Question 1

The trading principle formulated by Adam Smith maintained that:
A) International prices are determined from the demand side of the market
B) Differences in resource endowments determine comparative advantage
C) Differences in income levels govern world trade patterns
D) Absolute cost differences determine the immediate basis for trade

Accepted Answer

D

Question 2

Unlike the mercantilists,Adam Smith maintained that:
A) Trade benefits one nation only at the expense of another nation
B) Government control of trade leads to maximum economic welfare
C) All nations can gain from free international trade
D) The world's output of goods must remain constant over time

Accepted Answer

Adam Smith believed that all nations can benefit from free international trade due to specialization and comparative advantage. He argued that each country should focus on producing goods in which they have a comparative advantage and then trade with other countries to acquire goods that they cannot produce as efficiently. This leads to greater efficiency, increased productivity, and economic growth for all countries involved in the trade.

Question 3

Increasing opportunity costs suggest that:
A) Resources are not perfectly shiftable between the production of two goods
B) Resources are fully shiftable between the production of two goods
C) A country's production possibilities curve appears as a straight line
D) A country's production possibilities curve is bowed inward (i.e., convex) in appearance

Accepted Answer

A

Question 4

Table 2.1. Output Possibilities of the U.S. and the U.K.
 
-Referring to Table 2.1,the opportunity cost of producing one ton of steel in the United States is:
A) 3 televisions
B) 10 televisions
C) 20 televisions
D) 45 televisions

Accepted Answer

The answer of Table 2.1. Output Possibilities of the U.S....

Question 5

The mercantilists would have objected to:
A) Export promotion policies initiated by the government
B) The use of tariffs or quotas to restrict imports
C) Trade policies designed to accumulate gold and other precious metals
D) International trade based on open markets

Accepted Answer

The mercantilists believed in maximizing exports and minimizing imports in order to accumulate wealth in the form of gold and other precious metals. Therefore, they would have objected to international trade based on open markets, which allows for free trade and equal exchange without restrictions or barriers.

Question 6

If a production possibilities curve is bowed out (i.e.,concave)in appearance,production occurs under conditions of:
A) Constant opportunity costs
B) Increasing opportunity costs
C) Decreasing opportunity costs
D) Zero opportunity costs

Accepted Answer

A bowed-out (concave) production possibilities curve indicates increasing opportunity costs. As more and more of one good is produced, greater and greater amounts of the other good must be given up, leading to increasing opportunity costs.

Question 7

Table 2.1. Output Possibilities of the U.S. and the U.K.
 
-Refer to Table 2.1.Mutually advantageous trade will occur between the United States and the United Kingdom so long as one ton of steel trades for:
A) At least 1 television, but no more than 2 televisions
B) At least 2 televisions, but no more than 3 televisions
C) At least 3 televisions, but no more than 4 televisions
D) At least 4 televisions, but no more than 5 televisions

Accepted Answer

According to Table 2.1, the opportunity cost of producing one ton of steel is 2 televisions in the U.S. and 3 televisions in the U.K. Therefore, if the U.S. trades one ton of steel for more than 2 televisions, it would be better off just producing the televisions domestically. Similarly, if the U.K. trades one ton of steel for less than 3 televisions, it would be better off just producing the televisions domestically. Thus, the mutually beneficial trade will occur if the trade happens between 2 and 3 televisions for one ton of steel, which is option B.

Question 8

Table 2.1. Output Possibilities of the U.S. and the U.K.
 
-Referring to Table 2.1,the United Kingdom gains most from trade if:
A) 1 ton of steel trades for 2 televisions
B) 1 ton of steel trades for 3 televisions
C) 2 tons of steel trade for 4 televisions
D) 2 tons of steel trade for 5 televisions

Accepted Answer

The answer of Table 2.1. Output Possibilities of the U.S....

Question 9

Assuming increasing cost conditions,trade between two countries would not be likely if they have:
A) Identical demand conditions but different supply conditions
B) Identical supply conditions but different demand conditions
C) Different supply conditions and different demand conditions
D) Identical demand conditions and identical supply conditions

Accepted Answer

The answer of Assuming increasing cost conditions,trade between two countries...

Question 10

A nation that gains from trade will find its consumption point being located:
A) Inside its production possibilities curve
B) Along its production possibilities curve
C) Outside its production possibilities curve
D) None of the above

Accepted Answer

A nation that gains from trade will be able to consume goods that it cannot produce on its own, which means its consumption point will be outside its production possibilities curve. Trade allows a country to specialize in the production of goods for which it has a comparative advantage, and then trade those goods for other goods that it cannot produce as efficiently. This results in a higher level of consumption that cannot be achieved by producing everything domestically.

Question 11

Table 2.1. Output Possibilities of the U.S. and the U.K.
 
-Referring to Table 2.1,the United Kingdom has a comparative advantage in the production of:
A) Steel
B) Televisions
C) Both steel and televisions
D) Neither steel nor televisions

Accepted Answer

The answer of Table 2.1. Output Possibilities of the U.S....

Question 12

Unlike Adam Smith,David Ricardo's trading principle emphasizes the:
A) Demand side of the market
B) Supply side of the market
C) Role of comparative costs
D) Role of absolute costs

Accepted Answer

David Ricardo's trading principle emphasizes the role of comparative costs, which refers to the idea that countries should specialize in producing goods that they can produce at a lower opportunity cost than other countries. This highlights the importance of understanding the production costs of goods in different countries in order to determine the most efficient way to trade.

