Question 1

If a country has an absolute advantage in two products and has a comparative advantage in only one product, what should it do?

Accepted Answer

Specializing in the product in which it has a comparative advantage allows the country to maximize efficiency and gains from trade, while importing the other product can be more cost-effective than producing it domestically.

Question 2

Gains from specialization and trade are basically:

Accepted Answer

Gains from specialization and trade refer to the increase in consumption and production efficiency that a country experiences by focusing on the production of goods for which it has a comparative advantage and trading for other goods. This allows countries to consume more than they could without trade.

Question 3

Gains from specialization and trade apply to:

Accepted Answer

Specialization and trade benefit both countries involved in the trade because each country can focus on producing goods in which it has a comparative advantage, leading to more efficient production and consumption for both.

Question 4

If the U.S. exports machines and India exports cloth, which of the following statements would be incorrect?

Accepted Answer

This statement would be incorrect because in a scenario where the U.S. exports machines and India exports cloth, both countries are likely engaging in trade to capitalize on their comparative advantages. This means that each country specializes in the production of goods for which they have a lower opportunity cost, and they trade to obtain goods that would be more costly for them to produce domestically.
A) India can consume more with trade. This is likely correct because by exporting cloth, India can import machines, which may be more expensive or inefficient for them to produce domestically. This allows India to enjoy a greater variety of goods or more of certain goods than it could without trade.
B) The U.S. can consume more with trade. This is also likely correct because by exporting machines, the U.S. can import cloth, which may be cheaper or of a variety that is not produced domestically. This increases the U.S.'s consumption possibilities beyond its production possibilities frontier.
C) World production of machines and cloth will rise. This is likely correct because when countries specialize based on comparative advantage and trade, global output can increase as resources are used more efficiently.
Therefore, the incorrect statement is D) India would be worse off because they would consume less. In fact, through trade, India would likely be better off as it would be able to consume more or different goods than it could without trade.

Question 5

-Based on the information above, if the two countries specialize and trade the U.S. will export _____ and Holland will export _____ .

Accepted Answer

The U.S. will export picture frames and Holland will export scooters if they specialize based on their comparative advantages.

Question 6

-With free trade, the minimum limit on the amount paid for one picture frame is _____ scooters.

Accepted Answer

The answer of 
-With free trade, the minimum limit on...

Question 7

-Which of the following is a viable world price for one scooter?

Accepted Answer

The answer of 
-Which of the following is a viable...

Question 8

based on the following information. A worker in the U.S. can produce either 5 machines per day or 15 yards of cloth. A worker in India can produce either 1 machine per day or 5 yards of cloth.
-Which of the following statements is false?

Accepted Answer

Comparative advantage is determined by which country has the lower opportunity cost in the production of a good. For cloth, India's opportunity cost is 1/5 of a machine per yard of cloth (1 machine for 5 yards), while the U.S.'s opportunity cost is 1/3 of a machine per yard of cloth (5 machines for 15 yards). Thus, India has a comparative advantage in cloth, not machines. The U.S. has an absolute advantage in both products because it can produce more of both with the same resources.

Question 9

based on the following information. A worker in the U.S. can produce either 5 machines per day or 15 yards of cloth. A worker in India can produce either 1 machine per day or 5 yards of cloth.
-Which of the following statements is true?

Accepted Answer

The U.S. has a comparative advantage in machines because it has a lower opportunity cost in producing machines compared to cloth. For the U.S., the opportunity cost of producing one machine is 3 yards of cloth (15 yards of cloth/5 machines), whereas for India, it is 5 yards of cloth (5 yards of cloth/1 machine). This means the U.S. gives up less cloth to produce a machine, indicating a comparative advantage in machine production.

Question 10

based on the following information. A worker in the U.S. can produce either 5 machines per day or 15 yards of cloth. A worker in India can produce either 1 machine per day or 5 yards of cloth.
-In India the price of machines in terms of cloth (marginal rate of transformation) is:

Accepted Answer

In India, a worker can produce 1 machine or 5 yards of cloth per day. Therefore, the opportunity cost of producing 1 machine is 5 yards of cloth, making the marginal rate of transformation 1M = 5C.

Question 11

based on the following information. A worker in the U.S. can produce either 5 machines per day or 15 yards of cloth. A worker in India can produce either 1 machine per day or 5 yards of cloth.
-In the U.S., the price of machines in terms of cloth (marginal rate of transformation) is:

Accepted Answer

In the U.S., a worker can produce either 5 machines or 15 yards of cloth per day, meaning the opportunity cost of producing 1 machine is 3 yards of cloth (15 yards of cloth / 5 machines = 3 yards of cloth per machine). This is the marginal rate of transformation, indicating 1M = 3C.

Question 12

based on the following information. A worker in the U.S. can produce either 5 machines per day or 15 yards of cloth. A worker in India can produce either 1 machine per day or 5 yards of cloth.
-Trade between India and the U.S. would definitely occur where the price of machines in terms of cloth (terms of trade) is:

Accepted Answer

The opportunity cost of producing one machine in the U.S. is 15 yards of cloth (since producing 5 machines costs the same as producing 75 yards of cloth, so 1 machine = 15 cloth). In India, the opportunity cost of producing one machine is 5 yards of cloth. Trade is beneficial when it occurs at a rate between these two opportunity costs. The option 1M = 4C falls between the U.S.'s opportunity cost (1M = 15C) and India's opportunity cost (1M = 5C), making it a beneficial rate for both countries.

