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86. Which of the following is an extreme form of risk associated with investing in a foreign country?
a.
Credit risk
b.
Labor unrest
c.
Expropriation
d.
Immigration rules
87. If a nation can produce greater quantities of a good than another nation, it has a(n)
a.
comparative advantage.
b.
absolute advantage.
c.
declarative advantage.
d.
entire advantage.
88. A country has an absolute advantage over another in the production of widgets if it can produce
a.
widgets using smaller quantities of resources than can the other country.
b.
more widgets than can the other country.
c.
widgets more efficiently than can the other country.
d.
widgets at a lower opportunity cost than can the other country.
89. David Ricardo discovered that two countries can still gain by trading even if one country is more efficient in the
production of every commodity. Ricardo's discovery is called the law of
a.
comparative advantage.
b.
absolute advantage.
c.
compensating balances.
d.
increasing returns.
90. A country has a comparative advantage over another in the production of gadgets if it can produce
a.
more gadgets than can the other country.
b.
more gadgets than can any other country.
c.
gadgets more efficiently than it can produce any other good.
d.
gadgets at lower opportunity cost than can the other country.
91. Which of the following observations is true of the principle of comparative advantage?
a.
It arises from the absolute cost advantage.
b.
It helps determine most efficient patterns of production.
c.
It was advanced by Adam Smith.
d.
It means producing a good using smaller quantities of resources than others.
92. After the American Civil War, many prominent Southerners lamented the fact that the South "overproduced" cotton
and "underproduced" food. In fact, the South did import a very large percentage of its food. Nevertheless, rather than
reduce cotton production and grow more food, Southern farmers did the opposite because
a.
they were irrational and distraught over the loss of slavery.
b.
the South had a comparative advantage in cotton production.
c.
the North had a comparative advantage in cotton production.
d.
corn was absolutely cheaper to produce in the North.
93. Colombia produces coffee with less labor and land than any other country; it therefore surely has
a.
an absolute advantage in coffee production.
b.
a comparative advantage in coffee production.
c.
absolute efficiency in coffee production.
d.
a comparatively absolute advantage in coffee production.
94. If a nation does not have an absolute advantage in producing anything, it
a.
has no comparative advantage either.
b.
will have a comparative advantage in the activity in which it is least inefficient.
c.
will try to get along without trade.
d.
will export raw materials and import finished products.
95. What matters most in determining efficient distribution of production over the world is
a.
absolute advantage.
b.
efficiency.
c.
the stock of resources.
d.
comparative advantage.
96. Japan and China produce guns and rice. The country with the lowest opportunity cost of guns (in terms of rice) will
a.
import guns.
b.
have a comparative advantage in guns.
c.
have an absolute advantage in guns.
d.
have a comparative advantage in rice.
97. In discussing trade, it is ____ that matters rather than ____.
a.
absolute advantage: elastic advantage
b.
comparative advantage; absolute advantage
c.
entire advantage; comparative advantage
d.
elastic advantage; entire advantage
e.
declarative advantage; absolute advantage
98. Which of the following is true?
a.
A nation cannot have a comparative advantage in the production of every good.
b.
A nation cannot have an absolute advantage in the production of every good.
c.
A nation can have a comparative advantage in the production of every good, but not an absolute advantage.
d.
A nation can have a comparative advantage in the production of a good only if it also has an absolute
advantage.
e.
A nation cannot have an absolute advantage in the production of a good unless it also has a comparative
advantage.
99. 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.
100. If a nation has an absolute advantage in the production of some commodity, it
a.
can gain only if it has a comparative advantage in the commodity.
b.
may still gain from trade in the commodity.
c.
cannot gain from trade in the commodity.
d.
cannot gain unless it has an absolute advantage in every other commodity.
101. If a nation has "cheap labor,"
a.
it can still benefit from trade.
b.
other nations can still compete with it.
c.
it cannot have a comparative advantage in everything.
d.
