Question 1

Refer to the information provided in Figure 20.2 below to answer the questions that follow.  Figure 20.2
-Refer to Figure 20.2. the U.S. has

Accepted Answer

According to the graph, the U.S. has a lower opportunity cost of producing cars compared to Japan, indicating a comparative advantage in producing cars. There is no information provided about absolute advantage or comparative advantage in producing trucks.

Question 2

Initially trade between the United States and Canada is balanced. Then, if a change in the exchange rate reduces the U.S. dollar price of Canadian goods, ceteris paribus, we would expect

Accepted Answer

If the exchange rate reduces the U.S. dollar price of Canadian goods, it will make Canadian goods cheaper for U.S. consumers. This will increase demand for Canadian goods, leading to an increase in Canadian exports and a trade surplus for Canada. On the other hand, it may also lead to a decrease in demand for U.S. goods, which could lead to a trade deficit for the United States. However, since the question only asks for the expected outcome in one country, the answer is B, a trade surplus in Canada.

Question 3

Refer to the information provided in Table 20.3 below to answer the questions that follow.
Table 20.3 $$\begin{array} { l c c } 
& \text { United States } & \text { Belgium } \
\hline \text { Raspberries } & \$ 9 & 9 \text { euros } \
\text { Chocolate } & \$ 12 & 27 \text { euros } \
\hline
\end{array}$$
-Refer to Table 20.3. If the exchange rate is $1 = 3 euros, then

Accepted Answer

The answer of Refer to the information provided in Table...

Question 4

Refer to the information provided in Table 20.3 below to answer the questions that follow.
Table 20.3 $$\begin{array} { l c c } 
& \text { United States } & \text { Belgium } \
\hline \text { Raspberries } & \$ 9 & 9 \text { euros } \
\text { Chocolate } & \$ 12 & 27 \text { euros } \
\hline
\end{array}$$
-Refer to Table 20.3. If the exchange rate is $1 = 1 euro, then

Accepted Answer

The answer of Refer to the information provided in Table...

Question 5

Refer to the information provided in Table 20.3 below to answer the questions that follow.
Table 20.3 $$\begin{array} { l c c } 
& \text { United States } & \text { Belgium } \
\hline \text { Raspberries } & \$ 9 & 9 \text { euros } \
\text { Chocolate } & \$ 12 & 27 \text { euros } \
\hline
\end{array}$$
-Refer to Table 20.3. If the exchange rate is $1 = 2 euros, then

Accepted Answer

With an exchange rate of $1 = 2 euros, the cost of raspberries in the United States is $9, which is equivalent to 18 euros. This is more expensive than the cost of raspberries in Belgium, which is 9 euros. Therefore, the United States would import raspberries from Belgium. On the other hand, the cost of chocolate in Belgium is 27 euros, which is equivalent to $13.50. This is more expensive than the cost of chocolate in the United States, which is $12. Therefore, Belgium would import chocolate from the United States. Thus, the correct choice is C: the United States will import raspberries and Belgium will import chocolate.

Question 6

In general, for any two countries, there are many exchange rates that will lead to gains from trade, based on comparative advantage.

Accepted Answer

This is true because comparative advantage means that each country has a different opportunity cost for producing goods and services, and therefore they can benefit from trading with each other. The exchange rate that will lead to gains from trade will depend on the specific goods and services being traded and other factors such as market demand and supply. However, there will always be exchange rates that allow both countries to benefit from trade based on their relative advantages.

Question 7

Refer to the information provided in Figure 20.2 below to answer the questions that follow.  Figure 20.2
-Refer to Figure 20.2. England has

Accepted Answer

The answer of Refer to the information provided in Figure...

Question 8

If the price of a car in the United States is $26,000, and the exchange rate between the dollar and the British pound rises from $1.50 to $2.00 per pound, then the price of the American car in Britain will

Accepted Answer

When the exchange rate rises from $1.50 to $2.00 per pound, it means that fewer pounds are needed to buy the same amount of dollars. Therefore, the price of the American car in Britain, when converted to pounds, will fall because it costs fewer pounds to buy the car at $26,000.

Question 9

For any pair of countries, there is

Accepted Answer

The correct answer is A because there is indeed a range of exchange rates that can facilitate both countries in realizing the gains from specialization and comparative advantage. This range allows for the mutual benefit of trade between the two countries, as it accommodates their respective cost structures and competitive positions.

Question 10

If the exchange rate between the United States and Japan changes from $1 = 100 yen to $1 = 110 yen, then, ceteris paribus, the price of American goods in Japan

Accepted Answer

When the exchange rate changes from $1 = 100 yen to $1 = 110 yen, the yen has depreciated against the dollar. This means that the yen has lost value relative to the dollar, making American goods relatively more expensive for Japanese buyers. Therefore, the price of American goods in Japan will increase, all else being equal.

Question 11

Trade allows the people of a country to consume outside their production possibility curve.

Accepted Answer

Trade allows countries to specialize and produce the goods and services they are most efficient at, while importing goods and services they are not as efficient at producing. This increases the overall level of consumption beyond what would be possible by staying within the boundaries of their production possibility curve.

Question 12

When trade is free, patterns of trade and trade flows result from

Accepted Answer

When trade is free, there are no restrictions or tariffs that limit the transactions between buyers and sellers across borders. As a result, trade patterns and flows are determined by the independent decisions of thousands of importers and exporters, as well as millions of households and firms who seek to buy and sell goods and services at the lowest possible cost. Governments may play a role in shaping trade policies, but in a free trade environment, they cannot control or direct trade flows to a significant degree.

