Question 1

When two countries are specializing and trading with each other, the gains from trade will tend to be greater when

Accepted Answer

A)  there are economies of scale in production.
B)  prices rise in both countries.
C)  the production possibilities boundaries shift inward.
D)  opportunity costs in the two countries are similar.
E)  comparative advantages are eliminated.F) D) and E)
G) None of the above

Question 2

One region is said to have an absolute advantage over another region in the production of good X when

Accepted Answer

A)  there is no demand for good X in the second region.
B)  the opportunity cost of one unit of X is lower in the first region than in the second region.
C)  an equal quantity of resources can produce more of good X in the first region than in the second region.
D)  the first region has a larger supply of the raw materials required to produce good X.
E)  the first region has a more productive labour force than the second.F) A) and C)
G) B) and D)

Question 3

According to David Ricardo's principle of comparative advantage, the gains from international trade can be reaped

Accepted Answer

A)  only by developed countries.
B)  only by a country with an absolute advantage in the production of some commodity.
C)  by any country with opportunity costs different from other countries.
D)  by any trading country with opportunity costs similar to other countries.
E)  by only one country if opportunity costs are identical across countries.F) None of the above
G) A) and B)

Question 4

If Canada's terms of trade rise from 212 to 236, then the change is said to be

Accepted Answer

A)  favourable.
B)  neutral.
C)  unfavourable.
D)  a deterioration.
E)  prudent, since the rule of 72 is not violated.F) C) and E)
G) A) and B) A

Question 5

The division of the gains of trade between two trading countries depends on the

Accepted Answer

A)  long- run costs.
B)  size of the absolute advantages possessed by each country.
C)  quantity of resources held by each country.
D)  level of unemployment in both countries.
E)  difference between the terms of trade and the autarkic relative prices.F) A) and B)
G) B) and E)

Question 6

The concept of comparative advantage in international trade is based on _ as opposed to absolute costs.

Accepted Answer

A)  total cost
B)  average cost
C)  relative prices
D)  absolute prices
E)  opportunity costsF) B) and C)
G) None of the above

Question 7

If Canada's index of import prices is 250 and the index of export prices is 200, then the index of the terms of trade is

Accepted Answer

A)  0.80.
B)  1.25.
C)  12.50.
D)  80.00.
E)  125.00.F) B) and C)
G) C) and D)

Question 8

If a country has a comparative advantage in the production of soybeans, and it trades freely with other countries, it will most probably

Accepted Answer

A)  export soybeans.
B)  not consume soybeans.
C)  import soybeans.
D)  increase its consumption of soybeans.
E)  derive no advantage from any trade in soybeans.F) B) and D)
G) C) and D)

Question 9

The diagram below shows the (hypothetical) demand and supply curves for regional jets in Canada. Assume that the market is competitive, all jets are identical, and that Canada engages in international trade.
  FIGURE 33- 6
-Refer to Figure 33- 6. If the world price of a regional jet is $35 million, Canada will

Accepted Answer

A)  import 60 jets per year.
B)  neither import nor export any jets.
C)  export 20 jets per year.
D)  import 20 jets per year.
E)  export 80 jets per year.F) C) and D)
G) B) and D)

Question 10

The "law of one price" states that the price of

Accepted Answer

A)  a product that is costless to transport will be the same in all markets.
B)  labour, measured in terms of its opportunity cost, is the same in all markets.
C)  a product worldwide is always equal to the cost of production from the country with the lowest opportunity cost to make the product.
D)  a product is always equal to the absolute cost of the resources that went into its production in any country.
E)  natural resources is the same in all markets.F) B) and E)
G) A) and B)

Question 11

North America exports clothing to the European Union, and the European Union exports clothing to North America. This is a(n)

Accepted Answer

A)  obvious failure to take advantage of specialization.
B)  general conclusion of the Heckscher- Ohlin theory.
C)  likely result of economies of scale and product differentiation.
D)  example of the inefficiency of trade patterns.
E)  violation of the law of comparative advantage.F) A) and B)
G) A) and E) C

