Question 1

Pakistan has developed a comparative advantage in the production of clothing.The source of its comparative advantage in this product is
A)a favorable climate.
B)technology.
C)abundant supplies of natural resources.
D)a large supply of unskilled workers.

Accepted Answer

Pakistan's comparative advantage in clothing production is due to its large supply of unskilled workers who can produce clothing at a lower cost than other countries. This has allowed Pakistan to become a leading exporter of clothing in the global market.

Question 2

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

Accepted Answer

Although specialization can lead to economies of scale and higher efficiency, not all goods and services are suitable for international trade due to factors such as transportation costs or cultural differences. Therefore, a country may continue to produce some goods and services domestically even if they could potentially benefit from specialization.

Question 3

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

Accepted Answer

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

Question 4

Automobiles and many other products are differentiated.As a result
A)different countries may each have a comparative advantage in producing different types of automobiles.
B)consumers of automobiles have difficulty deciding what type of imported automobile to buy.
C)the quality of imported automobiles is less than it could be.
D)we see countries specializing completely in the production of automobiles.

Accepted Answer

When products are differentiated, it means that they have varying characteristics that make them unique from each other. In the case of automobiles, different types of cars have different features, such as size, design, fuel efficiency, etc. This differentiation can lead to different countries having a comparative advantage in producing certain types of automobiles. For example, Japan may be able to produce small, fuel-efficient cars more efficiently than the US, while the US may have an advantage in producing larger, luxury vehicles.

Question 5

All of the following are sources of comparative advantage except
A)climate and natural resources.
B)relative abundance of labor and capital.
C)a strong foreign currency exchange rate.
D)technology.

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, which can be driven by factors such as natural resources, labor and capital availability, and technological advancements. A strong foreign currency exchange rate may provide benefits in terms of import purchasing power, but it does not necessarily provide a competitive advantage in producing goods or services.

Question 6

Output per hour Production and Production
of work Consumption without Trade with Trade
 $\begin{array}{|c|c|c|c|c|c|c|c|c|}
\hline & \text { Swords } & \text { Belts } & &\text { Swords } & \text { Belts } && \text { Swords } & \text { Belts } \
\hline \text { Estonia } & 5 & 3 &&  100 & 40 && 200 & 0 \
\hline \text { Morocco } & 2 & 2 & & 60 & 60 && 0 & 120 \
\hline
\end{array}$
 Estonia and Morocco can produce both swords and belts.Each country has a total of 40 available labor hours for the production of swords and belts.Table 9-12 shows the output per hour of work,the production and consumption quantities without trade,and the production numbers with trade.
-Refer to Table 9-12.If the actual terms of trade are 1 belt for 1.5 swords and 50 belts are traded,how many swords will Morocco gain compared to the "without trade" numbers?
A)0
B)15
C)60
D)75

Accepted Answer

Without trade, Morocco can produce 20 swords and 20 belts (totaling 40 production hours).

With trade, Morocco can specialize in producing belts and trade them for swords. Morocco can produce 40 belts (at 0.5 swords per belt) and trade 50 of them for 75 swords (at a rate of 1 belt for 1.5 swords). Therefore, Morocco gains 55 swords (75 traded swords minus the 20 swords they would have produced themselves without trade).

Question 7

Costa Rica is a leading exporter of bananas.What explains the comparative advantage of this country in banana production?
A)climate and soil conditions in Costa Rica which are well-suited for banana production
B)investment by multinational firms such as Chiquita Brands International and the Dole Food Company
C)a large supply of unskilled labor
D)positive externalities

Accepted Answer

Costa Rica's climate and soil conditions are well-suited for banana production, which gives them a comparative advantage in this industry.

Question 8

Examples of comparative advantage show how trade between two countries can make each better off.Compared to their pre-trade positions,trade makes both countries better off because in each country
A)total employment is greater.
B)total consumption of goods is greater.
C)wages are higher.
D)total welfare is greater.

Accepted Answer

The answer of Examples of comparative advantage show how trade...

Question 9

One of the main sources of comparative advantage is natural resources.

Accepted Answer

Natural resources such as oil, gas, minerals, fertile land, and water can give a country a comparative advantage in producing certain goods and services. For example, countries with abundant oil reserves may have a comparative advantage in producing petroleum products.

Question 10

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

Accepted Answer

Trade can result in both winners and losers, as the parties involved have different preferences and values for the goods or services being traded. One party may benefit more from the trade while the other may lose out. However, trade is still beneficial as a whole, as it allows for the specialization of labor and the efficient allocation of resources.

Question 11

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

Accepted Answer

Japanese firms excelled in process technology, which allowed them to produce high-quality automobiles at lower costs than American competitors. This was due to a combination of factors, including a focus on continuous improvement, cooperative relationships with suppliers, and a willingness to adopt new technologies and production methods. This gave Japanese firms a significant competitive advantage and allowed them to capture a larger share of the global automobile market.

