Question 1

-What can be said regarding absolute advantage in production for the two countries shown in Figure 16-1?
A) Colombia has an absolute advantage in producing both calculators and radios.
B) Korea has an absolute advantage only in producing calculators.
C) Korea has an absolute advantage in producing both radios and calculators.
D) Neither country has an absolute advantage in producing radios.
E) Colombia has an absolute advantage only in producing calculators.

Accepted Answer

E

Question 2

Suppose that a nation has an absolute advantage in the production of all goods.In this instance,it
A) has no incentive to engage in international trade
B) is producing at a point on its production possibilities frontier
C) has no unemployment
D) also has a comparative advantage in the production of those goods
E) should specialize in producing the goods for which it has a lower opportunity cost than other countries

Accepted Answer

Having an absolute advantage in the production of all goods does not necessarily mean a country has a comparative advantage in all those goods. The principle of comparative advantage suggests that countries should specialize in producing goods for which they have the lowest opportunity cost relative to other countries, thereby benefiting from trade even if they have an absolute advantage in all goods.

Question 3

If Panama has a high opportunity cost of producing salmon steaks,then it should export salmon steaks.

Accepted Answer

High opportunity cost means it is less efficient at producing that good compared to other goods or compared to other countries, so it should import salmon steaks, not export them.

Question 4

For each watch Switzerland produces,it gives up the opportunity to produce 50 pounds of cheese.Germany can produce one watch at a cost of 100 pounds of cheese.Which of the following is true?
A) The opportunity cost of producing watches is greater in Switzerland.
B) The opportunity cost of producing cheese is greater in Switzerland.
C) The opportunity cost of producing cheese is the same in both countries.
D) It is impossible to compare costs because the two countries use different technologies.
E) In the two countries combined,the cost of producing one watch is 150 pounds of cheese.

Accepted Answer

Switzerland has an opportunity cost of 50 pounds of cheese for each watch produced, while Germany has an opportunity cost of 100 pounds of cheese for each watch produced. This means that Switzerland gives up less cheese to produce watches than Germany does, indicating that the opportunity cost of producing cheese is greater in Switzerland.

Question 5

In general,a society will benefit more,the more interdependent it is.

Accepted Answer

Interdependence refers to the extent to which members of a society are mutually dependent on each other. A society with high interdependence will have individuals and groups that rely on each other for various resources and support, leading to increased cooperation and social cohesion. This, in turn, can result in a variety of benefits, including economic growth, improved well-being, and greater resilience to challenges and changes. Therefore, a society that is more interdependent is likely to benefit more.

Question 6

In general,a society will benefit more,the more self-sufficient it is.

Accepted Answer

It is not necessarily true that a society will benefit more by being self-sufficient. Interdependence and trade with other societies can bring benefits such as access to resources, ideas, and markets, leading to innovation and growth. A completely self-sufficient society may struggle to meet all of its needs and limit its potential for economic and social development.

Question 7

If Armenia can produce rugs more efficiently than any other country,it does not necessarily benefit from producing rugs for international trade.

Accepted Answer

The answer of If Armenia can produce rugs more efficiently...

Question 8

A nation has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good than other countries have.

Accepted Answer

This is the definition of comparative advantage according to the theory of international trade.

Question 9

-What can be said regarding comparative advantage in production for the two countries shown in Figure 16-1?
A) Colombia has a comparative advantage in producing both calculators and radios.
B) Korea has a comparative advantage in producing radios and Colombia has a comparative advantage in producing calculators.
C) Korea has a comparative advantage in producing both radios and calculators.
D) Neither country has a comparative advantage in producing radios.
E) Colombia has a comparative advantage only in producing radios.

Accepted Answer

Comparative advantage occurs when a country can produce a good at a lower opportunity cost than another country. Without seeing Figure 16-1, the correct answer is based on the principle that if one country is stated to have a comparative advantage in one product and the other country in another product, it implies that each country can produce their respective goods more efficiently compared to the other. This aligns with the concept of comparative advantage, suggesting that Korea is more efficient in producing radios while Colombia is more efficient in producing calculators.

