Question 1

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 use their abundant factors of production intensively. A large labor supply would imply that labor is abundant and therefore, the country is more likely to have a comparative advantage in a product that is intensive in labor.

Question 2

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

The answer of If the exchange rate between the United...

Question 3

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

Accepted Answer

A country may have a comparative advantage in producing certain goods even if it doesn't have an absolute advantage. Comparative advantage refers to a situation where a country can produce a particular good at a lower opportunity cost than another country. This can make the country competitive in world markets even if it doesn't have an absolute advantage in producing that good. Thus, products in which a country has a comparative advantage can also be competitive in world markets.

Question 4

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

Accepted Answer

Factor endowments refer to a country's stock of labor, land, natural resources, and capital that contribute to its production capacity. Therefore, choice (C) is the correct answer. The other options are not as comprehensive in encompassing all of the factors mentioned in the question.

Question 5

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 statement accurately defines the concept of comparative advantage, which is a key principle in international trade theory. If a country can produce a good at a lower opportunity cost (i.e. the cost of producing one unit of a good in terms of how many units of another good could have been produced instead) than other countries, then it has a comparative advantage in that good and should specialize in producing and exporting it.

Question 6

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 7

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 8

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 9

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 10

An example of an acquired comparative advantage is

Accepted Answer

An acquired comparative advantage is when a country gains an advantage in producing a certain product due to factors other than its natural endowments. In this case, the United States consumers buying TV sets produced in Japan because of their reputation for high quality is an example of an acquired comparative advantage. The United States does not have a natural endowment in producing high-quality TVs, but its consumers have a preference for Japanese TVs due to other factors such as brand reputation, design, and functionality. This gives Japan an advantage in producing TVs for the United States market.

Question 11

A significant portion of actual world trade patterns results from

Accepted Answer

Different factor endowments between countries refer to the resources available to each country, such as natural resources, labor, and technology. Countries may export goods and services that make use of their abundant resources and import goods and services that use their scarce resources. This leads to a specialization of production and trade based on each country's comparative advantage, which drives much of world trade patterns.

Question 12

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

The exchange rate that leads to both countries realizing the gains from specialization and comparative advantage depends on various factors such as differences in productivity, labor costs, and availability of resources. Hence, there can be multiple exchange rates that can lead to gains from trade between two countries.

Question 13

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. In a free market, countries will naturally move their resources towards sectors where they have a comparative advantage, and exchange rates play a key role in determining the relative prices of goods and services across countries. As exchange rates shift in response to market forces, it becomes more profitable for countries to specialize in certain industries and trade with other nations. Over time, this leads to a more efficient allocation of resources and greater global economic growth.

Question 14

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

Accepted Answer

The simple comparative advantage theory assumes that countries will only specialize in the production of goods where they have a comparative advantage and will trade with other countries to obtain goods where they do not have a comparative advantage. If a country is both importing and exporting the same goods, it cannot be explained by the theory as the country does not have a clear comparative advantage in either production or consumption of those goods.

Question 15

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 product, then it makes sense for each country to specialize in producing that product and then trade with the other country. This allows both countries to produce more of their respective goods more efficiently, resulting in increased overall output and trade benefits for both parties.

Question 16

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 can affect the relative prices of goods and services between countries, and therefore determine the competitiveness of each country's exports. This can lead to one country gaining more from trade than the other.

Question 17

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

Accepted Answer

The Heckscher-Ohlin theorem posits that trade flows are determined by relative factor endowments between countries, specifically differences in labor, capital, and land resources.

Question 18

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

Accepted Answer

Human capital refers to the knowledge, skills, and abilities of a country's workforce. A country with a lot of human capital is likely to have a more educated and skilled workforce, which can lead to a comparative advantage in producing highly technical goods that require specialized knowledge and training.

Question 19

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, it creates a comparative advantage for the domestic country in producing the product. As a result, the country will export the product to take advantage of the higher world price and increase its overall income.

Question 20

An example of acquired comparative advantage is that

Accepted Answer

An acquired comparative advantage is when a country develops an advantage over time due to factors such as technology, education, or reputation. In this case, German cars have a reputation for being very safe, which gives them an advantage over American cars in terms of consumer preference.

Quiz 19: International Trade, comparative Advantage, and Protectionism