Question 1

A country has an absolute advantage when it can produce more of a good than other nations, using the same amount of resources.

Accepted Answer

This statement accurately defines the concept of absolute advantage in international trade. If a country can produce a good with fewer resources or at a higher efficiency than another country, it is said to have an absolute advantage in that good.

Question 2

A country has a comparative advantage in the production of a good or service when it can produce that good or service at the lowest opportunity cost compared to other countries.

Accepted Answer

Comparative advantage means that a country can produce a good or service at a lower opportunity cost compared to other countries. This means that it has a lower cost of production, and can produce the good more efficiently, making it advantageous for it to produce and trade that good with other countries.

Question 3

In the context of international markets, industries in areas where their country has an absolute advantage tend to be more successful than industries in areas where their nation has a comparative advantage.

Accepted Answer

Industries in areas where a country has a comparative advantage are typically more successful in international markets because they can produce a good or service at a lower opportunity cost than other countries. However, industries in areas where a country has an absolute advantage may not necessarily be more successful if they cannot compete on price or quality with other countries that have a comparative advantage in that industry.

Question 4

When the total value of imports is higher than the total value of exports, a country experiences a trade deficit.

Accepted Answer

This is correct as a trade deficit occurs when a country's imports exceed its exports.

Question 5

A country experiences a trade surplus when the total value of exports is higher than the total value of imports.

Accepted Answer

A trade surplus occurs when a country exports more goods and services than it imports, resulting in a positive balance of trade. This means that the value of exports is greater than the value of imports, leading to an overall surplus in the country's trade balance.

Question 6

A balance of payments surplus means that more money flows out than in.

Accepted Answer

A balance of payments surplus means that more money flows into a country than out, resulting in a net increase in reserves or foreign assets.

Question 7

In American firms with Japanese operations, a strong dollar versus a Japanese yen results in a higher operating cost.

Accepted Answer

In American firms with Japanese operations, a strong dollar versus a Japanese yen actually results in lower operating costs because it makes it cheaper to pay for Japanese labor, materials, and other expenses in yen.

Question 8

The exchange rate expresses the value of one nation's currency in terms of another nation's currency.

Accepted Answer

This is a correct definition of exchange rate.

Question 9

Comparative advantage always remains static.

Accepted Answer

Comparative advantage can change over time due to changes in factors such as technology, resources, and trade policies.

Question 10

The balance of trade is a measure of the difference between a nation's exports and imports.

Accepted Answer

The balance of trade measures the difference between the value of a country's exports and imports over a certain period of time. If a country exports more than it imports, it has a trade surplus. If it imports more than it exports, it has a trade deficit.

Question 11

China and India have invested in creating stronger infrastructure and institutions of higher education in an effort to build a comparative advantage versus other nations in technology production.

Accepted Answer

Both China and India have made significant investments in infrastructure and higher education to improve their capabilities in technology production and innovation. This includes building research centers, institutes, and universities, as well as supporting startups and establishing partnerships with established companies. These efforts aim to create a favorable environment for technological development and attract skilled workers and investors to strengthen their competitiveness in the global market.

Question 12

Balance of payments includes foreign borrowing and lending, foreign aid payments and receipts, and foreign investments.

Accepted Answer

Balance of payments is a record of all economic transactions between a country and the rest of the world, including foreign borrowing and lending, foreign aid payments and receipts, and foreign investments.

Question 13

A nation's balance of trade is minimally related to that nation's balance of payments.

Accepted Answer

A nation's balance of trade is a component of its balance of payments, so they are closely related. The balance of payments also includes other transactions such as investment flows and foreign aid.

Question 14

The United States has had an overall trade deficit since 1976, and as the American appetite for foreign goods has grown, the trade deficit has increased.

Accepted Answer

The United States has indeed had an overall trade deficit since 1976, and as the American appetite for foreign goods has grown, the trade deficit has increased.

Question 15

The United States has consistently experienced trade surpluses over the past 30 years.

Accepted Answer

The United States has actually experienced trade deficits for the past 30 years, meaning it imports more goods than it exports.

Question 16

With a given amount of labor and other resources, producers in the nation of Germany can produce either 100 SUVs or 50 sedans. Thus, two SUVs must be given up to produce each sedan. Using the same amount of labor and resources, producers in Japan can produce 40 SUVs or 40 sedans­so one SUV must be given up for each sedan produced. Based on this information, Japan has a comparative advantage in the production of sedans.

Accepted Answer

Japan has a lower opportunity cost for producing sedans (1 SUV per sedan) compared to Germany (2 SUVs per sedan), indicating a comparative advantage in sedan production.

Question 17

The balance of trade includes the value of services as well as the value of goods.

Accepted Answer

The balance of trade accounting takes into account the total value of imports and exports, which includes both goods and services.

Question 18

The United States boasts a comparative advantage versus most countries in the production of electronics.

Accepted Answer

The United States does not have a comparative advantage in electronics production compared to countries like China, which is known for its large-scale, cost-effective electronics manufacturing.

Question 19

A nation's balance of trade is a major component of its balance of payments.

Accepted Answer

The balance of trade measures the difference between a nation's exports and imports, and is a key component of the balance of payments which includes all financial transactions between a nation and the rest of the world.

Question 20

A trade deficit signals the wealth of an economy.

Accepted Answer

The answer of A trade deficit signals the wealth of...

Quiz 3: The World Marketplace: Business Without Borders