Question 1

An example of an acquired comparative advantage is

Accepted Answer

The example of United States consumers buying television sets produced in Japan because they are believed to be of higher quality is a clear case of acquired comparative advantage. The US does not have any inherent advantage in producing higher quality TVs, but the perceived quality advantage of Japanese TV manufacturers has given them a comparative advantage in producing that product.

Question 2

The Heckscher-Ohlin theorem explains why the U.S.both imports and exports cars.

Accepted Answer

The answer of The Heckscher-Ohlin theorem explains why the U.S.both...

Question 3

If the domestic price is below the world price of a certain product,the domestic country will export the product.

Accepted Answer

When the domestic price is below the world price of a certain product, domestic producers can sell at a higher price in the international market, which makes it profitable for them to export the product. This leads to an increase in exports from the domestic country.

Question 4

The quantity and quality of labor,land,and natural resources of a country are its

Accepted Answer

Factor endowments refer to the quantity and quality of a country's labor, land, and natural resources. While capital stock, productive capacity, and economic potential are related concepts, they do not specifically refer to the factors of production in the same way that factor endowments do.

Question 5

The Heckscher-Ohlin theorem says that a country is likely to have a comparative advantage in a labor intensive product,if it has a large labor supply.

Accepted Answer

The Heckscher-Ohlin theorem states that a country will have a comparative advantage in producing goods that intensively use the factor of production that is relatively abundant in that country. Therefore, if a country has a large labor supply, it is likely to have a comparative advantage in producing labor-intensive products.

Question 6

For any pair of nations and goods,if each country has an absolute advantage in the production of one product,it is reasonable to expect that specialization and trade will benefit both countries.

Accepted Answer

If each country has an absolute advantage in the production of one good, then by specializing in producing the good they are most efficient in, and trading with the other country for the good they are less efficient in, both countries can benefit and increase their overall production and consumption of both goods. This principle is known as comparative advantage, and is a cornerstone of international trade theory.

Question 7

Only those products in which a country has an absolute advantage will be competitive in world markets.

Accepted Answer

The statement is incorrect. Even if a country does not have an absolute advantage in a particular product, it can still be competitive in the global market based on factors such as comparative advantage, innovation, and quality of products. Therefore, a country can produce and export products in which it has a comparative advantage even if it does not have an absolute advantage in those products.

Question 8

If the exchange rate between the United States and Greece changes from $1 = 1 euro to $1 = 2 euros,then holding everything else constant,the price of U.S.goods in Greece will increase.

Accepted Answer

Since the exchange rate has changed in favor of the euro, U.S. goods will be relatively more expensive in Greece, as they will cost more euros to purchase.

Question 9

A significant portion of actual world trade patterns results from

Accepted Answer

Different factor endowments between countries, such as natural resources, labor, and technology, create comparative advantages that make it beneficial for countries to trade with each other. For example, a country with an abundance of fertile land may specialize in agricultural exports, while a country with advanced technology may specialize in high-tech exports.

Question 10

An example of acquired comparative advantage is that

Accepted Answer

Acquired comparative advantage refers to a situation where a country or firm develops a competitive edge in producing a particular good or service due to factors not related to natural endowments or resources. In this case, some U.S. consumers prefer German cars because of their reputation for safety, which gives German car manufacturers a competitive advantage over American car manufacturers.

Question 11

Which of the following phenomena CANNOT be explained by the simple comparative advantage theory?

Accepted Answer

The concept of comparative advantage suggests that countries should specialize in producing and exporting goods that they can produce more efficiently or at a lower opportunity cost, while importing goods that they cannot produce as efficiently. Therefore, the phenomenon of a country importing and exporting the same goods cannot be explained by the theory of comparative advantage.

Question 12

The software industry depends on highly trained workers,who are abundantly available in Country A.The heavy equipment industry depends on the availability of a large stock of physical capital with which Country B is well endowed.According to Heckscher-Ohlin theorem

Accepted Answer

The Heckscher-Ohlin theorem suggests that countries will export goods that require resources (factors of production) that are relatively abundant and import goods that require resources that are relatively scarce. Since Country A has an abundance of highly trained workers, it would specialize and export software, which relies on such labor. Conversely, Country B, with its large stock of physical capital, would specialize and export heavy equipment. Thus, Country B would import software, aligning with the theorem's prediction.

Question 13

Within the range of exchange rates that permits specialization and trade to take place,the exchange rate will determine which country gains the most from trade.

Accepted Answer

The exchange rate determines the relative prices of goods and services between two countries. If one country's currency depreciates relative to another country's currency, its exports become cheaper and its imports become more expensive. This allows the country to specialize in the production of goods and services in which it has a comparative advantage, leading to increased trade and gains from trade. Therefore, within the range of exchange rates that permits specialization and trade, the exchange rate does determine which country gains the most from trade.

Question 14

A country is said to enjoy a comparative advantage over another country in the production of a product if it uses fewer resources to produce that product than the other country does.

Accepted Answer

Comparative advantage refers to a country's ability to produce a particular good or service at a lower opportunity cost than another country, not necessarily using fewer resources.

Question 15

A country enjoys a comparative advantage in the production of a good if that good can be produced at a lower cost in terms of other goods.

Accepted Answer

This is the definition of comparative advantage. If a country can produce a good at a lower opportunity cost than another country, it has a comparative advantage in producing that good.

Question 16

A country with a lot of human capital is likely to have a comparative advantage in highly technical goods.

Accepted Answer

A country with a lot of human capital, meaning a highly educated and skilled workforce, is more likely to have the capability to produce highly technical goods efficiently and effectively, giving them a comparative advantage in that area.

Question 17

For any pair of countries,there is only one single exchange rate that can lead automatically to both countries realizing the gains from specialization and comparative advantage.

Accepted Answer

There can be multiple exchange rates that can lead to both countries realizing gains from specialization and comparative advantage as it depends on different factors such as production costs, demand, and supply of goods in both countries.

Question 18

If exchange rates end up in the right ranges,the free market will drive each country to shift resources into those sectors in which it enjoys a comparative advantage.

Accepted Answer

This statement is true as according to the theory of comparative advantage, each country should specialize in producing goods or services in which it has a lower opportunity cost compared to other countries, and then engage in trade with other countries to obtain goods or services in which it has a higher opportunity cost. If the exchange rates are in the right ranges, the free market will reflect the comparative advantages of each country and resources will shift into those sectors where each country can produce most efficiently.

Question 19

If Spain decreases subsidies to its olive growers,the price of olives in the U.S.will fall.

Accepted Answer

Decreasing subsidies to olive growers in Spain would likely increase the cost of production for those growers, potentially leading to higher prices for olives globally, including in the U.S., as Spain is a significant producer of olives.

Question 20

The Heckscher-Ohlin theorem looks to ________ to explain trade flows.

Accepted Answer

The Heckscher-Ohlin theorem looks at relative factor endowments, or the differences in a country's availability of factors of production (such as land, labor, and capital), to explain trade flows.

Quiz 19: International Trade,comparative Advantage,and Protectionism