Question 1

Which of the following statements is true?

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 2

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

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 a good or service at a lower opportunity cost than another country. The factors listed in choices A, B, and C can all contribute to a country's comparative advantage in producing certain goods or services. However, a strong foreign currency exchange rate does not necessarily make a country more efficient at producing goods or services, and therefore is not a source of comparative advantage.

Question 3

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?

Accepted Answer

New York City benefits from external economies, which refer to the advantages that accrue to firms because they are located in a particular location. The concentration of financial firms in New York City creates a critical mass of expertise and talent that attracts additional firms, leading to further concentration and additional advantages. This cycle has helped make New York City the dominant financial center in the world.

Question 4

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

Accepted Answer

Japan has developed advanced technology in the design and manufacturing of automobiles, which gives them a comparative advantage in this industry. This has contributed to their success in exporting automobiles and becoming a major player in the global automotive market.

Question 5

Table 9-6
Production and
Consumption Production
Without Trade With Trade
  Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 9-6.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?

Accepted Answer

Without trade, Belize produces 50 clocks and 100 hats, and with trade, it produces 70 clocks and 80 hats. This means that Belize gains 20 clocks from trade. Since 1 hat is traded for 1.8 clocks, Belize trades 150/1 = 150 hats. Thus, Belize gains (150/1.8) = 83.33 clocks. However, since Belize can only produce a maximum of 200 labor hours worth of goods, it can only produce a total of (200/2) = 100 clocks and 100 hats. Therefore, Belize can only gain a maximum of 50 clocks. Subtracting the 20 clocks gained from trade from this maximum, Belize gains 30 clocks compared to the "without trade" numbers. Therefore, the answer is C) 120.

Question 6

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

Accepted Answer

The comparative advantage in film production due to the long-established film industry in southern California is an example of external economies. External economies refer to advantages gained by firms in a particular industry or region due to the presence of other firms in the same industry or region. In this case, the concentration of film-related businesses and expertise in southern California creates a self-reinforcing ecosystem that makes it easier and cheaper for new firms to enter the industry or for existing firms to grow and innovate. This is a form of economies of scale or network effects, which are classic sources of external economies.

Question 7

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

Accepted Answer

While international trade can have positive effects overall, it is important to recognize that individuals within a country may be negatively impacted, such as workers losing jobs to cheaper labor in other countries. Therefore, the statement that trade is a "win-win situation for all countries" is not entirely true. It is important to consider the impact on individuals as well as the overall economic benefits. Choice A is incorrect because it presents a biased view that only focuses on the negative aspects of trade. Choice B is incorrect because while not all countries participate in trade, the statement is referring to those that do. Choice D is incorrect because while consumers generally benefit from lower prices and more choices, some workers may still be negatively impacted.

Question 8

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

Accepted Answer

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

Question 9

Tastes for products such as beer differ.As a result

Accepted Answer

Tastes for beer differ, meaning that different countries may have a comparative advantage in producing different types of beer to satisfy different tastes. This explains why we see a diversity of beer styles and production in different countries.

Question 10

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

Accepted Answer

Increasing marginal costs imply that it becomes more and more expensive to produce each additional unit of a product. This means that as Japan produces more digital music players, the cost of each additional unit will increase. As a result, Japan may find that it is no longer profitable to continue producing digital music players beyond a certain point. This means that Japan will not specialize fully in the production of digital music players and will likely produce other goods as well.

Question 11

Table 9-6
Production and
Consumption Production
Without Trade With Trade
  Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 9-6.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?

Accepted Answer

The answer of Table 9-6
Production and
Consumption Production
Without Trade With Trade
...

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.One reasons for this is

Accepted Answer

Production of most goods involves increasing opportunity costs, meaning that as a country produces more of a good, the opportunity cost of producing that good increases. This makes it unlikely that a country will completely specialize in the production of a single good, as the cost of producing additional units of that good will eventually become prohibitively high.

Question 13

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

Accepted Answer

China's comparative advantage in clothing production is due to its large supply of unskilled workers and relatively low capital. This allows for lower labor costs and cheaper production, giving China a competitive edge in the global market.

Question 14

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?

Accepted Answer

Japanese firms excelled in process technology, which allowed them to produce high-quality consumer electronics goods at lower costs than their American counterparts. This, in turn, gave them a comparative advantage in the global market. The other options, such as external economies, labor, and natural resources, may have played a role in Japan's overall economic success, but they were not the primary factor in the country's comparative advantage in consumer electronics goods.

Question 15

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

Accepted Answer

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

Question 16

Trade only occurs if there are only winners,and no losers,as a result of the trade.

Accepted Answer

Trade involves both parties exchanging goods or services they value differently. Therefore, there may be winners and losers in a trade depending on how each party values what they receive and what they give up.

Question 17

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

Accepted Answer

The concept described pertains to external economies of scale. These are cost advantages that are shared by all firms within an industry as a result of growth in the industry itself. Examples of external economies could be the development of a specialized labor pool or the creation of a better transportation infrastructure that benefits all firms in an industry.

Question 18

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.

Accepted Answer

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

Question 19

Table 9-6
Production and
Consumption Production
Without Trade With Trade
  Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 9-6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded,how many hats will Belize gain compared to the "without trade" numbers?

Accepted Answer

Without trade, Belize produces and consumes 100 hats. With trade, Belize produces 200 hats and consumes 50 hats. Therefore, Belize gains an additional 100 hats from trade.

Question 20

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

Accepted Answer

Not all goods and services are traded internationally, so it makes sense for a country to diversify its production to meet domestic demand for goods and services that may not be in demand in other countries or may not be able to be efficiently produced and traded internationally.

Quiz 9: Comparative Advantage and the Gains From International Trade