Question 1

Nations trade what they produce in excess of their own consumption to:

Accepted Answer

A) generate jobs for the domestic economy. 
B) earn "good will" from the World Bank. 
C) prevent chronic surpluses from driving down domestic prices. 
D) acquire other things they want to consume. 
E) reduce the size of their foreign trade deficit. 
A) generate jobs for the domestic economy. 
B) earn "good will" from the World Bank. 
C) prevent chronic surpluses from driving down domestic prices. 
D) acquire other things they want to consume. 
E) reduce the size of their foreign trade deficit.

Question 2

The export supply curve shows a country's:

Accepted Answer

A) domestic surplus at various prices below the "no-trade" equilibrium price. 
B) domestic shortage at various prices below the "no-trade" equilibrium price. 
C) domestic supply at the "no-trade" equilibrium price. 
D) domestic surplus at various prices above the "no-trade" equilibrium price. 
E) domestic shortage at various prices above the "no-trade" equilibrium price. 
A) domestic surplus at various prices below the "no-trade" equilibrium price. 
B) domestic shortage at various prices below the "no-trade" equilibrium price. 
C) domestic supply at the "no-trade" equilibrium price. 
D) domestic surplus at various prices above the "no-trade" equilibrium price. 
E) domestic shortage at various prices above the "no-trade" equilibrium price.

Question 3

The product life cycle theory of comparative advantage predicts that a new product will be first produced and exported by:

Accepted Answer

A) the nation that first demanded the new product. 
B) the first firm to successfully copy the technology. 
C) the nation in which it was invented. 
D) the countries with the most stable economies and the fewest restrictions on foreign trade. 
E) the company with the most extensive network of international distributors for the product. 
A) the nation that first demanded the new product. 
B) the first firm to successfully copy the technology. 
C) the nation in which it was invented. 
D) the countries with the most stable economies and the fewest restrictions on foreign trade. 
E) the company with the most extensive network of international distributors for the product.

Question 4

"Most textiles worn by American consumers are produced in Asian and South American countries where the opportunity costs of production are lower." This observation refers to the:

Accepted Answer

A) law of supply. 
B) income elasticity of demand. 
C) principle of beneficial tariffs. 
D) principle of comparative advantage. 
E) law of decreasing returns to scale. 
A) law of supply. 
B) income elasticity of demand. 
C) principle of beneficial tariffs. 
D) principle of comparative advantage. 
E) law of decreasing returns to scale.

Question 5

The following table shows the units of calculators and rice produced by a laborer in a day in Japan and Korea. Table 20.3   Refer to Table 20.3.Determine the limits on the terms of trade for 1 pound of rice.

Accepted Answer

A) Between 5 calculators and 10 calculators 
B) Between 1 calculator and 5 calculators 
C) Between 1 calculator and 10 calculators 
D) Between 1 calculator and 2 calculators 
E) Between two-fifths of a calculator and 1 calculator 
A) Between 5 calculators and 10 calculators 
B) Between 1 calculator and 5 calculators 
C) Between 1 calculator and 10 calculators 
D) Between 1 calculator and 2 calculators 
E) Between two-fifths of a calculator and 1 calculator

Question 6

Between two countries, comparative advantage is found by comparing the:

Accepted Answer

A) relative costs of production in each country. 
B) absolute costs of production in each country after accounting for inflation. 
C) labor hours required to produce a bundle of products in each country. 
D) level of interest rates in each country. 
E) shipping and transportation costs of each country. 
A) relative costs of production in each country. 
B) absolute costs of production in each country after accounting for inflation. 
C) labor hours required to produce a bundle of products in each country. 
D) level of interest rates in each country. 
E) shipping and transportation costs of each country.

Question 7

Scenario 20.2 Suppose labor productivity differences are the only determinants of comparative advantage, and both Egypt and produce only corn and cocoa.In Egypt, 10 bushels of corn or 15 pounds of cocoa can be produced in a day.In Ghana, one day of labor can be used to produce either 2 bushels of corn or 8 pounds of cocoa.
Based on Scenario 20.2, which of the following terms of trade would benefit both countries?

Accepted Answer

A) 1 pound of cocoa is equal to 0.10 bushels of corn 
B) 1 pound of cocoa is equal to 2 bushels of corn 
C) 1 pound of cocoa is equal to 1 bushels of corn 
D) 1 pound of cocoa is equal to 0.5 bushels of corn 
E) 1 pound of cocoa is equal to 1.5 bushels of corn 
A) 1 pound of cocoa is equal to 0.10 bushels of corn 
B) 1 pound of cocoa is equal to 2 bushels of corn 
C) 1 pound of cocoa is equal to 1 bushels of corn 
D) 1 pound of cocoa is equal to 0.5 bushels of corn 
E) 1 pound of cocoa is equal to 1.5 bushels of corn

Question 8

The table below shows the quantity demanded (in thousands)and quantity supplied (in thousands)of computers in the U.S.and Canada at different prices. Table 20.5
  According to Table 20.5, the international equilibrium price of computers is:

Accepted Answer

A) $2, 000. 
B) $1, 600. 
C) $1, 800. 
D) $1, 400. 
E) $1, 200. 
A) $2, 000. 
B) $1, 600. 
C) $1, 800. 
D) $1, 400. 
E) $1, 200.

