Question 1

Wall Street, in the borough of Manhattan in New York City, is the heart of the U.S. financial system, where banks, brokerage houses, other financial firms, and the New York Stock Exchange are all located. What is the reason for New York City's comparative advantage in the financial market?
A) the development of superior information technology
B) an abundant supply of skilled labor
C) New York City has one of the largest sea ports in the world.
D) external economies

Accepted Answer

New York City's comparative advantage in the financial market is due to external economies, such as easy access to a large network of other financial firms, the concentration of skilled labor, and a deep pool of capital. These external economies result in cost savings, increased efficiency, and improved information flow, giving firms located in New York City a competitive advantage in the financial sector.

Question 2

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

Accepted Answer

China has a comparative advantage in the production of clothing due to their abundance of unskilled labor and relatively little capital. This allows for lower labor costs and a greater ability to produce clothing at a lower cost compared to other countries. Additionally, China has invested in the development of their textile industry and has become a major player in the global clothing market. However, they do not have a large supply of natural resources and are not known for superior process technology in the clothing industry.

Question 3

Tastes for products such as beer differ. As a result
A) we see countries specializing completely in the production of beer.
B) consumers of beer have difficulty deciding what type of imported beer to buy.
C) the quality of imported beer is less than it could be.
D) different countries may each have a comparative advantage in producing different types of beer.

Accepted Answer

Since tastes for beer differ, different countries may each have a comparative advantage in producing different types of beer. This is why we see a variety of beer types and brands being imported and exported across countries. Countries with a comparative advantage in producing certain types of beer can specialize in that area and supply those products to other countries.

Question 4

Once a country has lost its comparative advantage in producing a good, its income will be ________ and its economy will be ________ if it switches from producing the good to importing it.
A) higher; less efficient
B) higher; more efficient
C) lower; less efficient
D) lower; more efficient

Accepted Answer

The answer of Once a country has lost its comparative...

Question 5

Table 9-11
Production and
Consumption Production
Without Trade With Trade
  Denmark and Belize can produce both clocks and hats. Table 9-11 shows the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 9-11. If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Belize gain compared to the "without trade" numbers?
A) -100
B) 100
C) 120
D) 250

Accepted Answer

The answer of Table 9-11
Production and
Consumption Production
Without Trade With Trade
...

Question 6

In the real world we don't observe countries completely specializing in the production of goods for which they have a comparative advantage. One reasons for this is
A) comparative advantage works better in theory than in practice.
B) some countries have more resources than other countries.
C) tastes for many traded goods are similar in many countries because of globalization.
D) production of most goods involves increasing opportunity costs.

Accepted Answer

Production of most goods involve increasing opportunity costs, which means that as a country specializes in the production of a certain good, the opportunity cost of producing another good increases. This makes it less efficient for a country to completely specialize in the production of a single good, leading to some degree of diversification in production. Additionally, other factors such as transportation costs, tariffs, and non-tariff barriers can also impact a country's ability to fully specialize in the production of a single good.

Question 7

Japan has developed a comparative advantage in designing and producing automobiles. The source of its comparative advantage in these products is
A) abundant supplies of natural resources.
B) a favorable climate.
C) a strong central government.
D) technology.

Accepted Answer

Japan's comparative advantage in designing and producing automobiles comes from its advanced technology. Japan is a leader in innovation, with companies like Toyota and Honda consistently introducing new technologies and features in their vehicles. This has allowed them to produce high-quality and reliable cars at competitive prices, giving them an edge in the global automobile market.

Question 8

In the 1970s and 1980s, the United States lost its comparative advantage in consumer electronics goods to Japan. What factor was most responsible for the development of Japan's comparative advantage in consumer electronics goods?
A) Japanese firms benefited from external economies.
B) Japan has abundant supplies of labor.
C) Japanese firms excelled in process technology.
D) Japan has abundant supplies of natural resources needed to produce electronics goods.

