Chapter 2: Absolute Advantage
MULTIPLE CHOICE
1. In Vietnam and Japan, the supply curve for rice will shift to the right if:
a. Weather conditions for rice worsen
b. Prices of farm input go up
c. Rice-growing technology increases its productivity
d. None of the above
2. In Vietnam and Japan, the supply curve for rice will shift to the left if:
a. Input prices rise
b. Weather conditions increase production
c. Technology improves productivity
d. All of the above
3. The demand curve for rice will shift to the right if:
a. Household incomes increase
b. New production technologies are developed
c. Weather conditions improve
d. None of the above
4. Vietnam might be able to produce rice more cheaply than Japan because:
a. Land is less expansive in Vietnam
b. Labor is less expensive in Vietnam
c. The growing season is longer in Vietnam
d. All of the above
5. The change in consumer surplus in Japan is represented in the graph above by:
a. A
b. B
c. C + D
d. D
6. The producer surplus loss in Japan is represented in the graph by:
a. C
b. A
c. B
d. C + D
ANS: A
7. The change in producer surplus in Vietnam is represented in the graph by:
a. A+B
b. B
c. A
d. None of the above
8. The consumer surplus loss in Vietnam is represented in the graph by:
a. A
b. B
c. A+B
d. None of the above
ANS: A
TRUE/FALSE
1. The fact that a supply curve slopes upwards indicates that firms supply less rice to the
market as the price of rice increases.
2. The fact that a demand curve slopes downward indicates that households demand less
rice from the market as the price of rice increases.
3. The equilibrium price of rice in the domestic market is determined by the intersection of
the supply and demand curves.
4. Actual trade patterns in the world economy are determined by absolute advantage rather
than comparative advantage.
5. In most cases, the gains from trade are shared between trading countries.
SHORT ANSWER
1. What conditions in a country can make it possible for it to export some of a particular
product?
2. If demand conditions are the same in Vietnam and Japan but rice can be produced more
cheaply in Vietnam, which country will have the higher autarky price?
3. What does it mean when we say that a country has an absolute advantage over another in
a particular product?
4. If Vietnam and Japan decide to trade rice, where will the world price of rice settle?
5. In a trading equilibrium, how do we determine exports?
6. In a trading equilibrium, how do we determine imports?
7. How can we determine how much less rice Japan will produce at home once trade with
Vietnam begins?
8. How can we determine how much more rice Japan will consumer once trade with
Vietnam begins?
9. What ensures that the amount of rice exported by Vietnam is equal to the amount
demanded by Japan?
10. What are the gains from trade in rice between Vietnam and Japan?
11. Consumer surplus is:
12. Producer surplus is:
13. Absolute advantage is:
14. What do we mean when we say that a country benefits from the gains from trade?