Question 1

If the opportunity cost of corn to wheat is 3:1 in the United States and 5:1 in France, only the United States would benefit from trade if the actual terms of trade between corn and wheat were 2:1.

Accepted Answer

A) True 
 B)False

Question 2

The advantage in the production of a product enjoyed by one country over another when it uses ________ to produce that product than the other country does is an absolute advantage.

Accepted Answer

A)  fewer resources 
B)  more technology 
C)  more labor 
D)  more capital

Question 3

Country A has a comparative advantage compared to Country B in the production of shoes if

Accepted Answer

A)  Country A can produce shoes at a lower monetary cost than Country B can. 
B)  Country A can produce shoes using fewer resources than Country B can. 
C)  the demand for shoes is higher in Country A than in Country B. 
D)  Country A can produce shoes at a lower cost in terms of other goods than Country B can.

Question 4

If Holland decreases subsidies to its tulip growers, the price of tulips in the United States will rise.

Accepted Answer

A) True 
 B)False

Question 5

If the domestic price is above the world price of a certain product, the domestic country will import the product.

Accepted Answer

A) True 
 B)False

Question 6

Refer to the information provided in Figure 18.3 below to answer the questions that follow.  Figure 18.3
-Refer to Figure 18.3. The domestic price of shoes is $80. After trade the price of a pair of shoes is $60. Now domestic production costs fall so that the equilibrium domestic price of a pair of shoes is $70. This would cause

Accepted Answer

A)  the number of pairs of shoes imported into this country to increase. 
B)  the number of pairs of shoes imported into this country to decrease. 
C)  the number of pairs of shoes exported from this country to increase. 
D)  the number of pairs of shoes exported from this country to decrease.

Question 7

Refer to the information provided in Table 18.3 below to answer the questions that follow.
Table 18.3 
-Refer to Table 18.3. If the exchange rate is $1 = 2 euros, then

Accepted Answer

A)  the United States will import both raspberries and chocolate. 
B)  Belgium will import both raspberries and chocolate. 
C)  the United States will import raspberries and Belgium will import chocolate. 
D)  Belgium will import chocolate.

Question 8

If the exchange rate between the United States and India changes from $1 = 60 rupees to $1 = 10 rupees, ceteris paribus

Accepted Answer

A)  the United States imports from India increase. 
B)  Indian exports to the United States increase. 
C)  the United States exports to India increase. 
D)  the trade deficit in the United States increases.

Question 9

Refer to the information provided in Figure 18.4 below to answer the questions that follow.  Figure 18.4
-Refer to Figure 18.4. The domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and after a tariff is imposed the price is $15. If the tariff is raised so that it now equals $10, tariff revenue in this country will be

Accepted Answer

A)  $0. 
B)  $1,000. 
C)  $2,000. 
D)  $3,000.

Question 10

The theory of ________ is credited to David Ricardo.

Accepted Answer

A)  supply and demand 
B)  comparative advantage 
C)  national trade protection 
D)  marginal production

Question 11

-Refer to Table 18.4. Before specialization, Germany produces 45 cases of beer and 30 cases of wine, and Chile produces 18 cases of beer and 24 cases of wine. After specialization, the increase in wine production is

Accepted Answer

A)  2 cases of wine. 
B)  4 cases of wine. 
C)  6 cases of wine. 
D)  10 cases of wine.

Question 12

The international agreement signed by the United States and 22 other countries in 1947 to promote the liberalization of foreign trade is known by its initials as

Accepted Answer

A)  GATT. 
B)  START. 
C)  SALT. 
D)  IMF.

Question 13

A country has a trade surplus when

Accepted Answer

A)  its exports exceed its imports. 
B)  its exports equal its imports. 
C)  its government spending exceeds its tax revenues. 
D)  its exports are less than its imports.

Question 14

Refer to the information provided in Table 18.3 below to answer the questions that follow.
Table 18.3 
-Refer to Table 18.3. Trade will flow in both directions between countries only if the price of the euro is between

Accepted Answer

A)  $.40 and $.50. 
B)  $1.00 and $2.25. 
C)  $.60 and $.75. 
D)  $.44 and $1.00.