Question 12

The concept of "comparative advantage" refers to the

Accepted Answer

A)  ability of one region to produce a commodity with less labour input than another region.
B)  ability of one region to produce a commodity with fewer total inputs than another region.
C)  ability of one region to produce a commodity at a lower opportunity cost than another region.
D)  terms of trade index.
E)  gains from international trade.F) C) and E)
G) A) and E)

Question 13

According to the Heckscher- Ohlin theory, national comparative advantages exist because of

Accepted Answer

A)  differences in saving and investment.
B)  differences in national factor endowments.
C)  international factor mobility.
D)  economies of scale.
E)  differences in climate alone.F) A) and B)
G) B) and D)

Question 14

Suppose that Spain is currently producing 90 units of wine and 10 units of cheese, but to produce 10 more units of cheese it must sacrifice 30 units of wine. Further, suppose that Portugal produces 45 units of wine and 45 units of cheese, but to produce 10 more units of cheese it must sacrifice only 10 units of wine. It can be concluded that

Accepted Answer

A)  neither country has an absolute advantage in the production of either wine or cheese.
B)  Portugal has an absolute advantage in both wine and cheese production.
C)  Spain has an absolute advantage in both wine and cheese production.
D)  more information is needed to conclude anything about absolute advantage in either country.
E)  Portugal has an absolute advantage in wine production and Spain has an absolute advantage in cheese production.F) B) and E)
G) B) and C)

Question 15

opportunity costs differ too much between the two countries.

Accepted Answer

A)  1 only
B)  3 only
C)  2 only
D)  2 and 3
E)  1 and 2F) A) and D)
G) A) and E)

Question 16

The hypothesis that the price of some given internationally traded product in one country will be equal to the price of the same product in some other country is known as

Accepted Answer

A)  the Big Mac index.
B)  the law of one price.
C)  absolute advantage.
D)  comparative advantage.
E)  gains from trade.F) B) and D)
G) C) and D)

Question 17

The "terms of trade" reflect the

Accepted Answer

A)  quantity of domestic goods that must be exported to get a unit of imported goods.
B)  quantity of imports that must be purchased to sell a unit of exported goods.
C)  amount of absolute advantage held by one country over another.
D)  difference in opportunity costs between two countries.
E)  conditions under which trade takes place, as established by the World Trade Organization.F) B) and D)
G) A) and B)

Question 18

Canadians consume millions of cups of Tim Horton's coffee each year. If Tim Horton's reduced the price per cup of coffee (because of a decrease in administration and transportation costs) , ceteris paribus, Canada's terms of trade will

Accepted Answer

A)  improve as long as consumption of coffee decreases.
B)  deteriorate.
C)  not change.
D)  improve.
E)  deteriorate as long as consumption of coffee increases.F) B) and C)
G) A) and B) C

Question 19

Canada is both an importer and an exporter of automobiles. If Canada exports more automobiles than it imports, and the price of automobiles rises, then Canada's terms of trade will likely

Accepted Answer

A)  deteriorate because of the loss of exports that would result.
B)  remain the same because the index of export prices would rise by the same amount as the index of import prices.
C)  deteriorate because the loss of exports would be more than offset by the gain in imports.
D)  improve because the index of export prices would rise and the index of import prices would remain unchanged.
E)  improve because the index of export prices will rise more than the index of import prices.F) B) and D)
G) B) and C)

Question 20

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
 A, the amount of newsprint will be . A) imported; Q1 B) imported; Q5 - Q3 C) exported; Q5 - Q1 D) imported; Q5 - Q1 E) exported; Q5" class="answers-bank-image d-inline" rel="preload" > FIGURE 33- 5
-Refer to Figure 33- 5. If Paperland engages in international trade and the world price is PA, the amount of newsprint will be .

Accepted Answer

A)  imported; Q1
B)  imported; Q5 - Q3
C)  exported; Q5 - Q1
D)  imported; Q5 - Q1
E)  exported; Q5F) C) and E)
G) A) and C)

Exam 33: The Gains From International Trade

When two countries are specializing and trading with each other, the gains from trade will tend to be greater when

Correct Answer
verified

One region is said to have an absolute advantage over another region in the production of good X when

Correct Answer
verified

According to David Ricardo's principle of comparative advantage, the gains from international trade can be reaped

Correct Answer
verified

If Canada's terms of trade rise from 212 to 236, then the change is said to be

Correct Answer
verified
A

The division of the gains of trade between two trading countries depends on the

Correct Answer
verified

The concept of comparative advantage in international trade is based on _ as opposed to absolute costs.