All of the above are true.
102. A country can gain by importing a good that it can make itself if
a.
this enables the country to make another good in which it is extremely efficient.
b.
it has an absolute disadvantage in the good.
c.
this permits the country to establish comparative advantage in the good.
d.
All of the above are correct.
Table 22-1
Alternate Outputs from One Day's Labor Input
Wheat
Textiles
United States
(One person's/day's labor)
12 bushels
or
3 yards
Great Britain
(One person's/day's labor)
3 bushels
or
12 yards
103. From Table 22-1, the United States
a.
has an absolute advantage over Great Britain in the production of textiles.
b.
has an absolute advantage over Great Britain in the production of wheat.
c.
has a comparative advantage in the production of textiles.
d.
should export textiles to Great Britain.
104. From Table 22-1, the opportunity cost of one bushel of wheat in Great Britain is
a.
1/4 yard of textiles.
b.
3 yards of textiles.
c.
12 yards of textiles.
d.
4 yards of textiles.
Table 22-2
Output Per Unit Labor Input
England
Portugal
Cloth
20
24
Wine
2
12
105. Using the data from Table 22-2, suppose England transfers 2 units of labor from wine to cloth and Portugal transfers
1 unit from cloth to wine. The combined production of wine and cloth will be increased by
a.
16 wine, 8 cloth.
b.
16 wine, 16 cloth.
c.
12 wine, 12 cloth.
d.
8 wine, 16 cloth.
106. Suppose that Captain Canada can produce 100 hockey sticks or 10 gallons of maple syrup in a typical work week,
while Captain Germany can produce 90 hockey sticks or 10 gallons of maple syrup in a typical work week. From these
numbers, we can conclude
a.
Captain Canada has a comparative advantage in the production of hockey sticks.
b.
Captain Germany has a comparative advantage in the production of maple syrup.
c.
Captain Canada has an absolute advantage in the production of hockey sticks.
d.
All of the above conclusions are correct.
107. Suppose that the United States can make 15 cars or 20 bottles of wine with one year's worth of labor. France can
make 10 cars or 18 bottles of wine with one year's worth of labor. From these numbers, we can conclude that
a.
the United States has a comparative advantage in the production of cars.
b.
France has a comparative advantage in the production of wine.
c.
the United States has an absolute advantage in the production of cars.
d.
All of the above are correct.
108. Suppose that with 1 unit of labor, Canada can produce 40 TVs or 20 computers. With 1 unit of labor, Taiwan can
produce 30 TVs or 10 computers. Which of the following is correct?
a.
Taiwan has a comparative advantage in the production of computers.
b.
Canada has an absolute advantage in the production of neither good.
c.
Canada has a comparative advantage in the production of computers.
d.
Taiwan has an absolute advantage in the production of computers.
e.
Taiwan has an absolute advantage in the production of TVs.
109. If two countries each are currently producing two goods, and each begins to specialize in the good in which it has a
comparative advantage, what will happen to total (world) output?
a.
It will increase.
b.
It will decrease.
c.
It will be unchanged in both countries.
d.
It will rise in one country and fall in the other, but the total is unchanged.
e.
Uncertain; economic theory has no answer to this question.
110. The way in which a country benefits from trade is that it can
a.
obtain goods at lower opportunity cost than producing them itself.
b.
exploit economies of scale in production and lower the cost of goods it produces.
c.
obtain a wider range of goods than it can produce for itself.
d.
All of the above are benefits.
111. What would be the output combination for two products A and B on the production possibility frontier, if a country
uses its entire resources for producing A?
a.
A - Maximum; B - Zero
b.
A- Maximum, B - Maximum
c.
A - Zero, B - Maximum
d.
A - Zero, B - Minimum
Figure 22-1
112. In Figure 22-1,
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.