Question 13

If you are traveling in China and you purchase a meal that costs 140 yuan and the current exchange rate is 7 yuan to the dollar, then the price of the meal in U.S. currency is

Accepted Answer

To convert yuan to dollars, we need to divide the yuan amount by the exchange rate. 140 yuan divided by 7 yuan/dollar is equal to $20.

Question 14

Assume that Blade Runner specializes in producing in-line skates and Hang Ten specializes in producing surfboards. After trade Blade Runner exports 800 pairs of in-line skates and imports 200 surfboards. The terms of trade

Accepted Answer

The terms of trade represent the exchange rate between the two goods. In this case, Blade Runner is able to export 4 pairs of in-line skates for every 1 surfboard it imports. So, the terms of trade are 4:1 in-line skates to surfboards.

Question 15

Suppose that the United States and Italy both produce wine and shoes. In the United States, wine sells for $10 a bottle and shoes sell for $40 a pair. In Italy, wine sells for 15 euros a bottle and shoes sell for 20 euros a pair. If the current exchange rate is 0.8 euro to the dollar, then

Accepted Answer

The answer of Suppose that the United States and Italy...

Question 16

If the exchange rate between the United States and Mexico changes from $1 = 100 peso to $1 = 5 pesos, ceteris paribus,

Accepted Answer

When the exchange rate changes from $1 = 100 pesos to $1 = 5 pesos, the U.S. dollar has appreciated relative to the peso. This makes U.S. goods cheaper for Mexican consumers, likely increasing U.S. exports to Mexico.

Question 17

Refer to the information provided in Table 20.3 below to answer the questions that follow.
Table 20.3 $$\begin{array} { l c c } 
& \text { United States } & \text { Belgium } \
\hline \text { Raspberries } & \$ 9 & 9 \text { euros } \
\text { Chocolate } & \$ 12 & 27 \text { euros } \
\hline
\end{array}$$
-Refer to Table 20.3. Trade will flow in both directions between countries only if the price of the euro is between

Accepted Answer

Trade will flow in both directions between countries only if the exchange rate is such that the price of the euro falls between the dollar prices of the goods. Therefore, the euro price of raspberries in dollars (9 euros/$) must be greater than or equal to $9, and the euro price of chocolate in dollars (27 euros/$) must be less than or equal to $12. This gives a range of exchange rates between $.44 and $1.00.

Question 18

If the price of a car in the United States is $22,000, and the exchange rate between the dollar and the Japanese yen falls from 125 yen to 105 yen per dollar, then the price of the American car in Japan will

Accepted Answer

The answer of If the price of a car in...

Question 19

Suppose that the United States and Italy both produce wine and shoes. In the United States, wine sells for $10 a bottle and shoes sell for $40 a pair. In Italy, wine sells for 15 euros a bottle and shoes sell for 20 euros a pair. Given this information, trade will flow in both directions if the price of a dollar is between

Accepted Answer

To determine if trade will flow in both directions, we need to look at comparative advantage.

The United States has a comparative advantage in producing shoes because they have a lower opportunity cost in producing shoes compared to Italy. In the United States, producing a bottle of wine requires sacrificing the production of 4 pairs of shoes (10/40). In Italy, producing a bottle of wine requires sacrificing the production of 0.75 pairs of shoes (15/20).

Italy has a comparative advantage in producing wine because they have a lower opportunity cost in producing wine compared to the United States. In Italy, producing a pair of shoes requires sacrificing the production of 0.75 bottles of wine (15/20). In the United States, producing a pair of shoes requires sacrificing the production of 0.25 bottles of wine (10/40).

Therefore, if the price of the dollar is too high (i.e. above 2 euros), then Italy will have a comparative advantage in producing both shoes and wine, and the US will have no reason to trade. If the price of the dollar is too low (i.e. below 0.67 euros), then the US will have a comparative advantage in producing both shoes and wine, and Italy will have no reason to trade.

The range where trade will flow in both directions is when the dollar-euro exchange rate is between the opportunity cost ratios for producing wine and shoes.

For the US, the opportunity cost of producing a bottle of wine is 4 pairs of shoes, or 0.25 pairs of shoes per dollar. 
For Italy, the opportunity cost of producing a bottle of wine is 0.75 pairs of shoes, or 0.0133 pairs of shoes per euro.

So, in order for trade to flow in both directions, the price of a dollar must be between the opportunity cost ratios for producing shoes and wine: 
0.0133 pairs of shoes per euro < 0.25 pairs of shoes per dollar <  0.75 pairs of shoes per euro

This simplifies to: 
0.067 < $1 < 0.75

Converting euros to dollars at the current exchange rate (1 euro = $1.21), we get: 
0.067 euros < 1 dollar < 0.904 euros

Therefore, trade will flow in both directions if the price of a dollar is between 0.67 and 2 euros. Therefore, the answer is B.

Question 20

Suppose a U.S. dollar exchanges for 2 British pounds, then each pound is worth

Accepted Answer

If 1 U.S. dollar exchanges for 2 British pounds, then each British pound is worth half a dollar, or $0.50.

Quiz 20: International Trade, Comparative Advantage, and Protectionism

Refer to the information provided in Figure 20.2 below to answer the questions that follow. Figure 20.2 -Refer to Figure 20.2. the U.S. has