Question 1

If a nation has a comparative disadvantage in the production of some commodity,

Accepted Answer

If a nation has a comparative disadvantage in the production of some commodity, it can still gain from international trade in that commodity because it can get it at a lower opportunity cost than if they produced it domestically. This means that although the nation may not have an absolute advantage in producing the commodity, it can still benefit from trading for it at a lower cost.

Question 2

In Bangladesh one person can produce 330 pounds of rice or 110 shirts in one year.In Singapore one person can produce 400 pounds of rice or 200 shirts in one year.Which of the following statements is true?

Accepted Answer

In Bangladesh, one person can produce 330 pounds of rice or 110 shirts in one year. In Singapore, one person can produce 400 pounds of rice or 200 shirts in one year. When comparing the opportunity cost (the production of one good in terms of the production of another good forgone) of producing rice between the two countries, it is clear that Bangladesh has a lower opportunity cost of producing rice since they can produce 1 pound of rice by sacrificing only 1/3 of a shirt, whereas Singapore can produce 1 pound of rice by sacrificing 1/2 of a shirt. Thus, Bangladesh has a comparative advantage in the production of rice, because its opportunity cost of producing rice is lower than Singapore's opportunity cost of producing rice.

Question 3

One country will have a comparative advantage over another if its production possibilities

Accepted Answer

The answer of One country will have a comparative advantage...

Question 4

If a nation has "cheap" labor,

Accepted Answer

All of the above statements are true. Even if a nation has cheap labor, it may still have a comparative advantage in producing goods that require lower levels of capital and skill. However, it is unlikely to have a comparative advantage in producing goods that are highly capital-intensive as those goods require expensive machinery and highly skilled workers. Furthermore, no country can have a comparative advantage in everything, and therefore, countries must specialize in producing certain goods where they have a comparative advantage in order to maximize economic efficiency and gain from international trade.

Question 5

If two countries each are currently producing two goods,and each begins to specialize in the good in which it has a comparative advantage,what will happen to total world output?

Accepted Answer

When each country specializes in the good in which it has a comparative advantage, the overall efficiency will improve, resulting in an increase in total world output. Therefore, choice A is the correct answer.

Question 6

Suppose that the U.S.can make 15 cars or 20 bottles of wine with one year's worth of labor.France can make 10 cars or 18 bottles of wine with one year's worth of labor.From these numbers,we can conclude

Accepted Answer

The U.S. has an absolute advantage in both cars and wine because it can produce more of both with the same amount of labor compared to France. However, the U.S. has a comparative advantage in cars because it sacrifices fewer bottles of wine to produce an additional car (20/15 = 1.33 bottles of wine per car) compared to France (18/10 = 1.8 bottles of wine per car). France has a comparative advantage in wine production because it sacrifices fewer cars to produce an additional bottle of wine (10/18 = 0.56 cars per bottle of wine) compared to the U.S. (15/20 = 0.75 cars per bottle of wine).

Question 7

The difference between the price the seller receives for a good or service and the minimum price he would be willing to accept for that unit is called:

Accepted Answer

The difference between the price the seller receives and the minimum price they would accept is called producer surplus. This represents the extra benefit or profit gained by the producer/seller in a transaction. Choice (A) is incorrect because total gains from trading would include both producer and consumer surplus. Choice (C) is incorrect because consumer surplus is the difference between the maximum price a consumer is willing to pay and the price they actually pay, not the difference for the seller. Choice (D) is incorrect because it refers to the combined benefit gained by both the consumer and the producer/seller.

Question 8

If an exporter's supply curve of a commodity is upward sloping,and if a change in import demands in other countries leads them to increase their exports,other things equal,we would expect

Accepted Answer

An upward sloping supply curve indicates that as the quantity supplied increases, the price also increases. If there is an increase in export due to higher import demand in other countries, this would lead to a reduction in domestic supply, pushing the domestic price higher.

Question 9

Exhibit 28-3 Alternate Outputs from One Day's Labor Input:
United States: 12 bushels of wheat or 3 yards of textiles.
Great Britain: 3 bushels of wheat or 12 yards of textiles.
Refer to Exhibit 28-3.From the data above,the United States

Accepted Answer

The answer of Exhibit 28-3 Alternate Outputs from One Day's...

Question 10

The supply and demand mechanism will bring an international market into equilibrium

Accepted Answer

In an international market, the supply and demand mechanism will bring the market into equilibrium when the quantity of exports supplied equals the quantity of imports demanded. This means that exporters will supply their excess production beyond what they consume domestically, and importers will demand an amount of imports equal to their own consumption and investment needs. The equilibrium price will be determined by the intersection of the demand and supply curves, and it may be higher, lower, or equal to the domestic prices in both exporting and importing countries, depending on the relative strengths of supply and demand factors in each market.

Question 11

If nations begin to expand their specialization in production for the purpose of trade,

Accepted Answer

Specialization in production and trade allows each nation to produce goods and services that they have a comparative advantage in, leading to increased efficiency and productivity. This, in turn, leads to an increase in total world output. Additionally, as nations are able to acquire goods and services at lower prices due to specialization and trade, consumer surplus will also increase. Therefore, B is the correct answer.

