Microeconomics, 4e – Testbank 2 (Hubbard)
Chapter 9 Comparative Advantage and the Gains from International Trade
9.1 The United States in the International Economy
1) In early versions of the 2009 stimulus bill, a “Buy American” provision required
A) tariffs be levied on all imports to the United States.
B) all goods manufactured in the United States be subsidized by the government.
C) all manufactured goods bought with stimulus money to be made in the United States.
D) taxpayers to pay penalties for all purchases of imports.
2) Trade restrictions tend to preserve ________ in the protected industries and lead to ________
in other industries.
A) almost all jobs; economic growth
B) well over half of the jobs; price decreases
C) relatively few jobs; job losses
D) no jobs; increased productivity
3) “Buy American” provisions create winners and losers. Winners include ________ and losers
include ________.
A) U.S. consumers and taxpayers; foreign firms that rely on U.S. exports
B) firms sheltered from foreign competition; U.S. consumers and taxpayers
C) U.S. firms that rely on exports to foreign countries; foreign manufacturers
D) the U.S. government; firms sheltered from foreign competition
4) Over the past several decades there has been a rapid growth in international trade. This growth
has been due to all except one of the following factors. Which factor has not contributed to the
growth of international trade?
A) the spread of reliable communications
B) a change in the tariffs charged on many goods
C) a reduction in shipping costs
D) favorable changes in government policies
5) A tax imposed by a government on imports of a good into a country is called
A) an import levy.
B) an import fine.
C) a tariff.
D) an import quota.
6) Imports are goods and services bought domestically
A) and produced domestically.
B) but produced in other countries.
C) and resold at a profit.
D) and not subject to tariffs.
7) Domestically produced goods and services sold to other countries are referred to as
A) exports.
B) imports.
C) transfer payments.
D) capital outflow.
8) When Sophie, a French citizen, purchases a Dell computer in Paris that was produced in
Texas, the purchase is
A) both a U.S. and an French import.
B) a U.S. import and an French export.
C) a U.S. export and an French import.
D) neither an export nor an import for either country.
9) Which of the following statements about the importance of trade to the U.S. economy is false?
A) Since 1950, both exports and imports have steadily increased as a fraction of U.S. gross
domestic product.
B) Overall, about 20 percent of U.S. manufacturing jobs depend directly or indirectly on exports.
C) The United States is the largest exporter in the world.
D) The U.S. economy is highly dependent on international trade for growth in its gross domestic
product.
10) In 2010, ________ of Caterpillar’s sales were inside the United States.
A) only 12 percent
B) less than one-third
C) more than half
D) 5 percent
11) More than half of Caterpillar’s sales are made
A) outside the United States.
B) inside the United States.
C) in Latin America.
D) in China.
12) Which of the following statements is false?
A) Japan is less dependent on foreign trade than is the United States.
B) Imports and exports account for over one-half of the GDP of the Netherlands.
C) The United States is the leading exporting country, accounting for almost 10 percent of total
world exports.
D) Because the cost of labor used on farms is so high, the United States exports very little of its
wheat, rice and corn crops.
13) Twenty-seven countries in Europe have formed the European Union (EU). After the EU was
formed it
A) eliminated all tariffs among its member countries.
B) completed a trade treaty (NAFTA) that reduced tariff rates between the EU and North
American countries.
C) greatly decreased imports and exports among its member countries.
D) barred imports of 747 jumbo jets by its member countries; all EU countries must now buy jets
from Airbus, a European company.
14) The 1994 agreement that eliminated most tariffs among the United States, Canada, and
Mexico is known as
A) the Pacific Trade Association.
B) Trade Without Borders.
C) NAFTA.
D) the Western Trade Union.
15) In the 1930s the United States charged an average tariff rate
A) that was less than its average tariff rate in 2007.
B) that cut its exports to other countries by 50 percent.
C) that was less than 2 percent.
D) that exceeded 50 percent.
16) Which of the following statements is false?
A) Exports benefit trading countries because exports create jobs. Imports do not benefit trading
countries because they result in a loss of jobs.
B) Each year the United States exports about 50 percent of its wheat crop and 20 percent of its
corn crop.
C) Most of the leading exporting countries are large, high-income countries.
D) Not all sectors of the U.S. economy are affected equally by international trade.
17) Although the United States is the leading exporting country, international trade is less
important to the U.S. than it is to most other countries.
18) Jim Owens, Caterpillar’s CEO, was encouraged that the “Buy American” provision in the
2009 stimulus bill would generate a large increase in Caterpillar’s sales.
19) What are three primary reasons for the growth of international trade over the past 50 years?
9.2 Comparative Advantage in International Trade
1) ________ is the ability to produce more of a good or service than competitors when using the
same amount of resources.
A) Absolute advantage
B) Comparative advantage
C) Trade superiority
D) Trade autarky
2) Trade that is within a country or between countries is based on the principle of
A) absolute advantage.
B) scarcity.
C) competition.
D) comparative advantage.
Table 9-1
Berries
Fish
Rob
20
80
Bill
30
60
Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to
find and make their own food. Rob and Bill spent one day each fishing and picking berries. The
following table lists the pounds of output Rob and Bill produced.
3) Refer to Table 9-1. Use the table above to select the statement that accurately interprets the
data in the table.
A) Rob has an absolute advantage in picking berries and Bill has an absolute advantage in
catching fish.
B) Bill has an absolute advantage in picking berries and Rob has an absolute advantage in
catching fish.
C) Bill has an absolute advantage in picking berries and catching fish.
D) Rob has an absolute advantage in picking berries and catching fish.
4) Refer to Table 9-1. Use the table above to select the statement that accurately interprets the
data in the table.
A) Bill has a greater opportunity cost than Rob for picking berries.
B) Bill’s opportunity cost for catching fish is less than Rob’s.
C) Rob has a greater opportunity cost than Bill for picking berries.
D) Bill’s opportunity cost for picking berries and catching fish are both greater than Rob’s.
5) Refer to Table 9-1. Use the table above to select the statement that accurately interprets the
data in the table.
A) Bill has a comparative advantage in catching fish.
B) Rob has a comparative advantage in picking berries.
C) Rob has a comparative advantage in catching fish and picking berries.
D) Bill has a comparative advantage in picking berries.
6) Refer to Table 9-1. Use the table above to select the statement that accurately interprets the
data in the table.
A) Rob has a comparative advantage in catching fish.
B) Bill has an absolute advantage in catching fish.
C) Bill has a comparative advantage in catching fish.
D) Rob has a comparative advantage in picking berries and catching fish.
7) An economic principle that explains why people pursue different occupations is
A) absolute advantage.
B) international trade.
C) comparative advantage.
D) NAFTA.
8) Assume that Honduras has a comparative advantage in producing bananas and exports
bananas to Brazil. We can conclude that
A) Honduras also has an absolute advantage in producing bananas relative to Brazil.
B) Honduras has a lower opportunity cost of producing bananas relative to Brazil.
C) Brazil has an absolute disadvantage in producing bananas relative to Honduras.
D) Labor costs are higher for banana producers in Brazil than in Honduras.
9) Whenever a buyer and a seller agree to trade, both must believe they will be made better off
A) unless the buyer resides in a different country than the seller resides in. International trade
may make the buyer or seller worse off.
B) unless one party is richer than the other.
C) only if the buyer and seller live in countries with market economies.
D) whether the buyer and seller live in the same city or different countries.
10) If Norwegian workers are more productive than Albanian workers, then trade between
Norway and Albania
A) cannot take place because Norwegian goods and services will be less expensive than
Albanian goods and services.
B) will take place so long as each country has a comparative advantage in a good or service that
buyers in the other country want.
C) cannot take place until Albanian workers become more productive.
D) can take place only if Albania has an absolute advantage in producing a good or service
Norwegian buyers want.
11) If the ________ cost of production for two goods is different between two countries then
mutually beneficial trade is possible.
A) marginal
B) explicit
C) opportunity
D) implicit
12) If Brazil has a comparative advantage relative to Cuba in the production of sugar cane, then
A) the average cost of production for sugar cane is lower in Brazil than in Cuba.
B) the implicit costs of production for sugar cane are lower in Brazil than in Cuba.
C) the opportunity cost of production for sugar cane is lower in Brazil than in Cuba.
D) the explicit cost of production for sugar cane is lower in Brazil than in Cuba.
13) If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of
the following would explain this pattern of trade?
A) Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark
has a comparative advantage in producing butter.
B) The opportunity cost of producing butter in Denmark is higher than the opportunity cost of
producing butter in Sweden.
C) Sweden must have an absolute advantage in producing cell phones and Denmark must have
an absolute advantage in producing butter.
D) Sweden has a higher opportunity cost of producing cell phones than Denmark, and Denmark
has a higher opportunity cost of producing butter.
14) The ability of a firm or country to produce a good or service at a lower opportunity cost than
other producers is called comparative advantage.
15) If Finland has an absolute advantage in the production of two goods compared to Latvia,
Finland can still benefit from trade with Latvia.
Table 9-2
Output Per Hour of Work
Light Bulbs
Flash Drives
Mexico
20
5
Canada
8
32
Table 9-2 shows the output per hour of work for light bulbs and flash drives in Mexico and in
Canada.
16) Refer to Table 9-2. Fill in the following table with the opportunity costs of producing light
bulbs and flash drives for Mexico and Canada.
Light Bulbs
Flash Drives
Mexico
Canada
Light Bulbs
Flash Drives
Mexico
0.25
4
Canada
4
0.25
17) Refer to Table 9-2.
a. Which country has an absolute advantage in the production of light bulbs and flash drives?
b. Which country has a comparative advantage in the production of light bulbs?
c. Which country has a comparative advantage in the production of flash drives?
9.3 How Countries Gain from International Trade
1) Autarky is a situation in which a country
A) only exports products.
B) only imports products.
C) does not trade with other countries.
