible as it does not fall within the range of mutually advantageous exchange rates between the two countries.

Question 7

Which of the following is true?
A)Adam Smith proposed the theory of comparative advantage as the basis for trade in The Wealth of Nations.
B)David Ricardo proposed the theory of absolute advantage as the basis for trade.
C)Absolute advantage is based on comparing the opportunity costs of trading partners.
D)The Ricardian model assumes labor is perfectly mobile.

Accepted Answer

The Ricardian model assumes labor is perfectly mobile within a country but immobile internationally.

Question 8

Based on Table 3.1,trade between the United States and Mexico will occur as long as the relative price of shoes is between
A)three computers and one computer.
B)three computers and two computers.
C)one-half computer and one-third computer.
D)six computers and three computers.

Accepted Answer

According to Table 3.1, the relative price of shoes in the United States is 2 computers, and the relative price of shoes in Mexico is 3 computers. Therefore, trade between the two countries will occur as long as the relative price of shoes is between 1/2 computer (which is half of the U.S. price) and 1/3 computer (which is 1/3 of the Mexican price). Choice C is the only option that falls within this range.

Question 9

Why did Adam Smith criticize the trade barriers imposed by the mercantilists?

Accepted Answer

The answer of Why did Adam Smith criticize the trade...

Question 10

Based on Table 3.1,the pre-trade relative price of a computer in Mexico is
A)three pairs of shoes.
B)one pair of shoes.
C)one-half pair of shoes.
D)one-third pair of shoes.

Accepted Answer

The pre-trade relative price of a computer in Mexico is three pairs of shoes because in Mexico, a computer can be traded for three pairs of shoes, while in the United States, a computer can be traded for one pair of shoes.

Question 11

Based on Table 3.1,if the world price of computers is four pairs of shoes,then the optimal strategy for each country would be
A)to specialize in shoes.
B)to specialize in computers.
C)for Mexico to specialize in shoes, and the United States in computers.
D)for the United States to specialize in shoes, and Mexico in computers.

Accepted Answer

According to Table 3.1, the opportunity cost of producing one pair of shoes in the United States is 1/3 computers, while in Mexico, it is 1/2 computers. If the world price of computers is four pairs of shoes, then Mexico would be able to trade one computer for two pairs of shoes (1/2 of 4), and the United States would be able to trade one computer for three pairs of shoes (1/3 of 4). Therefore, both countries would be better off specializing in producing and trading the good in which they have a comparative advantage, which in this case is computers for the United States and shoes for Mexico. Thus, the optimal strategy for each country would be to specialize in their respective comparative advantage and trade with each other.

Question 12

The table above shows United States and United Kingdom production of wheat (bushels per hour)and cloth (yards per hour).
According to Adam Smith,which of the following is true?
A)The United States has an absolute advantage in the production of wheat.
B)The United States has an absolute advantage in the production of cloth.
C)There is no basis for trade between these countries.
D)The United States will gain more from trade than the United Kingdom.

Accepted Answer

The answer of 
The table above shows United States and...

Question 13

Adam Smith created the theory of comparative advantage.

Accepted Answer

The theory of comparative advantage was developed by David Ricardo, not Adam Smith. Adam Smith is best known for his theory of the division of labor and the concept of the "invisible hand."

Question 14

Based on Table 3.1,which country or countries has an absolute advantage and a comparative advantage in shoes?
A)Mexico has an absolute and comparative advantage in shoes.
B)The United States has an absolute and comparative advantage in shoes.
C)The United States has a comparative advantage, and Mexico has an absolute advantage in shoes.
D)Mexico has a comparative advantage, and the United States has an absolute advantage in shoes.

Accepted Answer

According to Table 3.1, Mexico has a lower opportunity cost (2 gallons of milk) to produce a pair of shoes compared to the United States (3 gallons of milk). Therefore, Mexico has a comparative advantage in shoe production. On the other hand, the United States has a higher productivity in shoe production (15 pairs of shoes vs. 10 pairs of shoes), indicating an absolute advantage in shoe production. Hence, D is the best choice.

Question 15

Mercantilists perceived trade as a zero sum game.

Accepted Answer

Mercantilists believed that the gain of one country in trade led to the loss of another country, which implies a zero sum game.

Question 16

The economic philosophy that favors strict limits on imports and strong support for exports is called
A)zero sum.
B)mercantilism.
C)comparative advantage.
D)absolute advantage.

Accepted Answer

Mercantilism is an economic philosophy that prioritizes exporting more than importing in order to accumulate wealth and power. It often involves strict government regulation and intervention in trade to ensure a favorable balance of trade.

Question 17

What type of policies did Adam Smith attack in his book,An Inquiry into the Nature and Causes of the Wealth of Nations?

Accepted Answer

The answer of What type of policies did Adam Smith...

Question 18

Table 3.1
Output per Hour Worked
 
-Based on Table 3.1,the opportunity cost of a pair of shoes in the United States is
A)three computers.
B)two computers.
C)one computer.
D)one-half computer.

Accepted Answer

The answer of Table 3.1
Output per Hour Worked
 
-Based on...

Question 19

What did Adam Smith perceive was primarily responsible for improving standard of living?

Accepted Answer

The answer of What did Adam Smith perceive was primarily...

Question 20

Suppose Mexico can produce 5 autos or 10 corn.Suppose the United States can produce 4 autos or 20 corn.If opportunity costs are constant for both countries,then
A)the United States has a comparative advantage in corn production.
B)Mexico has a comparative advantage in corn production.
C)the United States cannot gain from trade with Mexico.
D)the United States has a comparative advantage in auto production.

Accepted Answer

The United States has a comparative advantage in corn production because it can produce corn at a lower opportunity cost compared to autos (1 auto = 5 corn in the US, while 1 auto = 2 corn in Mexico).

Quiz 3: Comparative Advantage and the Gains From Trade

What is productivity?

A country will gain relatively more from trade when

The table above shows United States and United Kingdom production of wheat (bushels per hour) and cloth (yards per hour) . In order for both countries to gain from trade,one bushel of wheat must trade for

Which economist introduced the simple trade model and the concept of trade based on comparative advantage?

In the simple trade model,what is assumed about labor?

Suppose Mexico can produce 5 autos or 10 corn.Suppose the United States can produce 4 autos or 20 corn.If opportunity costs are constant for both countries,which of the following would NOT be a potential terms of trade?

Which of the following is true?

Based on Table 3.1,trade between the United States and Mexico will occur as long as the relative price of shoes is between

Why did Adam Smith criticize the trade barriers imposed by the mercantilists?

Based on Table 3.1,the pre-trade relative price of a computer in Mexico is

Based on Table 3.1,if the world price of computers is four pairs of shoes,then the optimal strategy for each country would be

The table above shows United States and United Kingdom production of wheat (bushels per hour) and cloth (yards per hour) . According to Adam Smith,which of the following is true?

Adam Smith created the theory of comparative advantage.

Based on Table 3.1,which country or countries has an absolute advantage and a comparative advantage in shoes?

Mercantilists perceived trade as a zero sum game.

The economic philosophy that favors strict limits on imports and strong support for exports is called

What type of policies did Adam Smith attack in his book,An Inquiry into the Nature and Causes of the Wealth of Nations?

Table 3.1 Output per Hour Worked -Based on Table 3.1,the opportunity cost of a pair of shoes in the United States is

What did Adam Smith perceive was primarily responsible for improving standard of living?

Suppose Mexico can produce 5 autos or 10 corn.Suppose the United States can produce 4 autos or 20 corn.If opportunity costs are constant for both countries,then