Question 9

The data in the table below assumes that with the same quantity of resources, both Australia and Philippines produces food and computers.Australia can make 1, 000 computers or 2, 000 units of food in a day, and the Philippines can make 200 computers or 1, 200 units of food in a day. Table 20.2   According to Table 20.2, Australia has:

Accepted Answer

A) a comparative disadvantage in the production of both food and computers. 
B) a comparative advantage in the production of computers. 
C) a comparative disadvantage in the production of computers. 
D) a comparative advantage in the production of food. 
E) a comparative advantage in the production of both food and computers. 
A) a comparative disadvantage in the production of both food and computers. 
B) a comparative advantage in the production of computers. 
C) a comparative disadvantage in the production of computers. 
D) a comparative advantage in the production of food. 
E) a comparative advantage in the production of both food and computers.

Question 10

According to Table 20.1, the opportunity cost of producing wheat in the U.S.equals:

Accepted Answer

A) half a unit of cloth. 
B) one-third of a unit of cloth. 
C) one-fourth of a unit of cloth. 
D) 4 units of cloth. 
E) 8 units of cloth 
A) half a unit of cloth. 
B) one-third of a unit of cloth. 
C) one-fourth of a unit of cloth. 
D) 4 units of cloth. 
E) 8 units of cloth

Question 11

Scenario 20.2 Suppose labor productivity differences are the only determinants of comparative advantage, and both Egypt and produce only corn and cocoa.In Egypt, 10 bushels of corn or 15 pounds of cocoa can be produced in a day.In Ghana, one day of labor can be used to produce either 2 bushels of corn or 8 pounds of cocoa.
Refer to Scenario 20.2.Ghana will be willing to trade cocoa for Egyptian corn if in the international market, 1 pound of cocoa can be exchanged for:

Accepted Answer

A) more than one-eighth of a bushel of corn. 
B) less than one-sixth of a bushel of corn. 
C) more than one-fourth of a bushel of corn. 
D) less than one-fifth of a bushel of corn. 
E) more than one-tenth of a bushel of corn. 
A) more than one-eighth of a bushel of corn. 
B) less than one-sixth of a bushel of corn. 
C) more than one-fourth of a bushel of corn. 
D) less than one-fifth of a bushel of corn. 
E) more than one-tenth of a bushel of corn.

Question 12

The first panel in the following figure shows the domestic demand (D)and supply (S)curves of Columbian coffee and the second panel shows the import demand and export supply of Columbian coffee in the international market. Figure 20.1   Refer to Figure 20.1.If the price of coffee in the international market is $14:

Accepted Answer

A) there will be an excess demand of 10 pounds in Columbia's domestic market. 
B) Columbia's domestic market for coffee will be in equilibrium. 
C) there will be an excess demand for Columbian coffee in the international market. 
D) the international market for coffee will be in equilibrium. 
E) Columbia will export 4 pounds of coffee. 
A) there will be an excess demand of 10 pounds in Columbia's domestic market. 
B) Columbia's domestic market for coffee will be in equilibrium. 
C) there will be an excess demand for Columbian coffee in the international market. 
D) the international market for coffee will be in equilibrium. 
E) Columbia will export 4 pounds of coffee.

Question 13

Developing countries can be expected to have a comparative advantage in industries requiring a relatively large amount of skilled labor.

Accepted Answer

A) True 
 B)False

Question 14

Scenario 20.1 Suppose labor productivity differences are the only determinants of comparative advantage, and Brazil and Chile both produce only coffee and sugar.In Chile, either 5 units of coffee or 2 units of sugar can be produced in one day.In Brazil, a day of labor produces either 2 units of coffee or 1 unit of sugar.
Refer to Scenario 20.1.What is the opportunity cost of producing coffee in Chile?

Accepted Answer

A) Half a pound of sugar 
B) Two-fifth of a pound of sugar 
C) 2 pounds of sugar 
D) One-third of a pound of sugar 
E) 4 pounds of sugar 
A) Half a pound of sugar 
B) Two-fifth of a pound of sugar 
C) 2 pounds of sugar 
D) One-third of a pound of sugar 
E) 4 pounds of sugar

Question 15

The table below shows units of wheat and cloth produced by each worker per day in both the countries. Table 20.1   Refer to Table 20.1.Which of the following statements is true?