Question 13

If Dutch labor can produce 3 soda pops or 5 yogurt cones in a day, while British labor can produce 2 soda pops and 4 yogurt cones, then _____ has a comparative advantage in yogurt cones.

Accepted Answer

The U.K. has a comparative advantage in yogurt cones because it has a lower opportunity cost for producing yogurt cones compared to the Netherlands. The opportunity cost of producing one yogurt cone in the U.K. is 0.5 soda pops, while in the Netherlands it is 0.6 soda pops.

Question 14

In Bulgaria the price of brooms in terms of hats is:

Accepted Answer

The correct choice is A) 1B = 1.25H, which means one broom is equal to 1.25 hats. This is determined by converting the given ratios to a common base for comparison, and A provides a direct conversion rate between brooms and hats.

Question 15

_____ has a comparative advantage in the production of brooms and _____ has a comparative advantage in the production of hats.

Accepted Answer

Bulgaria has a comparative advantage in brooms, and Albania has a comparative advantage in hats, meaning each country can produce these goods at a lower opportunity cost than the other.

Question 16

based on the following information. A worker in the U.S. can produce either 10 chips or 20 sodas per day. A worker in Mexico can produce either 20 chips or 60 sodas per day.
-Which of the following is true?

Accepted Answer

The U.S. has a comparative advantage in the production of chips because it has a lower opportunity cost for producing chips compared to Mexico. The opportunity cost of producing 1 chip in the U.S. is 2 sodas, while in Mexico it is 3 sodas.

Question 17

based on the following information. A worker in the U.S. can produce either 10 chips or 20 sodas per day. A worker in Mexico can produce either 20 chips or 60 sodas per day.
-Which of the following is false?

Accepted Answer

Mexico has an absolute advantage in the production of chips because a worker in Mexico can produce more chips per day than a worker in the U.S. (20 vs. 10).

Question 18

based on the following information. A worker in the U.S. can produce either 10 chips or 20 sodas per day. A worker in Mexico can produce either 20 chips or 60 sodas per day.
-Which of the following is true?

Accepted Answer

The answer of based on the following information. A worker...

Question 19

based on the following information. A worker in the U.S. can produce either 10 chips or 20 sodas per day. A worker in Mexico can produce either 20 chips or 60 sodas per day.
-Which of the following would be the best ratio for Mexico in terms of the gains from trade?

Accepted Answer

The answer of based on the following information. A worker...

Question 20

Consider the information below for Namibia and Malaysia.
Namibian labor: 16 baskets/day or 4 lamps/day
Malaysian labor 20 baskets/day or 8 lamps/day
-Each country specializes in the good for which it maintains a comparative advantage. In this example, Namibia will specialize in _____ and Malaysia will specialize in_____.

Accepted Answer

Namibia has a lower opportunity cost for producing baskets (1 basket = 0.25 lamps) compared to Malaysia (1 basket = 0.4 lamps), so Namibia specializes in baskets. Malaysia has a lower opportunity cost for producing lamps (1 lamp = 2.5 baskets) compared to Namibia (1 lamp = 4 baskets), so Malaysia specializes in lamps.

Quiz 2: Why Countries Trade

If a country has an absolute advantage in two products and has a comparative advantage in only one product, what should it do?

Gains from specialization and trade are basically:

Gains from specialization and trade apply to:

If the U.S. exports machines and India exports cloth, which of the following statements would be incorrect?

-Based on the information above, if the two countries specialize and trade the U.S. will export _ and Holland will export _ .

-With free trade, the minimum limit on the amount paid for one picture frame is _____ scooters.

-Which of the following is a viable world price for one scooter?

based on the following information. A worker in the U.S. can produce either 5 machines per day or 15 yards of cloth. A worker in India can produce either 1 machine per day or 5 yards of cloth. -Which of the following statements is false?

based on the following information. A worker in the U.S. can produce either 5 machines per day or 15 yards of cloth. A worker in India can produce either 1 machine per day or 5 yards of cloth. -Which of the following statements is true?

based on the following information. A worker in the U.S. can produce either 5 machines per day or 15 yards of cloth. A worker in India can produce either 1 machine per day or 5 yards of cloth. -In India the price of machines in terms of cloth (marginal rate of transformation) is:

based on the following information. A worker in the U.S. can produce either 5 machines per day or 15 yards of cloth. A worker in India can produce either 1 machine per day or 5 yards of cloth. -In the U.S., the price of machines in terms of cloth (marginal rate of transformation) is:

If Dutch labor can produce 3 soda pops or 5 yogurt cones in a day, while British labor can produce 2 soda pops and 4 yogurt cones, then _____ has a comparative advantage in yogurt cones.

In Bulgaria the price of brooms in terms of hats is:

_ has a comparative advantage in the production of brooms and _ has a comparative advantage in the production of hats.

based on the following information. A worker in the U.S. can produce either 10 chips or 20 sodas per day. A worker in Mexico can produce either 20 chips or 60 sodas per day. -Which of the following is true?

based on the following information. A worker in the U.S. can produce either 10 chips or 20 sodas per day. A worker in Mexico can produce either 20 chips or 60 sodas per day. -Which of the following is false?

based on the following information. A worker in the U.S. can produce either 10 chips or 20 sodas per day. A worker in Mexico can produce either 20 chips or 60 sodas per day. -Which of the following is true?

based on the following information. A worker in the U.S. can produce either 10 chips or 20 sodas per day. A worker in Mexico can produce either 20 chips or 60 sodas per day. -Which of the following would be the best ratio for Mexico in terms of the gains from trade?