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.All of the following are reasons for this except
A)not all goods and services are traded internationally.
B)some countries have more resources than other countries.
C)tastes for many traded goods are different in many countries because of globalization.
D)production of most goods involves increasing opportunity costs.

Accepted Answer

The answer of In the real world we don't observe...

Question 13

Once a country has a comparative advantage in producing a product,it cannot lose that advantage.

Accepted Answer

A country's comparative advantage can change over time due to various factors such as changes in technology, resources, and global economic conditions. Therefore, a country can lose its comparative advantage in producing a product.

Question 14

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

Accepted Answer

China's comparative advantage in the production of children's toys comes from a large supply of unskilled workers and relatively little capital. The abundance of low-cost labor allows for the production of toys at a lower cost compared to other countries, while the lack of capital means that production is focused on labor-intensive methods rather than capital-intensive ones. This results in a lower production cost for toys and a comparative advantage for China in this industry.

Question 15

One reason a country does not specialize completely in production is that production of most goods involves increasing opportunity costs.

Accepted Answer

Increasing opportunity costs mean that as more of a good is produced, the opportunity cost of producing each additional unit increases. This means that it becomes less efficient for a country to specialize completely in producing a certain good, as producing each additional unit becomes more costly. Therefore, a country may choose to produce a variety of goods to minimize opportunity costs and maximize overall efficiency.

Question 16

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

Accepted Answer

The answer of A consequence of increasing marginal costs of...

Question 17

The United States has developed a comparative advantage in digital computers,airliners,and many prescription drugs.The source of its comparative advantage in these products is
A)a favorable climate.
B)technology.
C)abundant supplies of natural resources.
D)a strong central government.

Accepted Answer

The source of comparative advantage for digital computers, airlines, and prescription drugs is technology. The United States has invested heavily in research and development, resulting in technological advancements that have led to the production of these goods at a lower cost and higher quality than other countries. Climate, natural resources, and government are not the primary factors influencing the comparative advantage in these industries.

Question 18

The first example of comparative advantage appeared in a book that was published in 1817.This example showed that mutually beneficial trade between two countries (England and Portugal)was possible.The example assumed that two goods (wine and cloth)could be produced by both countries.Which of the following describes the conclusion of this example?
A)Portugal had a comparative advantage in wine and England had a comparative advantage in cloth.
B)Portugal had a comparative advantage in both wine and cloth,but its advantage in cloth was greater.
C)England had a comparative advantage in both wine and cloth,but its advantage in cloth was greater.
D)England had an absolute advantage in both wine and cloth,but a comparative advantage in wine.

Accepted Answer

The example showed that Portugal had a comparative advantage in wine (meaning they can produce wine at a lower opportunity cost than cloth) and England had a comparative advantage in cloth (meaning they can produce cloth at a lower opportunity cost than wine). Therefore, both countries can benefit from trading with each other based on their comparative advantages.

Question 19

Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade.These examples are misleading because
A)in the real world,rich countries can take advantage of poor countries.
B)they do not account for the reduction in wages that occurs in both countries as a result of trade.
C)some individuals in both countries may be made worse off because of trade.
D)trade restrictions are likely to be imposed as trade grows over time.

Accepted Answer

Textbook examples of trade often fail to account for the fact that while trade can benefit both nations overall, it can also result in negative impacts for certain individuals or groups within each nation. For example, domestic producers of a particular good may face increased competition from foreign imports and be forced out of business, leading to job losses and reduced economic stability for some members of society. Additionally, trade can exacerbate existing economic inequalities between different regions or demographic groups within a country.

Question 20

Which of the following statements is false?
A)Not 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 may not be made better off as a result of international trade,both countries may be made better 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

Statement B implies that one country may be worse off overall, which is not necessarily true. Both countries can be made better off overall as a result of international trade.

Quiz 9: Comparative Advantage and the Gains From International Trade

Pakistan has developed a comparative advantage in the production of clothing.The source of its comparative advantage in this product is

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

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

Automobiles and many other products are differentiated.As a result

All of the following are sources of comparative advantage except

Costa Rica is a leading exporter of bananas.What explains the comparative advantage of this country in banana production?

Examples of comparative advantage show how trade between two countries can make each better off.Compared to their pre-trade positions,trade makes both countries better off because in each country

One of the main sources of comparative advantage is natural resources.

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

In the past two decades the United States lost its comparative advantage in automobiles to Japan.What factor was most responsible for the development of Japan's comparative advantage in automobiles?

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

Once a country has a comparative advantage in producing a product,it cannot lose that advantage.

China has developed a comparative advantage in the production of children's toys.The source of this comparative advantage is

One reason a country does not specialize completely in production is that production of most goods involves increasing opportunity costs.

A consequence of increasing marginal costs of producing laptop computers in the United States is

The United States has developed a comparative advantage in digital computers,airliners,and many prescription drugs.The source of its comparative advantage in these products is

Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade.These examples are misleading because

Which of the following statements is false?