Question 1

Because Chinese wages are much lower than wages in the United States, the Chinese can outcompete the United States in everything.

Accepted Answer

Although Chinese wages are lower than wages in the United States, many factors affect competitiveness, such as productivity, technology, infrastructure, and regulations. The United States has advantages in these areas, which can offset the wage differences. Additionally, trade restrictions and tariffs can impact the competitiveness of both countries.

Question 2

What are the three major benefits of trade? Explain briefly.

Accepted Answer

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Question 3

Trade increases productivity when production is carried out by the person/group with the comparative advantage.

Accepted Answer

According to the principle of comparative advantage, trade allows countries to specialize in the production of goods and services in which they have a lower opportunity cost, resulting in increased productivity and economic efficiency. Therefore, trade increases productivity when production is carried out by the person/group with the comparative advantage.

Question 4

Phil can clean and polish silverware in two hours and change spark plugs in a car in four hours. Betty can clean and polish the same silverware in 1 hour and change spark plugs in a car in 1 hour. Phil does not have a comparative advantage in either activity.

Accepted Answer

Phil has a comparative advantage in cleaning and polishing silverware as he takes less time (2 hours) compared to Betty (1 hour). Therefore, the statement is false.

Question 5

Your professor hires a teaching assistant to grade student assignments even though he may do the task faster and perhaps more accurately. How can you explain this behavior using the theory of comparative advantage?

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Question 6

James and Linda must prepare a presentation for their marketing class. As part of their presentation, they must do a marketing plan and prepare 40 PowerPoint slides. It would take James 5 hours to do the required plan and 5 hours to prepare the slides. It would take Linda 6 hours to do the plan and 10 hours to prepare the slides.
a. How much time would it take the two to complete the project if they divide the writing of the marketing plan equally and the development of the slides equally?
b. How much time would it take the two to complete the project if they use comparative advantage and specialize in writing the marketing plan or preparing slides?
c. If James and Linda have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize?

Accepted Answer

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Question 7

Trade makes rich people richer and poor people poorer.

Accepted Answer

This statement is a common misconception. While trade can create income inequality, it also has the potential to reduce poverty and increase access to goods and services for many individuals. The impact of trade on income distribution depends on various factors, such as the policies in place, the structure of the economy, and the level of inequality before trade liberalization. Therefore, it is not accurate to make a blanket statement that trade always benefits the rich and harms the poor.

Question 8

In a two-country world of Japan and South Korea, suppose Japan can produce 600 radios or 300 TV sets in one day with all its available resources, while South Korea can produce 100 radios or 200 TV sets in one day with all its available resources. According to the theory of comparative advantage, what would be the possible gain in this world if the two countries specialize and trade with each other?

Accepted Answer

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Question 9

The wage rate in India is lower than the wage rate in the United States because Indian workers are more productive than U.S. workers.

Accepted Answer

The wage rate in India is lower than the wage rate in the United States due to several reasons, such as differences in labor laws, economic development, and labor market conditions. The productivity of workers is not the sole determinant of wage rates.

Question 10

In the time it takes Stanley to clean the bathroom he can make three cheesecakes. In the time it takes Fran to clean the bathroom she can make two cheesecakes. Fran has a comparative advantage in cleaning the bathroom.

Accepted Answer

Fran has a lower opportunity cost of cleaning the bathroom, as she can produce 2 cheesecakes in the same amount of time it takes her to clean the bathroom, while Stanley can only produce 3 cheesecakes. Therefore, Fran has a comparative advantage in cleaning the bathroom.

Question 11

Globalization is the advance of human cooperation across national boundaries.

Accepted Answer

Globalization refers to the interconnectedness and interdependence of countries and societies across the world, as well as the increasing flows of goods, services, capital, technology, and ideas that cross national borders. It involves the expansion of economic, cultural, political, and social ties and networks that transcend national boundaries and create a more integrated and interconnected world. Therefore, globalization can be seen as a form of human cooperation that goes beyond national borders.

Question 12

The basic idea of trade is to buy the things you could only make at a high opportunity cost, and sell the things you can make at a low opportunity cost.

Accepted Answer

This is a fundamental principle of trade and comparative advantage theory. Countries specialize in producing the goods and services that they can produce efficiently and trade with other countries to acquire goods that they cannot produce efficiently. This results in mutual gains from trade and promotes economic growth and development.

Question 13

Evidence from history shows that when the extent of trade expands, the result is prosperity.

Accepted Answer

This statement is supported by historical evidence, including the expansion of trade during the Renaissance, the growth of the Silk Road, and the rise of global trade networks in the 19th and 20th centuries that have all been associated with increased economic prosperity.

Question 14

Briefly describe a few activities that a typical student might do on any given day that reflect the effects of globalization.

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Question 15

In the Star Trek: Deep Space Nine episode "Treachery, Faith, and the Great River," one of the characters is attempting to repair a spaceship. This is a critical job since there's a war going on, but the war is making it difficult to get the needed parts. An alien named Nog explains how he could obtain them by navigating the Great Material Continuum. He explains:
It binds the universe together . . . there are millions upon millions of worlds in the universe, each one filled with too much of one thing and not enough of another. And the Great Continuum flows through them all, like a mighty river, from "have" to "want" and back again. And if we navigate the Continuum with skill and grace, our ship will be filled with everything our hearts desire.
Identify which of the major themes of trade this passage about the Great Material Continuum highlights and explain how it works.

Accepted Answer

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Question 16

In Narnia, one binky can be produced with two workers and one sippy cup can be produced with 0.25 workers. In Bedrock, one binky can be produced with one worker and one sippy cup can be produced with 0.50 workers.
a. What is the opportunity cost of producing one sippy cup in Narnia and in Bedrock?
b. Which country has the comparative advantage in sippy cups?
c. Suppose that each country has 100 workers and completely specializes in its comparative advantage. How many units of output of sippy cups and binkys will each country produce?
d. Before trade, Narnia produces 25 binkys and 200 sippy cups, and Bedrock produces 50 binkys and 100 sippy cups. Show how specialization and free trade can make each country better off than it was before the trade situation.

Accepted Answer

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Question 17

Some countries have comparative advantages in everything.

Accepted Answer

It is rare for a country to have a comparative advantage in everything. Countries usually have comparative advantages in certain industries or sectors based on their unique resources, technology, or workforce. Moreover, countries may also face trade-offs when trying to cultivate certain industries at the expense of others.

Question 18

The economist credited with saying, "It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy," is Adam Smith.

Accepted Answer

This quote is often attributed to Adam Smith, who was a famous Scottish economist known for his book "The Wealth of Nations." The quote emphasizes the importance of efficiency and cost-effectiveness in individual households as well as in the larger economy.

Question 19

Increased communication speed played a significant role in recent developments that led to increased trade and globalization?

Accepted Answer

With the advancements in communication technology, businesses can exchange information faster and more efficiently, enabling them to expand their operations globally and increase trade activities. As a result, globalization has become more commonplace, and international trade has increased significantly in recent years.

Quiz 2: The Power of Trade and Comparative