Question 15

When countries specialize in producing those goods in which they have a comparative advantage, they

Accepted Answer

A)  maximize their combined output, but they do not necessarily allocate their resources more efficiently. 
B)  maximize their combined output and allocate their resources more efficiently. 
C)  allocate their resources more efficiently, but they do not necessarily maximize their combined output. 
D)  do not necessarily maximize their combined output, and they also do not necessarily allocate their resources more efficiently.

Question 16

The Dominican Republic has a comparative advantage in the production of tobacco, and Panama has a comparative advantage in the production of oranges. If both countries specialize based on the theory of comparative advantage

Accepted Answer

A)  only the production of tobacco will increase. 
B)  only the production of both goods will increase. 
C)  only the consumption of both goods will increase. 
D)  the production and consumption of both goods will increase.

Question 17

Related to the Economics in Practice on page 349: Satirist Frederic Bastiat's essay arguing for a quota on sunlight in order to protect domestic candle makers suggests that it is pointless to

Accepted Answer

A)  participate in international trade. 
B)  protect industries that cannot compete effectively. 
C)  legislate based on economic theory. 
D)  create barriers to trade in some markets but not others.

Question 18

Suppose that Japan and India are both engaged in the production of radios and rice, and that Japan has an absolute advantage in the production of both goods. If India has a lower opportunity cost for producing rice, then

Accepted Answer

A)  India has a comparative advantage in rice production, but there will be no gains from specialization and trade. 
B)  Japan has a comparative advantage in the production of both goods. 
C)  India has a comparative advantage in the production of rice, but it is outweighed by Japan's absolute advantage in rice production. 
D)  India has a comparative advantage in the production of rice, and specialization and trade between the two countries can be mutually beneficial.

Question 19

Refer to the information provided in Figure 18.2 below to answer the questions that follow.  Figure 18.2
-Refer to Figure 18.2. The theory of comparative advantage suggests that

Accepted Answer

A)  England should import trucks and export cars. 
B)  England should export both trucks and cars. 
C)  the United States should export both trucks and cars. 
D)  the United States should export cars and import trucks.

Question 20

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

Accepted Answer

A)  capital stock. 
B)  productive capacity. 
C)  factor endowments. 
D)  economic potential.

Exam 18: International Trade, Comparative Advantage, and Protectionism

If the opportunity cost of corn to wheat is 3:1 in the United States and 5:1 in France, only the United States would benefit from trade if the actual terms of trade between corn and wheat were 2:1.

The advantage in the production of a product enjoyed by one country over another when it uses ________ to produce that product than the other country does is an absolute advantage.

Country A has a comparative advantage compared to Country B in the production of shoes if

If Holland decreases subsidies to its tulip growers, the price of tulips in the United States will rise.

If the domestic price is above the world price of a certain product, the domestic country will import the product.

Refer to the information provided in Table 18.3 below to answer the questions that follow. Table 18.3 -Refer to Table 18.3. If the exchange rate is $1 = 2 euros, then

If the exchange rate between the United States and India changes from $1 = 60 rupees to $1 = 10 rupees, ceteris paribus

The theory of ________ is credited to David Ricardo.

-Refer to Table 18.4. Before specialization, Germany produces 45 cases of beer and 30 cases of wine, and Chile produces 18 cases of beer and 24 cases of wine. After specialization, the increase in wine production is

The international agreement signed by the United States and 22 other countries in 1947 to promote the liberalization of foreign trade is known by its initials as

A country has a trade surplus when

Refer to the information provided in Table 18.3 below to answer the questions that follow. Table 18.3 -Refer to Table 18.3. Trade will flow in both directions between countries only if the price of the euro is between

When countries specialize in producing those goods in which they have a comparative advantage, they

The Dominican Republic has a comparative advantage in the production of tobacco, and Panama has a comparative advantage in the production of oranges. If both countries specialize based on the theory of comparative advantage

Related to the Economics in Practice on page 349: Satirist Frederic Bastiat's essay arguing for a quota on sunlight in order to protect domestic candle makers suggests that it is pointless to

Suppose that Japan and India are both engaged in the production of radios and rice, and that Japan has an absolute advantage in the production of both goods. If India has a lower opportunity cost for producing rice, then

Refer to the information provided in Figure 18.2 below to answer the questions that follow. Figure 18.2 -Refer to Figure 18.2. The theory of comparative advantage suggests that

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