Question 1

Assume that Finland and Latvia produce only two goods.If Finland has an absolute advantage in the production of these two goods compared to Latvia,Finland can still benefit from trade with Latvia.

Accepted Answer

Even though Finland has an absolute advantage in producing both goods, it can still benefit from trade with Latvia through specialization and comparative advantage. For example, Finland may be more efficient in producing one of the goods, but Latvia may have a lower opportunity cost of producing the other good. By trading, both countries can benefit from producing and consuming the goods they have a comparative advantage in.

Question 2

What does it mean for a country to have a comparative advantage in producing a product?

Accepted Answer

The answer of What does it mean for a country...

Question 3

Table 7-5
  Table 7-5 shows the output per week for pens and pencils by Tran and Farah.
-Refer to Table 7-5.Fill in the following table with the opportunity costs of producing bows and arrows for Tran and Farah.

Accepted Answer

The answer of Table 7-5
  Table 7-5 shows the...

Question 4

The ability of a firm or country to produce a good or service at a lower opportunity cost than other producers is called comparative advantage.

Accepted Answer

This is the definition of comparative advantage.

Question 5

Autarky is a situation in which a country

Accepted Answer

Autarky refers to a situation in which a country does not trade with other countries. Therefore, option C is the correct choice. Option A is incorrect because exporting products involves trading with other countries. Option B is incorrect because importing products involves trading with other countries. Option D is incorrect because having no absolute advantage in any production does not necessarily mean the country is not trading with other countries.

Question 6

If Brazil has a comparative advantage relative to Cuba in the production of sugar cane,then

Accepted Answer

Comparative advantage means that a country can produce a good at a lower opportunity cost than another country. So, if Brazil has a comparative advantage in sugar cane production, it means that the opportunity cost of producing sugar cane in Brazil is lower than in Cuba. Therefore, choice C is correct. The other choices are incorrect because they focus on the cost of production rather than the opportunity cost.

Question 7

Assume that Honduras has a comparative advantage in producing bananas and exports bananas to Brazil.We can conclude that

Accepted Answer

Comparative advantage is determined by the opportunity cost of producing a good. If Honduras specializes in producing bananas and exports them to Brazil, it must have a lower opportunity cost of producing bananas relative to Brazil. This means that Honduras must either use fewer resources or be more efficient in producing bananas than Brazil. It does not necessarily mean that Honduras has an absolute advantage in producing bananas or that labor costs are higher in Brazil.

Question 8

If a country has a comparative advantage in producing a product,it must also have an absolute advantage in producing that product.

Accepted Answer

This statement is false. Comparative advantage means that a country can produce a product at a lower opportunity cost than another country. This does not necessarily mean that the country has an absolute advantage (i.e. can produce the product with fewer resources). It simply means that the country can produce the product relatively more efficiently compared to other goods they could produce, which may still be less efficient than another country's production of the same product.

Question 9

Whenever a buyer and a seller agree to trade,both must believe they will be made better off

Accepted Answer

This statement is generally true for any trade between a buyer and a seller, regardless of their location or the type of economy in which they operate. The idea behind trade is that both parties are able to exchange something they value less for something they value more, resulting in a mutual benefit. However, in certain cases such as international trade, there may be factors such as tariffs or exchange rates that can make one party worse off.

Question 10

If the ________ cost of production for two goods is different between two countries then mutually beneficial trade is possible.

Accepted Answer

If the opportunity cost of production for two goods is different between two countries, then each country can specialize in producing the good that has a lower opportunity cost for them and trade with the other country for the good that has a higher opportunity cost for them. This creates gains from trade for both countries. Marginal cost refers to the cost of producing one additional unit and is not relevant for determining whether trade is mutually beneficial. Explicit and implicit costs are not relevant for determining whether trade is mutually beneficial.

Question 11

Table 7-4
Output Per Hour of Work
  Table 7-4 shows the output per hour of work for light bulbs and flash drives in Mexico and in Canada.
-Refer to Table 7-4.
a.Which country has an absolute advantage in the production of both light bulbs and flash drives?
b.Which country has a comparative advantage in the production of light bulbs?
c.Which country has a comparative advantage in the production of flash drives?

