Question 1

Suppose in Finland a worker can produce either 32 cell phones or 4 kayaks while in Canada a worker can produce either 40 cell phones or 10 kayaks.
a.Which country has an absolute advantage in cell phone production? In kayak production?
b.What is the opportunity cost of 1 cell phone in Finland? In Canada?
c.What is the opportunity cost of 1 kayak in Finland? In Canada?
d.Which country has a comparative advantage in cell phone production? In kayak production?
e.Suppose each country has 1,000 workers.Currently,each country devotes 40 percent of its labor force to cell phone production and 60 percent to kayak production.What is the output of cell phones and kayaks for each country and what is the total output of cell phones and kayaks between the two countries?
f.Suppose each country specializes in the production of the good in which it has a comparative advantage.What is the total output of cell phones and kayaks in the two countries?
g.Provide a numerical example to show how Finland and Canada can both gain from trade.Assume that the terms of trade are established at 6 cell phones for 1 kayak.

Accepted Answer

The answer of Suppose in Finland a worker can produce...

Question 2

The simple trade model demonstrates that countries can expand consumption by specializing in the production of goods and services in which they have a comparative advantage.In reality we do not see complete specialization in production.State three reasons why this is case.

Accepted Answer

The answer of The simple trade model demonstrates that countries...

Question 3

What is autarky?

Accepted Answer

The answer of What is autarky?...

Question 4

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 example of England and Portugal shows that even if one country has an absolute advantage in producing both goods, there can still be mutually beneficial trade if each country specializes in the production of the good for which it has a comparative advantage. In this example, England had an absolute advantage in both wine and cloth production, but Portugal had a comparative advantage in wine production. By specializing in wine production and trading with England for cloth, Portugal could still benefit from trade.

Question 5

________ 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 of scale refer to cost reductions that result from an increase in the size of an industry, rather than from internal changes within a firm. This can include benefits like lower input costs, increased specialization, and improved infrastructure.

Question 6

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 be beneficial for countries overall, it is not necessarily a "win-win" situation for all individuals or groups within those countries. Some individuals, particularly those in industries that face competition from imports, may lose their jobs or see their wages decrease as a result of international trade. Therefore, option A is incorrect. Additionally, while not all countries may participate in international trade, the statement is likely meant to refer to those that do, making option B incorrect. Option D is also incorrect because while many consumers may benefit from access to cheaper imports, not all workers will necessarily benefit. Therefore, option C is the best choice as it acknowledges that the statement is true in a broad sense for countries, while also acknowledging that there may be losers at the individual level.

Question 7

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

Climate and soil conditions in the United States are well-suited for wheat production, which gives the US a comparative advantage in producing and exporting wheat.

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 electronics goods at a lower cost. This gave them a competitive advantage over US firms, who struggled to keep up with Japan's technological advancements. External economies (A) may have also played a role, as Japanese firms were able to take advantage of a highly developed and interconnected network of suppliers and other supporting industries. However, this factor alone is not enough to explain Japan's comparative advantage. Japan does have a large supply of labor (B), but this alone is not enough to explain their comparative advantage in consumer electronics. Finally, Japan does not have abundant supplies of natural resources (D), and instead relies heavily on imported materials and components for electronics production.

Question 9

One of the main sources of comparative advantage is internal economies.

Accepted Answer

The answer of One of the main sources of comparative...

Question 10

One reason a country does not specialize completely in production is that not all goods and services are traded internationally.

Accepted Answer

This statement is true. Some goods and services are not traded internationally due to various reasons such as cultural or legal differences, environmental concerns, and logistical challenges. Therefore, a country cannot specialize completely in production as it needs to cater to its domestic market as well.

Question 11

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's comparative advantage in clothing production stems from its large supply of unskilled workers and relatively little capital. The country has been able to produce clothing at lower costs due to the lower wages paid to unskilled workers. Additionally, the country has invested in improving its manufacturing processes over time, leading to higher efficiency and productivity in the production of clothing. However, the main source of competitive advantage in this industry remains the low cost of labor.

Question 12

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

Tastes for products such as beer differ, which means that different countries may have a comparative advantage in producing different types of beer that cater to varying preferences. This is why we see a variety of beer types originating from different countries.

Question 13

What are the four main sources of comparative advantage? Briefly explain each source and provide examples.

Accepted Answer

The answer of What are the four main sources of...

Question 14

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 mean that it becomes more expensive to produce each additional unit of output, leading to a decrease in profits. As a result, Japan may not want to specialize completely in the production of digital music players and may instead allocate resources to other products. However, Japan may still export digital music players at a higher price to make up for the higher costs. Options A and D are unlikely, as they involve either completely stopping exports or imposing trade restrictions, which could harm the Japanese economy. Option C is also unlikely as many countries experience increasing marginal costs in the production of digital music players, so it may be difficult to find a suitable alternative country to import from.

Question 15

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 automobiles is due to its technology. Japan has invested heavily in research and development, which has led to the implementation of new technology and manufacturing techniques, resulting in higher-quality automobiles that are more efficient to produce. This has helped Japan to dominate the global automobile market, particularly in the production of smaller cars.

Question 16

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, which refers to the benefits firms receive from being located near other firms in the same industry. This creates a concentration of resources, knowledge, and talent, which allows for easier communication, collaboration, and networking among firms. Wall Street in particular has developed a reputation as a hub for finance, leading to even greater concentration of firms and resources. While information technology and skilled labor are certainly important factors, they alone do not explain New York City's comparative advantage in the financial market. Its location and concentration of financial firms are key factors. The presence of a large sea port, as mentioned in choice C, is not directly related to the financial market.

Question 17

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 18

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 is not a source of comparative advantage. Comparative advantage refers to a country's ability to produce goods or services at a lower opportunity cost than another country, which can be due to factors such as abundance of labor and capital, favorable climate and natural resources, and technological advancements. A strong currency exchange rate may give a country a competitive advantage in terms of import purchasing power, but it doesn't necessarily translate to a lower opportunity cost of producing certain goods or services.

Question 19

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

Comparative advantage implies that countries specialize in producing goods they have a lower opportunity cost for, meaning the cost of producing one good in terms of the other is lower. However, production of most goods involves increasing opportunity costs, which means that as a country produces more of a good, the opportunity cost of producing each additional unit of that good increases. As a result, countries do not completely specialize in producing only the goods for which they have a comparative advantage.

Question 20

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.

Quiz 9: Comparative Advantage and the Gains From International Trade

The simple trade model demonstrates that countries can expand consumption by specializing in the production of goods and services in which they have a comparative advantage.In reality we do not see complete specialization in production.State three reasons why this is case.

What is autarky?

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

________ 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?

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?

One of the main sources of comparative advantage is internal economies.

One reason a country does not specialize completely in production is that not all goods and services are traded internationally.

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

What are the four main sources of comparative advantage? Briefly explain each source and provide examples.

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

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

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?

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.

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

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

Which of the following statements is true?