Question 1

Pakistan has developed a comparative advantage in the production of clothing.The source of its comparative advantage in these products is

Accepted Answer

Pakistan's comparative advantage in clothing production is due to its large supply of unskilled workers, who are able to produce garments at lower costs than in many other countries. While a favorable climate and abundant supplies of natural resources may contribute to some industries in Pakistan, they are not the source of its comparative advantage in clothing production. Technology may also play a role, but it is unlikely to be the primary source given Pakistan's relatively low level of technological development compared to other countries with strong clothing industries.

Question 2

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

Accepted Answer

Natural resources, such as oil, minerals and agricultural land, can provide a comparative advantage to a country in terms of production and trade. However, there are also other sources of comparative advantage such as technology, skilled labor, and infrastructure.

Question 3

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

Accepted Answer

When a country specializes in the production of one good, it must divert resources away from the production of other goods. As a result, the opportunity cost of producing additional units of the specialized good increases. This means that the country loses out on the potential benefits of producing these other goods, which may have a lower opportunity cost. Therefore, countries usually do not specialize completely in production.

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

China's comparative advantage in the production of children's toys is due to the country having a large supply of unskilled workers and relatively little capital, which allows for the production of toys at a lower cost compared to other countries. This is evident in the high percentage of toys that are imported from China to other countries. Additionally, China has invested heavily in the development of toy manufacturing, which has further increased its competitive edge in this industry. However, it is not due to superior process technology, natural resources or significant capital investments.

Question 6

Which of the following statements is false?

Accepted Answer

Option A is true because not all individuals within a country will benefit from international trade.

Option B is false because if some individuals in both countries are made better off as a result of international trade, it is possible for both countries to be better off overall. Trade can lead to increased productivity and efficiency, which can benefit both countries.

Option C is true. As mentioned in option B, trade can lead to increased productivity and efficiency, which can benefit both countries. Even if some individuals are not made better off, the overall welfare of both countries can improve due to trade.

Option D is also true, but it does not match the false statement as asked in the question. Trade can benefit a country as a whole, but specific individuals or groups within the country may not benefit, leading to inequality.

Question 7

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

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 when an industry grows in a particular area, there are certain benefits that accrue to firms that locate within that area but are not available to firms located elsewhere, such as shared infrastructure, availability of skilled labor, and lower transportation costs. These benefits lead to lower costs of production for firms, which can increase their competitiveness and profitability.

Question 8

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

Accepted Answer

Costa Rica's climate and soil conditions provide ideal growing conditions for bananas, including abundant rainfall and rich volcanic soil.

Question 9

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

Accepted Answer

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

Question 10

Table 7-6
Production and
Consumption Production
Without Trade With Trade
  Estonia and Morocco can produce both swords and belts.Table 7-6 shows the production and consumption quantities without trade,and the production numbers with trade.
-Refer to Table 7-6.If the actual terms of trade are 1 belt for 1.5 swords and 70 belts are traded,how many swords will Estonia gain compared to the "without trade" numbers?

Accepted Answer

The answer of Table 7-6
Production and
Consumption Production
Without Trade With Trade
...

Question 11

Table 7-6
Production and
Consumption Production
Without Trade With Trade
  Estonia and Morocco can produce both swords and belts.Table 7-6 shows the production and consumption quantities without trade,and the production numbers with trade.
-Refer to Table 7-6.If the actual terms of trade are 1 belt for 1.5 swords and 70 belts are traded,how many swords will Morocco gain compared to the "without trade" numbers?

Accepted Answer

Morocco will gain 45 swords compared to the "without trade" numbers. This is because Morocco can produce 70 belts with the same resources that it takes to produce 35 swords. However, by trading 70 belts for 105 swords, Morocco can acquire more swords than it could have produced on its own.

Question 12

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

Accepted Answer

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

Question 13

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?

Accepted Answer

Japanese firms excelled in process technology, particularly in the areas of just-in-time inventory management and total quality control. This allowed them to produce high-quality cars efficiently and at lower costs compared to US automakers. The other options - abundant labor, external economies, and natural resources - may have played a role, but were not the primary factor driving Japan's comparative advantage in automobiles.

Question 14

Automobiles and many other products are differentiated.As a result

Accepted Answer

Differentiation of automobiles and other products means that each country may have a comparative advantage in producing a specific type of automobile. This results in specialization and trade between countries, as each country focuses on producing the product they have a competitive advantage in. Therefore, A is the best choice. B and C are not correct, as differentiation does not necessarily make it difficult for consumers to decide on imported products, nor does it imply lower quality. D is also not correct, as countries specialize in the production of specific types of automobiles rather than completely specializing in automobile production.

Question 15

All of the following are sources of comparative advantage except

Accepted Answer

A strong foreign currency exchange rate is not a source of comparative advantage. Comparative advantage refers to the ability of a country to produce a particular good or service at a lower opportunity cost than another country, which is typically determined by factors such as climate and natural resources, relative abundance of labor and capital, and technology. A strong foreign currency exchange rate could potentially make a country's exports more expensive and less competitive on the global market, which would not be a source of comparative advantage.

Question 16

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?

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 both countries can benefit from trading with each other, with Portugal exporting wine and importing cloth from England, and vice versa.

Question 17

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

Accepted Answer

While textbook examples of trade between two nations show mutual benefits, in reality, some individuals in both countries may be made worse off due to trade. This is because trade can lead to job losses in some industries or regions, and some individuals may face downward pressure on wages. Therefore, textbook examples are often oversimplified and do not fully represent all the possible outcomes of trade between two nations.

Question 18

Autarky is a situation where one country does not trade with other countries.

Accepted Answer

This is the definition of autarky; when a country does not engage in international trade.

Question 19

Table 7-6
Production and
Consumption Production
Without Trade With Trade
  Estonia and Morocco can produce both swords and belts.Table 7-6 shows the production and consumption quantities without trade,and the production numbers with trade.
-Refer to Table 7-6.If the actual terms of trade are 1 belt for 1.5 swords and 70 belts are traded,how many belts will Morocco gain compared to the "without trade" numbers?

Accepted Answer

Morocco gains 10 belts compared to the "without trade" numbers because the terms of trade allow them to trade 70 belts for 105 swords (70 x 1.5), and if they were producing swords themselves, they would have fewer belts available.

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

Accepted Answer

The source of comparative advantage in digital computers, airliners, and prescription drugs is technology. The US has invested heavily in research and development, resulting in advanced technologies that enable the production of high-quality and innovative products. This, in turn, lowers production costs and allows US firms to produce and export these products more efficiently than other countries.

Quiz 7: Comparative Advantage and the Gains From International Trade