Correct Answer
verified

If Canada's index of import prices is 250 and the index of export prices is 200, then the index of the terms of trade is

Correct Answer
verified

If a country has a comparative advantage in the production of soybeans, and it trades freely with other countries, it will most probably

Correct Answer
verified

Correct Answer
verified

The "law of one price" states that the price of

Correct Answer
verified

North America exports clothing to the European Union, and the European Union exports clothing to North America. This is a(n)

Correct Answer
verified
C

The concept of "comparative advantage" refers to the

Correct Answer
verified

According to the Heckscher- Ohlin theory, national comparative advantages exist because of

Correct Answer
verified

Correct Answer
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opportunity costs differ too much between the two countries.

Correct Answer
verified

The hypothesis that the price of some given internationally traded product in one country will be equal to the price of the same product in some other country is known as

Correct Answer
verified

The "terms of trade" reflect the

Correct Answer
verified

Canadians consume millions of cups of Tim Horton's coffee each year. If Tim Horton's reduced the price per cup of coffee (because of a decrease in administration and transportation costs) , ceteris paribus, Canada's terms of trade will

Correct Answer
verified
C

Canada is both an importer and an exporter of automobiles. If Canada exports more automobiles than it imports, and the price of automobiles rises, then Canada's terms of trade will likely

Correct Answer
verified

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland. FIGURE 33- 5 -Refer to Figure 33- 5. If Paperland engages in international trade and the world price is P_A, the amount of newsprint will be .

Correct Answer
verified

Exam 33: The Gains From International Trade

When two countries are specializing and trading with each other, the gains from trade will tend to be greater when

Correct AnswerverifiedShow Answer

One region is said to have an absolute advantage over another region in the production of good X when

Correct AnswerverifiedShow Answer

According to David Ricardo's principle of comparative advantage, the gains from international trade can be reaped

Correct AnswerverifiedShow Answer

If Canada's terms of trade rise from 212 to 236, then the change is said to be

Correct AnswerverifiedA

The division of the gains of trade between two trading countries depends on the

Correct AnswerverifiedShow Answer

The concept of comparative advantage in international trade is based on _ as opposed to absolute costs.

Correct AnswerverifiedShow Answer

If Canada's index of import prices is 250 and the index of export prices is 200, then the index of the terms of trade is

Correct AnswerverifiedShow Answer

If a country has a comparative advantage in the production of soybeans, and it trades freely with other countries, it will most probably

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The "law of one price" states that the price of

Correct AnswerverifiedShow Answer

North America exports clothing to the European Union, and the European Union exports clothing to North America. This is a(n)

Correct AnswerverifiedC

The concept of "comparative advantage" refers to the

Correct AnswerverifiedShow Answer

According to the Heckscher- Ohlin theory, national comparative advantages exist because of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

opportunity costs differ too much between the two countries.

Correct AnswerverifiedShow Answer

The hypothesis that the price of some given internationally traded product in one country will be equal to the price of the same product in some other country is known as

Correct AnswerverifiedShow Answer

The "terms of trade" reflect the

Correct AnswerverifiedShow Answer

Canadians consume millions of cups of Tim Horton's coffee each year. If Tim Horton's reduced the price per cup of coffee (because of a decrease in administration and transportation costs) , ceteris paribus, Canada's terms of trade will

Correct AnswerverifiedC

Canada is both an importer and an exporter of automobiles. If Canada exports more automobiles than it imports, and the price of automobiles rises, then Canada's terms of trade will likely

Correct AnswerverifiedShow Answer

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland. FIGURE 33- 5 -Refer to Figure 33- 5. If Paperland engages in international trade and the world price is PA, the amount of newsprint will be .

Correct AnswerverifiedShow Answer

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A

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C

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C

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The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland. FIGURE 33- 5 -Refer to Figure 33- 5. If Paperland engages in international trade and the world price is P_A, the amount of newsprint will be .

Correct Answer
verified