Question 13

Table 2.1. Output Possibilities of the U.S. and the U.K.
 
-Referring to Table 2.1,the United States has the absolute advantage in the production of:
A) Steel
B) Televisions
C) Both steel and televisions
D) Neither steel nor televisions

Accepted Answer

The United States has a lower opportunity cost in producing both steel and televisions compared to the United Kingdom. Therefore, the United States has the absolute advantage in both products.

Question 14

Table 2.1. Output Possibilities of the U.S. and the U.K.
 
-Refer to Table 2.1.If trade opens up between the United States and the United Kingdom,American firms should specialize in producing:
A) Steel
B) Televisions
C) Both steel and televisions
D) Neither steel nor televisions

Accepted Answer

The answer of Table 2.1. Output Possibilities of the U.S....

Question 15

According to the principle of comparative advantage,specialization and trade increase a nation's total output since:
A) Resources are directed to their highest productivity
B) The output of the nation's trading partner declines
C) The nation can produce outside of its production possibilities curve
D) The problem of unemployment is eliminated

Accepted Answer

The principle of comparative advantage states that if two countries specialize in producing the goods they are comparatively more efficient in producing, and then trade with each other, they can increase their total output. Specialization allows resources to be directed towards their highest productivity, resulting in an increase in both countries' total output. Therefore, option A is the correct choice. Option B, C and D are not correct as they do not reflect the principle of comparative advantage.

Question 16

In a two-product,two-country world,international trade can lead to increases in:
A) Consumer welfare only if output of both products is increased
B) Output of both products and consumer welfare in both countries
C) Total production of both products, but not consumer welfare in both countries
D) Consumer welfare in both countries, but not total production of both products

Accepted Answer

In a two-product, two-country world, international trade can lead to an increase in output and consumer welfare in both countries. This happens because countries can specialize in producing the goods in which they have a comparative advantage, leading to increased efficiency and overall production. As a result, consumers in both countries have access to a greater variety of goods at lower prices, which increases their welfare.

Question 17

The trading-triangle concept is used to indicate a nation's:
A) Exports, marginal rate of transformation, terms of trade
B) Imports, terms of trade, marginal rate of transformation
C) Marginal rate of transformation, imports, exports
D) Terms of trade, exports, imports

Accepted Answer

The trading-triangle concept refers to the three key variables in international trade, which are exports, imports, and terms of trade. The marginal rate of transformation also plays a role in international trade, but it is not one of the key variables in the trading-triangle concept. Therefore, the correct choice is D, which includes the three key variables, exports, imports, and terms of trade.

Question 18

When a nation requires fewer resources than another nation to produce a product,the nation is said to have a:
A) Absolute advantage in the production of the product
B) Comparative advantage in the production of the product
C) Lower marginal rate of transformation for the product
D) Lower opportunity cost of producing the product

Accepted Answer

The answer of When a nation requires fewer resources than...

Question 19

As a result of international trade,specialization in production tends to be:
A) Complete with constant costs--complete with increasing costs
B) Complete with constant costs--incomplete with increasing costs
C) Incomplete with constant costs--complete with increasing costs
D) Incomplete with constant costs--incomplete with increasing costs

Accepted Answer

The answer of As a result of international trade,specialization in...

Question 20

Concerning international trade restrictions,which of the following is false? Trade restrictions:
A) Limit specialization and the division of labor
B) Reduce the volume of trade and the gains from trade
C) Cause nations to produce inside their production possibilities curves
D) May result in a country producing some of the product of its comparative disadvantage

Accepted Answer

The answer of Concerning international trade restrictions,which of the following...

Quiz 2: Foundations of Modern Trade Theory: Comparative Advantage

The trading principle formulated by Adam Smith maintained that:

Unlike the mercantilists,Adam Smith maintained that:

Increasing opportunity costs suggest that:

Table 2.1. Output Possibilities of the U.S. and the U.K. -Referring to Table 2.1,the opportunity cost of producing one ton of steel in the United States is:

The mercantilists would have objected to:

If a production possibilities curve is bowed out (i.e.,concave) in appearance,production occurs under conditions of:

Table 2.1. Output Possibilities of the U.S. and the U.K. -Refer to Table 2.1.Mutually advantageous trade will occur between the United States and the United Kingdom so long as one ton of steel trades for:

Table 2.1. Output Possibilities of the U.S. and the U.K. -Referring to Table 2.1,the United Kingdom gains most from trade if:

Assuming increasing cost conditions,trade between two countries would not be likely if they have:

A nation that gains from trade will find its consumption point being located:

Table 2.1. Output Possibilities of the U.S. and the U.K. -Referring to Table 2.1,the United Kingdom has a comparative advantage in the production of:

Unlike Adam Smith,David Ricardo's trading principle emphasizes the:

Table 2.1. Output Possibilities of the U.S. and the U.K. -Referring to Table 2.1,the United States has the absolute advantage in the production of:

Table 2.1. Output Possibilities of the U.S. and the U.K. -Refer to Table 2.1.If trade opens up between the United States and the United Kingdom,American firms should specialize in producing:

According to the principle of comparative advantage,specialization and trade increase a nation's total output since:

In a two-product,two-country world,international trade can lead to increases in:

The trading-triangle concept is used to indicate a nation's:

When a nation requires fewer resources than another nation to produce a product,the nation is said to have a:

As a result of international trade,specialization in production tends to be:

Concerning international trade restrictions,which of the following is false? Trade restrictions: