Application: International Trade
Multiple Choice – Section 00: Introduction
1. An important factor in the decline of the U.S. textile industry over the past 100 or so years is
a. foreign competitors that can produce quality textile goods at low cost.
b. lower prices of goods that are substitutes for clothing.
c. a decrease in Americans’ demand for clothing, due to increased incomes and the fact that
clothing is an inferior good.
d. the fact that the minimum wage in the U.S. has failed to keep pace with the cost of living.
2. With which of the Ten Principles of Economics is the study of international trade most closely
connected?
a. People face tradeoffs.
b. Trade can make everyone better off.
c. Governments can sometimes improve market outcomes.
d. Prices rise when the government prints too much money.
2246 Application: International Trade
3. Which of the following tools and concepts is useful in the analysis of international trade?
a. total surplus
b. domestic supply
c. equilibrium price
d. All of the above are correct.
4. A logical starting point from which the study of international trade begins is
a. the recognition that not all markets are competitive.
b. the recognition that government intervention in markets sometimes enhances the economic
welfare of the society.
c. the principle of absolute advantage.
d. the principle of comparative advantage.
Application: International Trade 2247
5. Which of the following is not an important question for economic policy raised by the experience
of the textile industry?
a. How does international trade affect consumer well-being?
b. Who gains and who loses from free trade among countries?
c. How do the gains from trade compare to the losses?
d. Which argument for restricting free trade is politically feasible?
Multiple Choice – Section 01: The Determinants of Trade
1. What is the fundamental basis for trade among nations?
a. shortages or surpluses in nations that do not trade
b. misguided economic policies
c. absolute advantage
d. comparative advantage
2248 Application: International Trade
2. Patterns of trade among nations are primarily determined by
a. cultural considerations.
b. political considerations.
c. comparative advantage.
d. differences in the income elasticity of demand among nations.
3. The market for soybeans in Canada consists solely of domestic buyers of soybeans and domestic
sellers of soybeans if
a. consumer surplus equals producer surplus in the Canadian soybean market.
b. total surplus exceeds consumer surplus in the Canadian soybean market.
c. Canada permits international trade in soybeans.
d. Canada forbids international trade in soybeans.
Application: International Trade 2249
4. The nation of Wheatland forbids international trade. In Wheatland, you can buy 1 pound of corn for
3 pounds of fish. In other countries, you can buy 1 pound of corn for 2 pounds of fish. These facts
indicate that
a. Wheatland has a comparative advantage, relative to other countries, in producing corn.
b. other countries have a comparative advantage, relative to Wheatland, in producing fish.
c. the price of fish in Wheatland exceeds the world price of fish.
d. if Wheatland were to allow trade, it would import corn.
5. Suppose the nation of Canada forbids international trade. In Canada, you can obtain a hockey stick
by trading 5 baseball bats. In other countries, you can obtain a hockey stick by trading 8 baseball
bats. These facts indicate that
a. if Canada were to allow trade, it would export hockey sticks.
b. Canada has an absolute advantage, relative to other countries, in producing hockey sticks.
c. Canada has a comparative advantage, relative to other countries, in producing baseball bats.
d. All of the above are correct.
2250 Application: International Trade
6. The principle of comparative advantage asserts that
a. not all countries can benefit from trade with other countries.
b. the world price of a good will prevail in all countries, regardless of whether those countries allow
international trade in that good.
c. countries can become better off by exporting goods, but they cannot become better off by
importing goods.
d. countries can become better off by specializing in what they do best.
7. A tax on an imported good is called a
a. quota.
b. tariff.
c. supply tax.
d. trade tax.
Application: International Trade 2251
8. A tariff is a
a. limit on how much of a good can be exported.
b. limit on how much of a good can be imported.
c. tax on an exported good.
d. tax on an imported good.
9. The price of a good that prevails in a world market is called the
a. absolute price.
b. relative price.
c. comparative price.
d. world price.
2252 Application: International Trade
10. The price of sugar that prevails in international markets is called the
a. export price of sugar.
b. import price of sugar.
c. comparative-advantage price of sugar.
d. world price of sugar.
11. If a country allows trade and, for a certain good, the domestic price without trade is higher than
the world price,
a. the country will be an exporter of the good.
b. the country will be an importer of the good.
c. the country will be neither an exporter nor an importer of the good.
d. Additional information is needed about demand to determine whether the country will be an
exporter of the good, an importer of the good, or neither.
Application: International Trade 2253
12. If a country allows trade and, for a certain good, the domestic price without trade is lower than the
world price,
a. the country will be an exporter of the good.
b. the country will be an importer of the good.
c. the country will be neither an exporter nor an importer of the good.
d. Additional information is needed about demand to determine whether the country will be an
exporter of the good, an importer of the good, or neither.
13. For any country, if the world price of copper is higher than the domestic price of copper without
trade, that country should
a. export copper, since that country has a comparative advantage in copper.
b. import copper, since that country has a comparative advantage in copper.
c. neither export nor import copper, since that country cannot gain from trade.
d. neither export nor import copper, since that country already produces copper at a low cost
compared to other countries.
2254 Application: International Trade
14. For any country, if the world price of copper is lower than the domestic price of copper without
trade, that country should
a. export copper.
b. import copper.
c. neither export nor import copper, since that country cannot gain from trade.
d. neither export nor import copper, since that country already produces copper at a low cost
compared to other countries.
15. If the world price of apples is higher than Argentina’s domestic price of apples without trade, then
Argentina
a. should import apples.
b. has a comparative advantage in apples.
c. should produce just enough apples to meet its domestic demand.
d. should refrain altogether from producing apples.
Application: International Trade 2255
16. Assume, for Vietnam, that the domestic price of textiles without international trade is higher than
the world price of textiles. This suggests that, in the production of textiles,
a. Vietnam has a comparative advantage over other countries and Vietnam will import textiles.
b. Vietnam has a comparative advantage over other countries and Vietnam will export textiles.
c. other countries have a comparative advantage over Vietnam and Vietnam will import textiles.
d. other countries have a comparative advantage over Vietnam and Vietnam will export textiles.
17. Assume, for Vietnam, that the domestic price of textiles without international trade is lower than
the world price of textiles. This suggests that, in the production of textiles,
a. Vietnam has a comparative advantage over other countries and Vietnam will import textiles.
b. Vietnam has a comparative advantage over other countries and Vietnam will export textiles.
c. other countries have a comparative advantage over Vietnam and Vietnam will import textiles.
d. other countries have a comparative advantage over Vietnam and Vietnam will export textiles.
2256 Application: International Trade
18. Assume, for Mexico, that the domestic price of oranges without international trade is lower than
the world price of oranges. This suggests that, in the production of oranges,
a. Mexico has a comparative advantage over other countries and Mexico will export oranges.
b. Mexico has a comparative advantage over other countries and Mexico will import oranges.
c. other countries have a comparative advantage over Mexico and Mexico will export oranges.
d. other countries have a comparative advantage over Mexico and Mexico will import oranges.
19. Suppose Ireland exports beer to China and imports pineapples from the United States. This
situation suggests that
a. Ireland has a comparative advantage relative to the United States in producing pineapples, and
China has a comparative advantage relative to Ireland in producing beer.
b. Ireland has a comparative advantage relative to China in producing beer, and the United States
has a comparative advantage relative to Ireland in producing pineapples.
c. Ireland has an absolute advantage relative to the United States in producing pineapples, and
China has an absolute advantage relative to Ireland in producing beer.
d. Ireland has an absolute advantage relative to China in producing beer, and the United States has
an absolute advantage relative to Ireland in producing pineapples.
Application: International Trade 2257
20. Trade among nations is ultimately based on
a. absolute advantage.
b. strategic advantage.
c. comparative advantage.
d. technical advantage.
21. A country has a comparative advantage in a product if the world price is
a. lower than that country’s domestic price without trade.
b. higher than that country’s domestic price without trade.
c. equal to that country’s domestic price without trade.
d. not subject to manipulation by organizations that govern international trade.
2258 Application: International Trade
22. Suppose Brazil has an absolute advantage over other countries in producing almonds, but other
countries have a comparative advantage over Brazil in producing almonds. If trade in almonds is
allowed, Brazil
a. will import almonds.
b. will export almonds.
c. will either import almonds or export almonds, but it is not clear from the given information.
d. would have nothing to gain either from exporting or importing almonds.
23. Suppose Brazil has a comparative advantage over other countries in producing almonds, but other
countries have an absolute advantage over Brazil in producing almonds. If trade in almonds is
allowed, Brazil
a. will import almonds.
b. will export almonds.
c. will either import almonds or export almonds, but it is not clear from the given information.
d. would have nothing to gain either from exporting or importing almonds.