Figure 22-2
113. In Figure 22-2,
a.
the opportunity cost of 1 unit of wheat in the United States is a 2/3 unit of petroleum.
b.
the opportunity cost of 1 unit of wheat in Mexico is a 2/3 unit of petroleum.
c.
the opportunity cost of wheat is higher in the United States than it is in Mexico.
d.
the United States has a comparative advantage over Mexico in the production of petroleum.
114. In Figure 22-2, if the United States and Mexico are negotiating to trade wheat for petroleum,
a.
the United States must receive more than 1 2/3 units of petroleum for a unit of wheat.
b.
Mexico must receive more than 1 2/3 units of petroleum for a unit of wheat.
c.
the limits of the agreement are between 1 unit of wheat for 2/3 unit of petroleum for the United States and 1
unit of wheat for 1 1/2 units of petroleum for Mexico.
d.
if the agreement is formalized at 1 unit of wheat for 1 unit of petroleum, then Mexico will benefit from the
trade but the United States will not.
115. Is it possible for a country to have an absolute disadvantage and a comparative advantage in the production of a
good?
a.
No, these are incompatible on theoretical grounds.
b.
No, theory prevents it, but some economists claim it could occur.
c.
Yes, this situation can occur.
d.
Yes, in theory, although not in reality.
Figure 22-3
116. In Figure 22-3, the solid lines represent the respective production possibilities curves for the United States and
Mexico. Which graphs show the correct consumption possibilities curves (dashed lines) after an agreement is reached to
trade 1 unit of wheat for 1 unit of petroleum?
a.
(1) and (4)
b.
(1) and (2)
c.
(2) and (3)
d.
(3) and (4)
Figure 22-4
117. In Figure 22-4, the opportunity cost of a unit of wheat in terms of cotton is
a.
1 for the United States; 5 for Egypt.
b.
20 for the United States; 2 for Egypt.
c.
1 for the United States; 2 for Egypt.
d.
20 for the United States; 10 for Egypt.
Figure 22-5
118. From the graph in Figure 22-5 (curves show output per unit of labor input), one can infer that
a.
Japan has an absolute advantage in TVs and computers, but a comparative advantage only in TVs.
b.
Japan has only a comparative advantage in TVs.
c.
Japan has an absolute advantage in both TVs and computers, but a comparative advantage only in computers.
d.
China has a comparative advantage in computers.
119. From the graph in Figure 22-5 (curves show output per unit of labor input), one can infer that
a.
in terms of TVs, computers are more expensive in China than Japan.
b.
in terms of computers, TVs are more expensive in China than Japan.
c.
China should produce more TVs and fewer computers.
d.
All of the above are correct.
Figure 22-6
120. From the graph in Figure 22-6, the opportunity cost of a unit of bananas is
a.
4 units of corn for England; 1/2 unit of corn for Honduras.
b.
1/4 unit of corn for England; 2 units of bananas in England.
c.
8 units of corn in England; 3 units of corn in Honduras.
d.
4 units of corn in England; 12 units of corn in Honduras.
121. From Figure 22-6, one can infer that
a.
Honduras will be willing to trade bananas for corn at a unit ratio of no less than 2 corn:1 banana.
b.
Honduras will be willing to trade bananas as long as the unit exchange ratio is greater than 1/2 corn:1 banana.
c.
Honduras has no potential to gain from trade.
d.
Honduras will be unwilling to trade at an exchange ratio.
Table 22-3
Output Per Unit Labor Input
Cotton
Wheat
Egypt
10
2
United States
20
20
122. The data in Table 22-3 indicate that the United States has
a.
an absolute advantage in both goods, and a comparative advantage in cotton.
b.
an absolute advantage in both goods, and a comparative advantage in wheat.
c.
only a comparative advantage in wheat.
d.
only a comparative advantage in cotton.
Figure 22-7
123. In Figure 22-7, AB represents the production possibilities of Pestoland and CD that of Pastaland. The graph indicates
Pestoland has an absolute
a.
advantage in both pesto and pasta.
b.
and comparative advantage in both pesto and pasta.
c.
advantage in both goods, but a comparative advantage only in pesto.
d.
advantage in pesto only and a comparative advantage only in pasta.