Accepted Answer

A) India has an absolute advantage in the production of cloth. 
B) India has an absolute advantage in the production of both wheat and cloth. 
C) The U.S.has an absolute advantage in the production of wheat but not cloth. 
D) The U.S.has an absolute advantage the production of cloth but not wheat. 
E) The U.S.has an absolute advantage in the production of both wheat and cloth. 
A) India has an absolute advantage in the production of cloth. 
B) India has an absolute advantage in the production of both wheat and cloth. 
C) The U.S.has an absolute advantage in the production of wheat but not cloth. 
D) The U.S.has an absolute advantage the production of cloth but not wheat. 
E) The U.S.has an absolute advantage in the production of both wheat and cloth.

Question 16

The export supply and import demand curves measure the domestic shortage and surplus, respectively, at different world prices.

Accepted Answer

A) True 
 B)False

Question 17

What is known as the Dutch disease?

Accepted Answer

A) The problem that arises when a government cannot meet its foreign debts 
B) The phenomenon of a boom in one industry causing declines in the rest of the economy 
C) A sudden and unexpected devaluation of a currency as a consequence of policy controls 
D) The problem that arises when high imports force an economy to borrow from external sources 
E) A deficit in the balance of payments of the economy that arises due to a sudden appreciation of the domestic currency. 
A) The problem that arises when a government cannot meet its foreign debts 
B) The phenomenon of a boom in one industry causing declines in the rest of the economy 
C) A sudden and unexpected devaluation of a currency as a consequence of policy controls 
D) The problem that arises when high imports force an economy to borrow from external sources 
E) A deficit in the balance of payments of the economy that arises due to a sudden appreciation of the domestic currency.

Question 18

Whether exchange is between individuals, firms, or countries, voluntary trade occurs because:

Accepted Answer

A) only one party is made better off. 
B) both parties are made better off. 
C) financial agents devote resources to arranging such trades. 
D) these trades create employment for the economy. 
E) of mandates from the government. 
A) only one party is made better off. 
B) both parties are made better off. 
C) financial agents devote resources to arranging such trades. 
D) these trades create employment for the economy. 
E) of mandates from the government.

Question 19

Scenario 20.2 Suppose labor productivity differences are the only determinants of comparative advantage, and both Egypt and produce only corn and cocoa.In Egypt, 10 bushels of corn or 15 pounds of cocoa can be produced in a day.In Ghana, one day of labor can be used to produce either 2 bushels of corn or 8 pounds of cocoa.
Refer to Scenario 20.2.Egypt will be willing to trade corn for cocoa if in the international market 1 bushel of corn can be exchanged for:

Accepted Answer

A) more than 1 pound of cocoa. 
B) less than 1 pound of cocoa. 
C) more than 1.5 pounds of cocoa. 
D) less than two-third of a pound of cocoa. 
E) more than half a pound of cocoa. 
A) more than 1 pound of cocoa. 
B) less than 1 pound of cocoa. 
C) more than 1.5 pounds of cocoa. 
D) less than two-third of a pound of cocoa. 
E) more than half a pound of cocoa.

Question 20

According to the Heckscher-Ohlin theory, comparative advantage is based on:

Accepted Answer

A) labor productivity differences. 
B) product life cycles. 
C) the availability of skilled resources. 
D) consumer tastes and preferences. 
E) the relative abundance of the factors of production. 
A) labor productivity differences. 
B) product life cycles. 
C) the availability of skilled resources. 
D) consumer tastes and preferences. 
E) the relative abundance of the factors of production.

Exam 35: World Trade Equilibrium

Nations trade what they produce in excess of their own consumption to:

The export supply curve shows a country's:

The product life cycle theory of comparative advantage predicts that a new product will be first produced and exported by:

"Most textiles worn by American consumers are produced in Asian and South American countries where the opportunity costs of production are lower." This observation refers to the:

The following table shows the units of calculators and rice produced by a laborer in a day in Japan and Korea. Table 20.3 Refer to Table 20.3.Determine the limits on the terms of trade for 1 pound of rice.

Between two countries, comparative advantage is found by comparing the:

The table below shows the quantity demanded (in thousands)and quantity supplied (in thousands)of computers in the U.S.and Canada at different prices. Table 20.5 According to Table 20.5, the international equilibrium price of computers is:

According to Table 20.1, the opportunity cost of producing wheat in the U.S.equals:

Developing countries can be expected to have a comparative advantage in industries requiring a relatively large amount of skilled labor.

The table below shows units of wheat and cloth produced by each worker per day in both the countries. Table 20.1 Refer to Table 20.1.Which of the following statements is true?

The export supply and import demand curves measure the domestic shortage and surplus, respectively, at different world prices.

What is known as the Dutch disease?

Whether exchange is between individuals, firms, or countries, voluntary trade occurs because:

According to the Heckscher-Ohlin theory, comparative advantage is based on:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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