Accepted Answer

Japanese firms excelled in process technology, which allowed them to produce high-quality consumer electronics goods at lower costs compared to their American counterparts. Additionally, Japanese firms benefited from external economies, such as a highly skilled workforce and government support. However, labor and natural resources availability did not play a significant role in Japan's comparative advantage in consumer electronics goods.

Question 9

The "terms of trade" refers to
A) the rules and regulations that countries must adhere to when trading.
B) the ratio at which a country can trade its exports for imports from other countries.
C) the role of the government in overseeing international trade.
D) a legal document that specifies the trade quantities agreed to by two countries.

Accepted Answer

Terms of trade refers to the ratio at which a country can trade its exports for imports from other countries. It is a measure of a country's export prices relative to its import prices. A higher ratio means that a country can purchase more imports for the same amount of exports, while a lower ratio means the opposite.

Question 10

The United States has developed a comparative advantage in film production due to the film industry being long-established in southern California, and lower costs result from the size of the industry in the area. This source of comparative advantage is referred to as
A) the abundance of natural resources.
B) superior process technology.
C) external economies.
D) best practices of unskilled labor.

Accepted Answer

The given scenario describes external economies, which are advantages that arise from the concentration of firms in an industry in a particular geographic area. In this case, the film industry in southern California has a long-established presence and a large number of firms, which results in lower costs for production and hence a comparative advantage for the US in film production.

Question 11

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

Accepted Answer

Increasing marginal costs indicate that it becomes progressively more expensive to produce each additional unit of output. This means that at some point, it may become too costly for Japan to continue producing more digital music players. As a result, they may stop short of complete specialization and allocate their resources to producing other goods or services, leading to a potential decrease in their overall export of digital music players. However, there is no indication that Japan will necessarily import digital music players from other countries or impose trade restrictions on imported ones.

Question 12

Autarky is a situation in which a country
A) only exports products.
B) only imports products.
C) does not trade with other countries.
D) has no absolute advantage in any production.

Accepted Answer

Autarky is a situation where a country does not trade with other countries, meaning it relies solely on domestic production and consumption. This is also known as economic self-sufficiency.

Question 13

Which of the following is not a source of comparative advantage?
A) relative abundance of labor and capital
B) technology
C) climate and natural resources
D) a strong foreign currency exchange rate

Accepted Answer

A strong foreign currency exchange rate may provide benefits for importing goods, but it does not directly contribute to a country's comparative advantage in producing goods or services. Comparative advantage is based on factors such as relative abundance of labor and capital, technology, and climate and natural resources.

Question 14

Countries gain from specializing in producing goods in which they have ________ and trading for goods in which other countries have ________.
A) a comparative advantage; an absolute advantage
B) an absolute advantage; an absolute advantage
C) a comparative advantage; a comparative advantage
D) an absolute advantage; a comparative advantage

Accepted Answer

Countries gain from specializing in producing goods in which they have a comparative advantage and trading for goods in which other countries have a comparative advantage. This is because comparative advantage is the ability of a country to produce a good at a lower opportunity cost than another country. By specializing in the goods in which they have a comparative advantage, countries can produce these goods more efficiently, leading to increased productivity and economic growth. Trading for goods in which other countries have a comparative advantage allows countries to access these goods at a lower price than if they had produced them domestically. This leads to increased consumer welfare and greater economic efficiency.

Question 15

Which of the following statements is true?
A) 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 are made better off as a result of international trade, both countries may be made worse 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

According to the principle of comparative advantage, each country as a whole will benefit from international trade. However, some individuals within each country may be negatively affected if they lose their jobs or face competition from foreign imports. Therefore, option D is the correct statement.

Question 16

________ refers to reductions in a firm's costs that result from an increase in the size of an industry.
A) Internal economies
B) External economies
C) Autarkial dominance
D) Streamlining

Accepted Answer

External economies refer to cost reductions for a firm resulting from an increase in the size of an industry. Internal economies refer to cost reductions for a firm resulting from its own increase in production. Autarkial dominance is not a recognized economic term, and streamlining refers to a deliberate effort to make a company more efficient, which may or may not result in cost reductions.

Question 17

A Federal Reserve publication proclaimed that "Trade is a win-win situation for all countries that participate." This statement is
A) false since it ignores the workers who lose their jobs as result of international trade.
B) false since not all countries participate in international trade.
C) true because it refers to countries; individuals may be losers as a result of international trade.
D) true because all consumers and workers benefit from international trade.

Accepted Answer

While international trade can benefit countries as a whole, it can also have negative consequences for some individuals, such as workers who may lose their jobs due to increased competition. Therefore, the statement in option A is partially true, but not completely accurate. Option B is incorrect as the statement is referring to countries that do participate in international trade. Option D is also incorrect as there may be winners and losers among both consumers and workers as a result of international trade. Option C best captures the complex nature of the relationship between international trade and its impacts on individuals and countries.

Question 18

Table 9-11
Production and
Consumption Production
Without Trade With Trade
  Denmark and Belize can produce both clocks and hats. Table 9-11 shows the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 9-11. If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Denmark gain compared to the "without trade" numbers?
A) 30
B) 100
C) 150
D) 900

Accepted Answer

The answer of Table 9-11
Production and
Consumption Production
Without Trade With Trade
...

Question 19

The United States is a leading exporter of wheat. What explains the comparative advantage of the United States in wheat production?
A) positive externalities
B) investment by multinational firms such as Archer-Daniels-Midland and the Tyson Foods Inc.
C) climate and soil conditions in the United States which are well-suited for wheat production
D) a large supply of unskilled labor

Accepted Answer

The climate and soil conditions in the United States are well-suited for wheat production, giving the country a comparative advantage in this area.

Question 20

The first example used to explain comparative advantage used two countries (England and Portugal) and two goods (wine and cloth) to show that
A) each country would be better off from trade if it had an absolute advantage in producing one of the goods.
B) each country would have a comparative advantage in the production of the good for which it had an absolute advantage.
C) mutually beneficial trade was possible between two countries even if one had an absolute advantage in the production of both goods.
D) mutually beneficial trade was possible between two countries even if one had a comparative advantage in the production of both goods.

Accepted Answer

The answer of The first example used to explain comparative...

Quiz 9: Comparative Advantage and the Gains From International Trade

Wall Street, in the borough of Manhattan in New York City, is the heart of the U.S. financial system, where banks, brokerage houses, other financial firms, and the New York Stock Exchange are all located. What is the reason for New York City's comparative advantage in the financial market?

China has developed a comparative advantage in the production of clothing. The source of this comparative advantage is

Tastes for products such as beer differ. As a result

Once a country has lost its comparative advantage in producing a good, its income will be and its economy will be if it switches from producing the good to importing it.

In the real world we don't observe countries completely specializing in the production of goods for which they have a comparative advantage. One reasons for this is

Japan has developed a comparative advantage in designing and producing automobiles. The source of its comparative advantage in these products is

In the 1970s and 1980s, the United States lost its comparative advantage in consumer electronics goods to Japan. What factor was most responsible for the development of Japan's comparative advantage in consumer electronics goods?

The "terms of trade" refers to

The United States has developed a comparative advantage in film production due to the film industry being long-established in southern California, and lower costs result from the size of the industry in the area. This source of comparative advantage is referred to as

A consequence of increasing marginal costs of producing digital music players in Japan is

Autarky is a situation in which a country

Which of the following is not a source of comparative advantage?

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

Which of the following statements is true?

________ refers to reductions in a firm's costs that result from an increase in the size of an industry.

A Federal Reserve publication proclaimed that "Trade is a win-win situation for all countries that participate." This statement is

The United States is a leading exporter of wheat. What explains the comparative advantage of the United States in wheat production?

The first example used to explain comparative advantage used two countries (England and Portugal) and two goods (wine and cloth) to show that