Question 12

Exhibit 28-3 Alternate Outputs from One Day's Labor Input:
United States: 12 bushels of wheat or 3 yards of textiles.
Great Britain: 3 bushels of wheat or 12 yards of textiles.
Refer to Exhibit 28-3.The opportunity cost of one bushel of wheat in Great Britain is

Accepted Answer

In Great Britain, 3 bushels of wheat can be produced instead of 12 yards of textiles. Therefore, the opportunity cost of 1 bushel of wheat is 12 yards of textiles / 3 bushels = 4 yards of textiles.

Question 13

Assume that one day's labor in England can produce either 20 units of cloth or 2 units of wine,while in Portugal,one day's labor can produce either 24 units of cloth or 12 units of wine.If England transfers 2 units of labor from wine to cloth and Portugal transfers 1 unit of labor from cloth to wine,the increase in combined output by those two workers will be

Accepted Answer

Before the transfers, England produces 40 units of cloth (2 workers * 20 units of cloth per worker) and 4 units of wine (2 workers * 2 units of wine per worker). After transferring 2 units of labor from wine to cloth, England will produce 60 units of cloth (2 workers * 30 units of cloth per worker) and 2 units of wine (2 workers * 1 unit of wine per worker).

Before the transfers, Portugal produces 48 units of cloth (2 workers * 24 units of cloth per worker) and 24 units of wine (2 workers * 12 units of wine per worker). After transferring 1 unit of labor from cloth to wine, Portugal will produce 36 units of cloth (1 worker * 36 units of cloth per worker) and 36 units of wine (3 workers * 12 units of wine per worker).

Therefore, the combined output after the transfers will be 98 units of cloth (60 from England + 36 from Portugal + 2 unused) and 38 units of wine (36 from Portugal + 2 from England). The increase in output is 16 units of wine and 16 units of cloth, so the answer is D.

Question 14

If a country begins allowing free international trade in a good,and as a result,it increases imports of that good.

Accepted Answer

When a country increases imports of a good due to free international trade, the domestic consumers gain because they have more options and lower prices. On the other hand, domestic producers may lose out due to increased competition from foreign producers. However, consumers benefit more than producers lose, resulting in a net gain for the country.

Question 15

Compared to the no-trade situation,when a country exports a good:

Accepted Answer

When a country exports a good, the domestic producers benefit from the increased demand for their product and can charge higher prices. This results in a gain for domestic producers. However, domestic consumers are faced with a higher price for the product, which results in a loss for them. Overall, the gains to domestic producers outweigh the losses to domestic consumers, resulting in a net gain for the country as a whole.

Question 16

When markets reach the ____ price all the opportunities for mutually beneficial trade have taken place and the sum of consumer and producer surplus is ____.

Accepted Answer

In a market, the equilibrium price is where the quantity demanded equals the quantity supplied, and this is where all the opportunities for mutually beneficial trade have taken place. At this price, the sum of consumer and producer surplus is maximized, making choice C the correct option. Choices A and B are incorrect because minimum or maximum prices do not necessarily result in all mutually beneficial trades taking place, and they do not maximize the sum of consumer and producer surplus. Choice D is incorrect as the surplus is not evenly shared between consumers and producers, but rather, it depends on the relative elasticities of demand and supply.

Question 17

The difference between the price the consumer is willing to pay for a good or service and what he would have to pay for that unit is called:

Accepted Answer

The difference between the price the consumer is willing to pay and the actual price they have to pay is the gain in consumer surplus. This is because the consumer is receiving a benefit in the form of a lower price than they were willing to pay, resulting in a surplus of satisfaction or utility. The other options (A, B, and D) refer to different measures of overall market welfare or individual gains from trade.

Question 18

Assume that Germany can produce 10 million bottles of beer or 4 million bottles of vodka.Further assume that Russia can produce 7 million bottles of beer or 3 million bottles of vodka.As a result,which of the following is true with regard to absolute and comparative advantage?

Accepted Answer

Germany has the absolute advantage in beer because it can produce 10 million bottles of beer compared to Russia's 7 million. Germany also has the comparative advantage in beer because it can produce beer at a lower opportunity cost than vodka, as it would have to give up producing 2.5 million bottles of beer to produce 4 million bottles of vodka.

Question 19

The world price of a commodity will settle at the level where

Accepted Answer

The world price of a commodity will settle at the level where the excess demand of the importing country is just equal to the excess supply of the exporting country. This is because if there is more demand than supply, the price will rise until the excess demand is eliminated, and if there is more supply than demand, the price will fall until the excess supply is eliminated. The point where these two forces balance each other out is where the world price will settle. Hence, option B is the correct choice.

Question 20

Compared to the no-trade situation,when a country imports a good:

Accepted Answer

When a country imports a good, domestic consumers gain access to a wider variety of goods at a lower cost than they would if the good were produced domestically. Domestic producers may lose some market share or face increased competition, but they also have the opportunity to expand into new markets and benefit from lower input costs for imported goods. Overall, the gains from imports for domestic consumers outweigh the losses for domestic producers.

Quiz 28: International Trade