Question 10

Assume the North Island of New Zealand can produce 2,000 fishing poles or 20 kayaks per day and the South Island can produce 1,000 fishing poles or 5 kayaks per day.The South Island has a comparative advantage in producing kayaks.

Accepted Answer

The North Island has a comparative advantage in producing kayaks because it has to give up fewer fishing poles to produce one kayak compared to the South Island (100 fishing poles per kayak for the North Island vs. 200 fishing poles per kayak for the South Island).

Question 11

International trade occurs whenever
A) two nations have achieved internal economic efficiency
B) one of the trading nations is self-sufficient
C) one nation can profit from trade at the expense of another
D) two nations can benefit from trading with each other
E) labor is cheaper in one country than in another

Accepted Answer

International trade occurs when two nations can benefit from trading with each other. This can be because they have different resources, technologies, or preferences that make trade mutually beneficial. It does not necessarily involve one nation profiting at the expense of another, nor does it depend on internal economic efficiency or self-sufficiency. Labor cost differences may be a factor in determining which goods are traded, but it is not the defining feature of international trade.

Question 12

Mutually beneficial international trade between two countries depends on
A) each country having an absolute advantage in the production of a different good
B) one country being worse (requiring more resources)than the other in the production of every good
C) at least one country having a zero opportunity cost in the production of at least one good
D) one country being relatively better at producing a good (which makes the other country relatively worse at it)
E) one country being relatively better at producing all goods

Accepted Answer

Mutually beneficial international trade between two countries often depends on the principle of comparative advantage, which is described in option D. This principle states that even if one country is less efficient in producing all goods compared to another country, there can still be benefits from trade if each country specializes in producing the goods for which it has a relative efficiency or lower opportunity cost.

Question 13

Assume that India has a comparative advantage in producing a computer game.The United States has an absolute advantage in producing the same game.Mutually advantageous trade will have India producing and exporting the game while the United States will specialize in producing something else.

Accepted Answer

This scenario describes the principle of comparative advantage, where each country specializes in producing the goods or services for which they have a lower opportunity cost. Even if one country has an absolute advantage in producing all goods, it can still benefit from trade if it specializes in producing the goods for which it has a comparative advantage. Therefore, it is mutually advantageous for India to produce and export the computer game while the United States specializes in producing something else.

Question 14

Which of the following must be true in order to engage in advantageous international trade?
A) It must be producing at a point on its production possibilities frontier.
B) It must be economically efficient.
C) It must have a comparative advantage in producing one of the goods being traded.
D) There must be no potential Pareto improvements available in the economy.
E) It must have an absolute advantage in producing one good being traded.

Accepted Answer

In order to engage in advantageous international trade, a country must have a comparative advantage in producing one of the goods being traded. This means that it can produce that good at a lower opportunity cost compared to other countries. This allows the country to specialize in producing the good it has a comparative advantage in and then trade for other goods it needs, increasing overall efficiency and welfare. The other options listed (producing at a point on its production possibilities frontier, being economically efficient, having no potential Pareto improvements available, having an absolute advantage in producing one good being traded) may be desirable for a country, but are not necessarily required for advantageous international trade.

Question 15

Which of the following statements is true?
A) Exports tend to decrease economic efficiency.
B) A nation should specialize in producing a good in which it has an absolute advantage.
C) A nation should specialize in producing a good only when it has both an absolute and a comparative advantage.
D) A nation should specialize in producing a good in which it has a comparative advantage.
E) International trade does not reflect the benefits of specialization.

Accepted Answer

According to the principle of comparative advantage, a nation should specialize in producing a good in which it has a lower opportunity cost (comparative advantage) and trade with other nations to maximize overall efficiency and welfare. Having an absolute advantage alone does not necessarily mean a nation should specialize in producing a good, as it may have a higher opportunity cost compared to other goods it could produce. Therefore, choice D is the correct statement.

