Question 1

Countries gain from specializing in producing goods in which they have ________ and trading for goods in which other countries have ________.
A)a comparative advantage;an absolute advantage
B)an absolute advantage;an absolute advantage
C)a comparative advantage;a comparative advantage
D)an absolute advantage;a comparative advantage

Accepted Answer

According to the theory of comparative advantage, countries should specialize in producing the goods they can produce at a lower opportunity cost than other countries, i.e. they have a comparative advantage in producing those goods. By doing so, they can trade with other countries and obtain goods they cannot produce efficiently or at all, thereby benefiting both sides. An absolute advantage refers to a country being able to produce a good more efficiently than another country, whereas comparative advantage takes into account the relative opportunity cost of producing one good versus another.

Question 2

________ 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 refer to cost reductions that occur for all firms in an industry as a result of the industry's growth. These can come from factors such as shared infrastructure, improved supply chain efficiency, and increased access to a skilled workforce or specialized suppliers. Internal economies, on the other hand, are cost reductions that result specifically from a firm's own growth or expansion. Autarkial dominance is not a term commonly used in economics, and streamlining refers to the process of making a firm's processes more efficient, but does not necessarily involve cost reductions due to industry growth.

Question 3

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 consumer electronics goods at low costs. They also benefited from external economies, such as a highly skilled workforce and a supportive government, which further enhanced their competitiveness in the industry. Japan does not have abundant supplies of natural resources needed to produce electronics goods, and while it has a large population, it is not necessarily an advantage for the production of consumer electronics goods. Therefore, choices A, B, and D are not the most responsible factors for Japan's comparative advantage in consumer electronics goods.

Question 4

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 large supply of unskilled workers and relatively little capital is the source of its comparative advantage in clothing production. This allows for lower production costs and therefore lower prices compared to countries with higher wages and more advanced technology.

Question 5

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 6

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

Question 7

Output per hour Production and Production
of work Consumption without Trade with Trade
 $\begin{array}{|c|c|c|c|c|c|c|c|c|}
\hline & \text { Clocks } & \text { Hats } & & \text { Clocks } & \text { Hats } && \text { Clocks } & \text { Hats } \
\hline \text { Denmark } & 6 & 3 & & 900 & 150 & &1,200 & 0 \
\hline \text { Belize } & 1 & 2 & & 150 & 100& & 0 & 400 \
\hline
\end{array}$
 Denmark and Belize can produce both clocks and hats.Each country has a total of 200 available labor hours for the production of clocks and hats.Table 9-11 shows the output per hour of work,the production and consumption quantities without trade,and the production numbers with trade.
-Refer to Table 9-11.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?
A)-100
B)0
C)150
D)250

Accepted Answer

With trade, Belize will gain an additional 75 hats (since it is trading 150 hats for 270 clocks at a rate of 1 hat for 1.8 clocks). Therefore, its total consumption will be 125 hats (50 + 75) compared to the "without trade" consumption of 50 hats. This is a net gain of 75 hats.

Question 8

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 beer differ, which means that different countries may have a comparative advantage in producing different types of beer that appeal to different groups of consumers. This can lead to specialization in beer production among countries.

Question 9

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 trade can provide benefits for countries as a whole, such as access to new markets and cheaper goods, it can also have negative impacts on individual workers and industries. This is especially true for those whose jobs are outsourced or displaced by foreign competition. Therefore, while trade can be beneficial overall, it is important to consider and address the negative impacts on individuals and regions.

Question 10

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

The production of most goods involves increasing opportunity costs, which means that as a country specializes more in producing one good, the opportunity cost of producing another good increases. This suggests that it is not always efficient for a country to completely specialize in producing the goods for which it has a comparative advantage. Additionally, other factors such as resource availability and global tastes and preferences can also play a role in a country's production decisions. However, the increasing opportunity costs associated with specialization in production is a key reason why complete specialization is rare in the real world.

Question 11

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 designing and producing automobiles is due to its advanced technology. Japan has invested heavily in research and development to improve its manufacturing processes and has developed highly efficient and automated factories, allowing them to produce high-quality cars at a lower cost than other countries. This technological expertise has allowed Japan to dominate the global market for automobiles.