124. In Figure 22-7, CF has the same slope as BG. AB and CD are the production possibilities of Pestoland and Pastaland,
respectively. If both countries are given the opportunity to trade at prices indicated by CF,
a.
both will refuse trade.
b.
both will agree to trade.
c.
Pestoland will wish to trade, but Pastaland will not.
d.
Pastaland will wish to trade, but Pestoland will not.
125. In Figure 22-7, AB represents the production possibilities of Pestoland and CD that of Pastaland. Pestoland has a
comparative advantage in pasta because it
a.
gets more pasta from a given decline in pesto than Pastaland does.
b.
gets more pesto from a given decrease in pasta production.
c.
can produce more pasta than Pastaland.
d.
can produce more pasta and pesto than Pastaland.
126. In Figure 22-7, AB represents the production possibilities of Pestoland and CD that of Pastaland. In this graph,
Pestoland has a comparative advantage in
a.
pasta because OA/OB < OC/OD.
b.
pesto because OA/OB < OC/OD.
c.
pasta because OA/OB OC/OD.
d.
pesto because OA/OB OC/OD.
127. In Figure 22-7, where AB represents the production possibilities of Pestoland and CD the production possibilities of
Pastaland, Pastaland is
a.
better at producing pasta and pesto than Pestoland.
b.
better at producing pasta, but relatively inefficient in producing pesto.
c.
relatively better at producing pasta than pesto.
d.
relatively better at producing pesto than pasta.
128. In Figure 22-7, it is probably true that wages are
a.
equal in Pestoland and Pastaland.
b.
greater in Pestoland than Pastaland.
c.
greater in Pastaland than in Pestoland.
d.
higher in pasta production than in pesto production in both countries.
129. If the production possibilities curves of two countries have the same slope,
a.
neither has a comparative advantage, and there are no gains from trade.
b.
although there is no comparative advantage, there are potential gains if there are differences in absolute
advantage.
c.
neither has an absolute advantage, and there cannot be gains from trade.
d.
both have an absolute advantage, and can gain from trade.
130. Using graphs to illustrate the concepts, absolute advantage
a.
is shown with differences in slope of a production possibilities curve; comparative advantage is shown with a
lower curve.
b.
requires a very steep curve; comparative advantage requires a curve with a shallow slope.
c.
on one good requires that the slope of the production possibilities curve be steeper for that good.
d.
is shown with a higher production possibilities curve; comparative advantage is shown with differences in
slope of the curves.
Figure 22-8
131. Figure 22-8 has four sets of production possibility curves for two hypothetical countries. In which case will there be
no advantage to trade between the two countries?
a.
1
b.
2
c.
3
d.
4
132. The effect of opening trade between countries is
a.
living standards rise in the country with efficient, high-pay workers.
b.
both countries can exploit comparative advantage and increase productivity.
c.
total world production increases as both countries specialize in specific goods.
d.
All of the above are correct.
133. The world price of a commodity will settle at the level where
a.
supply and demand are equal within each country.
b.
the excess demand of the importing country is equal to the excess supply of the exporting country.
c.
the excess demand in the exporting country is equal to the excess demand in the importing country.
d.
there is no excess demand in the exporting country.
Table 22-4
Quantity
Quantity
Quantity
Quantity
Price per
Demanded
Supplied
Demanded
Supplied
TV
in United States
in United States
Japan
Japan
(dollars)
(thousands)
(thousands)
(thousands)
(thousands)
100
100
10
100
25
200
85
20
85
50
300
70
30
70
70
400
60
40
60
80
500
50
50
50
90
600
40
60
40
100
700
30
70
30
110
800
20
80
20
120
134. Table 22-4 presents the demand and supply schedules for television sets in Japan and the United States. If there is no
trade between these countries, what are the equilibrium price and quantity in the United States?
a.