Application: International Trade 2259
24. Suppose Jamaica has an absolute advantage over other countries in producing sugar, but other
countries have a comparative advantage over Jamaica in producing sugar. If trade in sugar is
allowed, Jamaica
a. will import sugar.
b. will export sugar.
c. will either import sugar or export sugar, but it is not clear from the given information.
d. would have nothing to gain either from exporting or importing sugar.
25. Assume, for Japan, that the domestic price of automobiles without international trade is lower than
the world price of automobiles. This suggests that, in the production of automobiles,
a. Japan has a comparative advantage over other countries and Japan will import automobiles.
b. Japan has a comparative advantage over other countries and Japan will export automobiles.
c. other countries have a comparative advantage over Japan and Japan will import automobiles.
d. other countries have a comparative advantage over Japan and Japan will export automobiles.
2260 Application: International Trade
26. Assume, for Mexico, that the domestic price of beets without international trade is higher than the
world price of beets. This suggests that, in the production of beets,
a. Mexico has a comparative advantage over other countries and Mexico will export beets.
b. Mexico has a comparative advantage over other countries and Mexico will import beets.
c. other countries have a comparative advantage over Mexico and Mexico will export beets.
d. other countries have a comparative advantage over Mexico and Mexico will import beets.
27. Assume, for England, that the domestic price of wine without international trade is higher than the
world price of wine. This suggests that, in the production of wine,
a. England has a comparative advantage over other countries and England will export wine.
b. England has a comparative advantage over other countries and England will import wine.
c. other countries have a comparative advantage over England and England will export wine.
d. other countries have a comparative advantage over England and England will import wine.
Application: International Trade 2261
28. Assume, for England, that the domestic price of wine without international trade is lower than the
world price of wine. This suggests that, in the production of wine,
a. England has a comparative advantage over other countries and England will export wine.
b. England has a comparative advantage over other countries and England will import wine.
c. other countries have a comparative advantage over England and England will export wine.
d. other countries have a comparative advantage over England and England will import wine.
29. If the world price of coffee is lower than Colombia’s domestic price of coffee without trade, then
Colombia
a. should import coffee.
b. has a comparative advantage in coffee.
c. should produce just enough coffee to satisfy domestic demand.
d. should produce no coffee domestically.
2262 Application: International Trade
30. If the world price of coffee is higher than Colombia’s domestic price of coffee without trade, then
Colombia
a. should import coffee.
b. has a comparative advantage in coffee and should export coffee.
c. should produce just enough coffee to satisfy domestic demand.
d. should produce no coffee domestically.
31. If a country is an exporter of a good, then it must be the case that
a. the world price is less than its domestic price.
b. consumer surplus is higher than a no trade situation.
c. the world price is greater than its domestic price.
d. they used an infant-industry argument to protect its producers.
Application: International Trade 2263
32. Suppose Japan exports cars to Russia and imports wine from France. This situation suggests
a. Japan has a comparative advantage relative to France in producing wine, and Russia has a
comparative advantage to Japan in producing cars.
b. Japan has a comparative advantage relative to Russia in producing cars, and France has a
comparative advantage relative to Japan in producing wine.
c. Japan has an absolute advantage relative to Russia in producing cars, and France has an
absolute advantage relative to Japan in producing wine.
d. Japan has an absolute advantage relative to France in producing wine, and Russia has an
absolute advantage relative to Japan in producing cars.
33. Suppose Japan exports televisions to the United States and imports sugar from Argentina. This
situation suggests
a. Japan has a comparative advantage relative to the United States in producing televisions, and
Argentina has a comparative advantage relative to Japan in producing sugar.
b. Japan has a comparative advantage relative to the United States in producing sugar, and
Argentina has a comparative advantage relative to Japan in producing televisions.
c. Japan has an absolute advantage relative to the United States in producing televisions, and
Argentina has an absolute advantage relative to Japan in producing sugar.
d. Japan has an absolute advantage relative to Argentina in producing sugar, and the United
States has an absolute advantage relative to Japan in producing televisions.
2264 Application: International Trade
34. Assume the nation of Teeveeland does not trade with the rest of the world. By comparing the
world price of televisions to the price of televisions in Teeveeland, we can determine whether
a. consumer surplus exceeds producer surplus in Teeveeland.
b. Teeveeland has an absolute advantage in producing televisions.
c. Teeveeland has a comparative advantage in producing televisions.
d. All of the above are correct.
35. By comparing the world price of pecans to India’s domestic price of pecans, we can determine
whether India
a. will export pecans (assuming trade is allowed).
b. will import pecans (assuming trade is allowed).
c. has a comparative advantage in producing pecans.
d. All of the above are correct.