Economics: Principles and Policies, 9e: Chapter International Trade and Comparative Advantage

Chapter: International Trade and Comparative Advantage

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1. In the past, when the United States enjoyed a continuing trade surplus, wages in the United States: a. were much lower than wages in countries that imported U.S. products.
b. were much higher than wages in countries that imported U.S. products.
c. were roughly the same as wages in countries that imported U.S. products.
d. fell throughout that period, enabling the continuing trade surplus.
e. rose throughout that period, ending the trade surplus.

2. A voluntary exchange of products means that: a. if one nation gains from a swap, the other nation must necessarily lose.
b. each country must do its best to act to the disadvantage of its trading partners.
c. both parties must gain (or expect to gain) from the transaction.
d. both parties must lose owing to the transaction costs involved.

3. Are there impediments to international movement of labor and capital?: a. Yes, but they apply to labor only, capital mobility is almost completely free.
b. Yes, although these apply to capital, and not to labor
c. Yes, there are significant (often prohibitive) restrictions on labor and capital mobility.
d. No, these have been removed with the passage of recent trade legislation.

4. If nations begin to specialize in production for the purpose of trade,: a. the utility from consumption will increase, but not the total output.
b. total world output will increase, as well as well-being from consumption.
c. total world output will increase, but well-being from consumption will not.
d. neither total output nor well-being from consumption will change.
e. the impact on total output and well-being cannot be predicted.

5. In the figure below,

a. Great Britain has an absolute advantage over Germany in the production of both scientific equipment and woolens.
b. Germany has a comparative advantage over Great Britain in the production of woolens.
c. Great Britain has a comparative advantage in the production of woolens.
d. Great Britain should export scientific equipment to Germany, and Germany should export woolens to Great Britain.

6. If a country begins to import more of a commodity, one can normally expect: a. the price of the commodity to remain unchanged in that nation.
b. the price of the commodity to rise and then fall below where it was originally.
c. the price of the commodity to rise in that nation.
d. the price of the commodity to drop in that nation.

7. If the United States imposed a 25 percent tariff on imports of minivans, the effect would be to: a. raise the price and reduce the quantity of imports.
b. raise the price and the quantity of imports.
c. lower the price and the quantity of imports.
d. raise the quantity and reduce the price of imports.

8. A tariff is better than a quota because: a. it does not distort trade as much.
b. quotas are inflexible.
c. tariffs produce tax revenue.
d. quotas hurt domestic producers, tariffs hurt foreign producers.

9. Opening trade between a nation that has "cheap labor" and one that has "expensive labor" will: a. lower the standard of living in both countries.
b. raise the standard of living in both countries.
c. make some workers less efficient.
d. lead to an inappropriate allocation of resources.

10. The law of comparative advantage explains: a. why individuals choose specialized careers.
b. why firms specialize in the production of certain goods.
c. why nations develop strengths in certain industries.
d. all of the above.