P = $100, Q = 100
b.
P = $200, Q = 85
c.
P = $300, Q = 70
d.
P = $500, Q = 50
135. Table 22-4 presents the demand and supply schedules for television sets in Japan and the United States. If there is no
trade between these countries, what are the equilibrium price and quantity in Japan?
a.
P = $100, Q = 100
b.
P = $200, Q = 85
c.
P = $300, Q = 70
d.
P = $400, Q = 60
136. Table 22-4 presents the demand and supply schedules for television sets in Japan and the United States. If Japan and
the United States trade with each other, what will be the equilibrium price in the world market for television sets?
a.
$100
b.
$200
c.
$300
d.
$400
137. Table 22-4 presents the demand and supply schedules for television sets in Japan and the United States. If Japan and
the United States trade with each other, which country will export television sets and how many?
a.
Japan will export 20,000 television sets to the United States.
b.
Japan will export 30,000 television sets to the United States.
c.
The United States will export 20,000 television sets to Japan.
d.
The United States will export 40,000 television sets to Japan.
138. Table 22-4 presents the demand and supply schedules for television sets in Japan and the United States. If the United
States and Japan trade with each other, what will happen to the output of television sets in the United States?
a.
TV production in the United States will fall by 10,000 units.
b.
TV production in the United States will fall by 20,000 units.
c.
TV production in the United States will fall by 30,000 units.
d.
TV production in the United States will increase by 10,000 units.
139. Table 22-4 presents the demand and supply schedules for television sets in Japan and the United States. If the United
States and Japan decide to trade with each other, what will happen to the output of television sets in Japan?
a.
TV production in Japan will fall by 10,000 units.
b.
TV production in Japan will fall by 20,000 units.
c.
TV production in Japan will fall by 30,000 units.
d.
TV production in Japan will increase by 10,000 units.
140. The supply-demand mechanism will bring an international market into equilibrium
a.
at a price below the domestic price.
b.
where domestic supplies are less than domestic demand.
c.
with one nation's price higher than the other nation's price.
d.
when the quantity demanded for exports is equal to quantity supplied.
Figure 22-9
141. In Figure 22-9, Pestoland exports pasta to Pastaland. The equilibrium price of pasta will be
a.
OC
b.
OJ
c.
OA
d.
OK
142. In Figure 22-9, Pestoland exports pasta to Pastaland. Equilibrium will occur when
a.
points E and B are reached simultaneously.
b.
either E or B is reached.
c.
exports equal imports.
d.
exports are maximized.
143. In Figure 22-9, Pestoland at price OA
a.
is importing MN pasta from Pastaland.
b.
is exporting MN pasta to Pastaland.
c.
is exporting XY pasta to Pastaland.
d.
is exporting OZ pasta to Pastaland.
144. In Figure 22-9, at price OC
a.
quantity supplied of pasta exceeds quantity demanded so price will fall.
b.
quantity demanded for pasta exceeds quantity supplied so price will rise.
c.
exports of pasta equal XY.
d.
imports of pasta equal XY.
145. In Figure 22-9, at price OC total quantity demanded exceeds quantity supplied and price will rise to
a.
OJ in Pastaland.
b.
OA in Pestoland.
c.
OA in both countries.
d.
OJ in both countries.
146. In Figure 22-9, hostilities break out between Pastaland and Pestoland after Pestoland violates the Treaty of Basil.
Consequently, trade stops and the price of pasta
a.
rises to OJ in both countries.
b.
falls to OC in both countries.
c.
falls to OC in Pastaland and rises to OJ in Pestoland.
d.
rises to OJ in Pastaland and falls to OC in Pestoland.
147. If the supply curve of a commodity is upward sloping, and the producing country begins to export more in a pure free
trade system, the domestic price of the commodity will
a.
fall.
b.
rise.
c.
exceed the price in foreign countries.
d.
be below the price in foreign countries.