D) has no absolute advantage in any production.
2) The terms of trade refers to
A) the rules and regulations that countries must adhere to when trading.
B) the ratio at which a country can trade its exports for imports from other countries.
C) the role of the government in overseeing international trade.
D) a legal document that specifies the trade quantities agreed to by two countries.
3) Countries gain from specializing in producing goods in which they have ________ and trading
for goods in which other countries have ________.
A) a comparative advantage; an absolute advantage
B) an absolute advantage; an absolute advantage
C) a comparative advantage; a comparative advantage
D) an absolute advantage; a comparative advantage
4) The first discussion of comparative advantage appears in a book written by
A) Adam Smith.
B) Paul Samuelson.
C) David Portugal.
D) David Ricardo.
5) The first example of comparative advantage appeared in a book that was published in 1817.
This example showed that mutually beneficial trade between two countries (England and
Portugal) was possible. The example assumed that two goods (wine and cloth) could be
produced by both countries. Which of the following describes the conclusion of this example?
A) Portugal had a comparative advantage in wine and England had a comparative advantage in
cloth.
B) Portugal had a comparative advantage in both wine and cloth, but its advantage in cloth was
greater.
C) England had a comparative advantage in both wine and cloth, but its advantage in cloth was
greater.
D) England had an absolute advantage in both wine and cloth, but a comparative advantage in
wine.
6) Examples of comparative advantage show how trade between two countries can make each
better off. Compared to their pre-trade positions, trade makes both countries better off because
in each country
A) total employment is greater.
B) total consumption of goods is greater.
C) wages are higher.
D) total welfare is greater.
7) In the real world we don’t observe countries completely specializing in the production of
goods for which they have a comparative advantage. All of the following are reasons for this
except
A) not all goods and services are traded internationally.
B) some countries have more resources than other countries.
C) tastes for many traded goods are different in many countries because of globalization.
D) production of most goods involves increasing opportunity costs.
8) Automobiles and many other products are differentiated. As a result
A) different countries may each have a comparative advantage in producing different types of
automobiles.
B) consumers of automobiles have difficulty deciding what type of imported automobile to buy.
C) the quality of imported automobiles is less than it could be.
D) we see countries specializing completely in the production of automobiles.
9) A consequence of increasing marginal costs of producing laptop computers in the United
States is
A) the United States will import laptop computers from countries that don’t experience
increasing marginal costs.
B) the United States will stop short of complete specialization in the production of laptop
computers.
C) the United States will not export laptop computers.
D) the United States will likely impose trade restrictions on imported laptop computers.
10) Textbook examples of trade between two nations are simplified in order to show how two
nations both benefit from trade. These examples are misleading because
A) in the real world, rich countries can take advantage of poor countries.
B) they do not account for the reduction in wages that occurs in both countries as a result of
trade.
C) some individuals in both countries may be made worse off because of trade.
D) trade restrictions are likely to be imposed as trade grows over time.
11) Which of the following statements is false?
A) Not all individuals in both countries are made better off as a result of international trade.
B) Within each country, some individuals are made better off as a result of international trade,
but one of the countries will be worse off overall.
C) Although some individuals may not be made better off as a result of international trade, both
countries may be made better off overall.
D) Each country as a whole is made better off as a result of international trade, but individuals
within each country may be made worse off.
12) All of the following are sources of comparative advantage except
A) climate and natural resources.
B) relative abundance of labor and capital.
C) a strong foreign currency exchange rate.
D) technology.
13) The United States has developed a comparative advantage in digital computers, airliners and
many prescription drugs. The source of its comparative advantage in these products is
A) a favorable climate.
B) technology.
C) abundant supplies of natural resources.
D) a strong central government.
14) Once an industry becomes established in a certain area firms that locate in that area gain
advantages over firms located elsewhere, leading to lower costs of production. Economists refer
to the lower costs that result from increases in the size of an industry in a certain area as
A) external economies.
B) positive externalities.
C) strategic advantages.
D) technological change.
15) China has developed a comparative advantage in the production of children’s toys. The
source of this comparative advantage is
A) superior process technology.
B) a large supply of unskilled workers and relatively little capital.
C) investment in capital used to produce toys.
D) a large supply of natural resources.
16) Costa Rica is a leading exporter of bananas. What explains the comparative advantage of this
country in banana production?
A) climate and soil conditions in Costa Rica which are well-suited for banana production
B) investment by multinational firms such as Chiquita Brands International and the Dole Food
Company
C) a large supply of unskilled labor
D) positive externalities
17) In the past two decades the United States lost its comparative advantage in automobiles to
Japan. What factor was most responsible for the development of Japan’s comparative advantage
in automobiles?
A) Japanese firms excelled in process technology.
B) Japan has abundant supplies of labor.
C) Japanese firms benefited from external economies.
D) Japan has abundant supplies of natural resources needed to produce automobiles.
18) One reason a country does not specialize completely in production is that production of most
goods involves increasing opportunity costs.
19) One of the main sources of comparative advantage is natural resources.