Question 12

Output per hour Production and Production
of work Consumption without Trade with Trade
 $\begin{array}{|c|c|c|c|c|c|c|c|c|}
\hline & \text { Clocks } & \text { Hats } & & \text { Clocks } & \text { Hats } && \text { Clocks } & \text { Hats } \
\hline \text { Denmark } & 6 & 3 & & 900 & 150 & &1,200 & 0 \
\hline \text { Belize } & 1 & 2 & & 150 & 100& & 0 & 400 \
\hline
\end{array}$
 Denmark and Belize can produce both clocks and hats.Each country has a total of 200 available labor hours for the production of clocks and hats.Table 9-11 shows the output per hour of work,the production and consumption quantities without trade,and the production numbers with trade.
-Refer to Table 9-11.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?
A)30
B)100
C)150
D)900

Accepted Answer

Denmark will gain 30 clocks compared to the "without trade" numbers by trading 150 hats. This can be calculated as follows:
- Without trade, Denmark produces and consumes 100 clocks and 100 hats
- With trade, Denmark produces 56.25 clocks (150 hats / 1.8 hats per clock) and 93.75 hats (200 total labor hours - 150 used on clock production / 1.6 hats per hour of work)
- Denmark gains 30 clocks compared to without trade (56.25 clocks with trade - 100 clocks without trade)

Question 13

Output per hour Production and Production
of work Consumption without Trade with Trade
 $\begin{array}{|c|c|c|c|c|c|c|c|c|}
\hline & \text { Clocks } & \text { Hats } & & \text { Clocks } & \text { Hats } && \text { Clocks } & \text { Hats } \
\hline \text { Denmark } & 6 & 3 & & 900 & 150 & &1,200 & 0 \
\hline \text { Belize } & 1 & 2 & & 150 & 100& & 0 & 400 \
\hline
\end{array}$
 Denmark and Belize can produce both clocks and hats.Each country has a total of 200 available labor hours for the production of clocks and hats.Table 9-11 shows the output per hour of work,the production and consumption quantities without trade,and the production numbers with trade.
-Refer to Table 9-11.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?
A)-100
B)100
C)120
D)250

Accepted Answer

The answer of 
Output per hour Production and Production
of work...

Question 14

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
A)the abundance of natural resources.
B)superior process technology.
C)external economies.
D)best practices of unskilled labor.

Accepted Answer

External economies refer to the advantages that firms in an industry gain due to the concentration of the industry in a particular area. This leads to lower costs through the sharing of specialized services, as well as a larger pool of skilled labor and technology. Southern California's film industry is an example of external economies.

Question 15

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 the cost of producing each additional unit of digital music player will increase. As a result, it becomes less profitable for Japan to specialize solely in the production of digital music players. Instead, they may choose to produce a variety of goods and services to maximize their profits. This means that Japan will stop short of complete specialization (Option B). Option A and D are unlikely outcomes as Japan is a major exporter and advocate of free trade. Option C is possible, but it is not the only consequence of increasing marginal costs. Therefore, the best choice is B.

Question 16

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 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, providing a comparative advantage in this area.

Question 17

The terms of trade refers to
A)the rules and regulations that countries must adhere to when trading.
B)the ratio at which a country can trade its exports for imports from other countries.
C)the role of the government in overseeing international trade.
D)a legal document that specifies the trade quantities agreed to by two countries.

Accepted Answer

The terms of trade refer to the ratio at which a country can trade its exports for imports from other countries. It is a measure of how much imports can be obtained per unit of exports. A country with a high terms of trade can import a larger amount for a given quantity of exports, while a low terms of trade means a country must export more to obtain the same amount of imports.

Question 18

Autarky is a situation in which a country
A)only exports products.
B)only imports products.
C)does not trade with other countries.
D)has no absolute advantage in any production.

Accepted Answer

Autarky refers to a situation where a country does not trade with other countries and relies only on its own resources for its economic needs. Therefore, option C is the correct choice. The other options are not applicable to the definition or concept of autarky.

Question 19

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.

Question 20

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, as it does not directly affect a country's ability to produce goods or services more efficiently than another country. Comparative advantage is typically based on factors such as relative abundance of labor and capital, technology, and climate and natural resources.

Quiz 9: Comparative Advantage and the Gains From International Trade

Countries gain from specializing in producing goods in which they have and trading for goods in which other countries have .

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

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?

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

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.

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

Tastes for products such as beer differ.As a result

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

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

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

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

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

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

The terms of trade refers to

Autarky is a situation in which a country

Which of the following statements is true?

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