Question 16

If Japan can produce each unit of steel using fewer resources than Canada uses,
A) Canada has an absolute advantage in steel production
B) Japan has a comparative advantage in steel production
C) Canada has a comparative advantage in steel production
D) Canada may have an absolute advantage in producing steel
E) Japan has an absolute advantage in steel production

Accepted Answer

Japan's ability to produce steel using fewer resources directly indicates that Japan has an absolute advantage in steel production. Absolute advantage refers to the ability of a country to produce a good using fewer resources than another country.

Question 17

Assume that Spain can produce a commodity using fewer resources than any other country.Spain will export this commodity even if other countries have a lower opportunity cost of producing it.

Accepted Answer

Spain having the absolute advantage in producing a commodity does not guarantee exports if other countries have a lower opportunity cost, as comparative advantage, not absolute advantage, determines trade patterns.

Question 18

If goods are produced abroad but consumed domestically,
A) those goods are termed imports
B) international trade has not occurred
C) the domestic economy is economically inefficient
D) there are no gains from specialization
E) those goods are termed exports

Accepted Answer

Goods that are produced abroad but consumed domestically are termed as imports.

Question 19

If all we know is that the opportunity cost of a car equals 100 refrigerators in France,and 200 refrigerators in Italy,we can conclude
A) nothing about which nation has the absolute advantage in refrigerator production
B) that France has a comparative advantage in refrigerator production
C) that mutually beneficial international trade might involve the market exchange of 1 car for 80 refrigerators (whereby France would gain more than Italy)
D) that mutually beneficial international trade might involve the market exchange of 1 car for 300 refrigerators (whereby Italy would gain more than France)
E) that France has the absolute advantage in car production

Accepted Answer

The answer of If all we know is that the...

Question 20

Since World War II,there has been a worldwide movement away from free trade policies.

Accepted Answer

Since World War II, there has been a significant increase in global trade and the promotion of free trade policies through international organizations like the World Trade Organization. Some countries have implemented protectionist measures, but overall, the trend has been towards greater trade liberalization.

Quiz 16: Comparative Advantage and the Gains From International Trade

-What can be said regarding absolute advantage in production for the two countries shown in Figure 16-1?

Suppose that a nation has an absolute advantage in the production of all goods.In this instance,it

If Panama has a high opportunity cost of producing salmon steaks,then it should export salmon steaks.

For each watch Switzerland produces,it gives up the opportunity to produce 50 pounds of cheese.Germany can produce one watch at a cost of 100 pounds of cheese.Which of the following is true?

In general,a society will benefit more,the more interdependent it is.

In general,a society will benefit more,the more self-sufficient it is.

If Armenia can produce rugs more efficiently than any other country,it does not necessarily benefit from producing rugs for international trade.

A nation has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good than other countries have.

-What can be said regarding comparative advantage in production for the two countries shown in Figure 16-1?

Assume the North Island of New Zealand can produce 2,000 fishing poles or 20 kayaks per day and the South Island can produce 1,000 fishing poles or 5 kayaks per day.The South Island has a comparative advantage in producing kayaks.

International trade occurs whenever

Mutually beneficial international trade between two countries depends on

Assume that India has a comparative advantage in producing a computer game.The United States has an absolute advantage in producing the same game.Mutually advantageous trade will have India producing and exporting the game while the United States will specialize in producing something else.

Which of the following must be true in order to engage in advantageous international trade?

Which of the following statements is true?

If Japan can produce each unit of steel using fewer resources than Canada uses,

Assume that Spain can produce a commodity using fewer resources than any other country.Spain will export this commodity even if other countries have a lower opportunity cost of producing it.

If goods are produced abroad but consumed domestically,

If all we know is that the opportunity cost of a car equals 100 refrigerators in France,and 200 refrigerators in Italy,we can conclude

Since World War II,there has been a worldwide movement away from free trade policies.