Accepted Answer

The answer of Table 7-4
Output Per Hour of Work
 ...

Question 12

Assume that Australia has a comparative advantage in producing surfboards and New Zealand imports surfboards from Australia.We can conclude that

Accepted Answer

We cannot conclude that Australia has an absolute advantage in producing surfboards relative to New Zealand because the information provided only mentions a comparative advantage. However, we can conclude that Australia has a lower opportunity cost of producing surfboards relative to New Zealand because New Zealand chooses to import surfboards from Australia instead of producing them domestically. Option C is incorrect because the concept of absolute disadvantage is not commonly used in economics. Option D is not necessarily true or supported by the information given.

Question 13

The terms of trade refers to

Accepted Answer

The terms of trade refer to the ratio at which a country can exchange its exports for imports from other countries. It represents the prices of a country's exports relative to the prices of its imports. If the terms of trade improve, a country can purchase more imports with the same amount of exports, leading to an improvement in its economic welfare.

Question 14

If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden,which of the following would explain this pattern of trade?

Accepted Answer

According to the theory of comparative advantage, countries should specialize in producing goods in which they have a lower opportunity cost and trade with countries that have a comparative advantage in other goods. In this case, Sweden has a lower opportunity cost of producing cell phones than Denmark, while Denmark has a comparative advantage in producing butter. Therefore, it makes economic sense for Sweden to export cell phones to Denmark and for Denmark to export butter to Sweden.

Question 15

Table 7-4
Output Per Hour of Work
  Table 7-4 shows the output per hour of work for light bulbs and flash drives in Mexico and in Canada.
-Refer to Table 7-4.Fill in the following table with the opportunity costs of producing light bulbs and flash drives for Mexico and Canada.

Accepted Answer

The answer of Table 7-4
Output Per Hour of Work
 ...

Question 16

Table 7-5
  Table 7-5 shows the output per week for pens and pencils by Tran and Farah.
-Refer to Table 7-5.
a.Which person has an absolute advantage in the production of pens? pencils?
b.Which person has a comparative advantage in the production of pens?
c.Which person has a comparative advantage in the production of pencils?

Accepted Answer

The answer of Table 7-5
  Table 7-5 shows the...

Question 17

If a country has an absolute advantage in producing a product,it may not have a comparative advantage in producing that product.

Accepted Answer

While having an absolute advantage means a country can produce a product more efficiently than another country, comparative advantage takes into account the opportunity cost of producing a product. A country may have an absolute advantage in producing a product but may have a comparative disadvantage because it would have to give up producing a product it can produce more efficiently in order to produce the product in question.

Question 18

Countries gain from specializing in producing goods in which they have ________ and trading for goods in which other countries have ________.

Accepted Answer

According to the theory of comparative advantage, countries should specialize in producing the goods they can produce at a lower opportunity cost than other countries, i.e. they have a comparative advantage in producing those goods. By doing so, they can trade with other countries and obtain goods they cannot produce efficiently or at all, thereby benefiting both sides. An absolute advantage refers to a country being able to produce a good more efficiently than another country, whereas comparative advantage takes into account the relative opportunity cost of producing one good versus another.

Question 19

Explain whether it is possible for a country to have a comparative advantage in the production of a product without having an absolute advantage in the production of that product.

Accepted Answer

The answer of Explain whether it is possible for a...

Question 20

If Norwegian workers are more productive than Albanian workers,then trade between Norway and Albania

Accepted Answer

Comparative advantage suggests that a country should specialize in producing goods or services it can produce at a lower opportunity cost compared to other countries. In this case, even if Norwegian workers are more productive than Albanian workers, there may be goods or services that Albania is relatively better at producing. As a result, trade can take place if each country has a comparative advantage in producing goods or services that buyers in the other country want.

Quiz 7: Comparative Advantage and the Gains From International Trade