True/False
[QUESTION]
1. The United States has a trade deficit when the value of the goods and services we import
exceeds the value of the goods and services we export.
2. We can conclude from the table shown that Spain has a comparative advantage in the
production of tables.
Labor Input to Produce Chairs and Tables
Morocco
Spain
Chair
3
1
Table
10
5
3. We can conclude from the table shown that Morocco has a comparative advantage in the
production of tables.
Labor Input to Produce Chairs and Tables
Morocco
Spain
Chair
3
1
Table
10
5
4. A currency has depreciated in value if it takes more of a foreign currency to buy it.
5. Economic models take into account the effect of trade on the distribution of income.
6. People with intellectual property rights are on the low end of the income distribution that is
created from globalization.
7. Manufacturing wages have risen significantly for 20 years.
8. The more competition there is in international trade, the larger the traders’ proportion of the
gains from trade.
9. Smaller countries tend to get a larger share of the gains from trade than do larger countries.
10. If Americans demand goods produced in Mexico, it leads to a demand for Mexican pesos and
a supply of U.S. dollars on the foreign exchange market.
11. Suppose foreign shrimp prices drop by 32 percent and importers gain a 90 percent market
share. From this information, what would economists strongly suspect about this industry?
A. Foreigners have a comparative advantage in shrimping.
B. Americans have a comparative advantage in shrimping.
C. Foreign sellers probably are colluding on price to maximize profits.
D. The large sales of foreigners indicate that they are better strategic bargainers than Americans
are.
12. Immediately after World War II, the United States ran trade:
A. deficits and was an international lender.
B. deficits and was an international borrower.
C. surpluses and was an international lender.
D. surpluses and was an international borrower.
13. The balance of trade measures the:
A. difference between the value of imports and that of exports.
B. share of U.S. imports coming from various regions of the world.
C. share of U.S. exports going to various regions of the world.
D. exchange rate needed to make imports equal exports.
14. When a country runs a trade deficit, it does so by:
A. borrowing from foreign countries or selling assets to them.
B. borrowing from foreign countries or buying assets from them.
C. lending to foreign countries or selling assets to them.
D. lending to foreign countries or buying assets from them.
15. When a country runs a trade surplus, it will:
A. borrow from foreign countries or sell assets to them.
B. borrow from foreign countries or buy assets from them.
C. lend to foreign countries or sell assets to them.
D. lend to foreign countries or buy assets from them.
16. Refer to the table shown. From this table we can conclude that:
Cost (in domestic currency) of producing wine and an electric generator
France (francs)
Wine
10
Electric Generator
10,000
A. France has a comparative advantage in both goods.
B. France has a comparative advantage in wine and Germany has a comparative advantage in
electric generators.
C. Germany has a comparative advantage in wine and France has a comparative advantage in
electric generators.
D. Germany has a comparative advantage in both goods.
17. Refer to the table shown. From this table we can conclude that if the two countries trade
with each other, it is most likely that:
Cost (in domestic currency) of producing wine and an electric generator
France (francs)
Wine
10
Electric Generator
10,000
A. France exports both goods to Germany.
B. Germany exports both goods to France.
C. France exports wine to Germany and imports electric generators from Germany.
D. France exports electric generators to Germany and imports wine from Germany.
18. Countries can expect to gain from international trade as long as they:
A. keep production diversified.
B. specialize according to their comparative advantage.
C. produce only those goods for which they have a relatively high opportunity cost.
D. use trade restrictions to reduce competition for domestic producers.
19. Specialization according to comparative advantage means that a country is producing the
goods:
A. that it wants to consume.
B. for which it has a relatively high opportunity cost.
C. for which it has a relatively low opportunity cost.
D. that it can produce at zero cost.
20. Globalization represents:
A. a return to isolationism.
B. the opposite of isolationism.
C. the economic complement of political isolationism.
D. the political complement of economic isolationism.
21. Assume that in Canada the opportunity cost of producing one television set is two bushels of
wheat. Assume that in the United States the opportunity cost of producing one bushel of wheat
is two television sets. If these two countries specialize according to comparative advantage and
then trade with each other:
A. Canada will export both televisions and wheat.
B. Canada will export wheat and import televisions.
C. the United States will export wheat and import televisions.
D. the United States will export both televisions and wheat.
22. Assume that in Canada the opportunity cost of producing one television set is two bushels of
wheat. Assume that in the United States the opportunity cost of producing one bushel of wheat
is two television sets. If these two countries specialize according to comparative advantage and
then trade with each other:
A. Canada will import both televisions and wheat.
B. Canada will import wheat and export televisions.
C. the United States will import wheat and export televisions.
D. the United States will import both televisions and wheat.
23. A nation’s comparative advantage in the production of an item is determined by:
A. which country has already specialized in the production of the item.
B. the total and marginal costs of producing the item.
C. the opportunity cost of producing the item relative to a trading partner’s opportunity cost.
D. wage rates and other input costs.
24. If nations trade on the basis of comparative advantage:
A. a nation usually can gain from trade only at the expense of its trading partners.
B. exporting nations gain from trade and importing nations lose.
C. importing nations gain from trade and exporting nations lose.
D. all trading partners can gain from trade.
25. At one time, most of the cars produced in Mexico were sold in Mexico. Today, however,
Mexico both exports and imports cars. How can comparative advantage explain these data?
A. It cannot; comparative advantage predicts that a country either exports a product or imports
it, not both.
B. The pattern is not due to comparative advantage but to government restrictions on
production.
C. Mexico has a comparative disadvantage in automobiles.
D. Mexico specializes in the production of high-end cars, which it exports, and imports low-end
cars that can be produced at lower cost elsewhere.
26. Production Possibility Schedules for Two South Pacific Island Nations
Kiribati
Tuvalu
Mangoes
Coconuts
Mangoes
Coconuts
300
0
1,200
0
200
400
800
1,200
100
800
400
2,400
0
1,200
0
3,600
In Kiribati, the opportunity cost of producing one mango (in terms of coconuts) is:
A. 0.
B. 1/4.
C. 4.
D. 400.
27. Production Possibility Schedules for Two South Pacific Island Nations
Kiribati
Tuvalu
Mangoes
Coconuts
Mangoes
Coconuts
300
0
1,200
0
200
400
800
1,200
100
800
400
2,400
0
1,200
0
3,600
In Tuvalu, the opportunity cost of producing one coconut (in terms of mangoes) is:
A. 0.
B. 1/3.
C. 3.
D. 400.
28. Production Possibility Schedules for Two South Pacific Island Nations
Kiribati
Tuvalu
Mangoes
Coconuts
Mangoes
Coconuts
300
0
1,200
0
200
400
800
1,200
100
800
400
2,400
0
1,200
0
3,600
A comparative advantage in the production of mangoes is held by:
A. Kiribati.
B. Tuvalu.
C. both countries.
D. neither country.
29. Production Possibility Schedules for Two South Pacific Island Nations
Kiribati
Tuvalu
Mangoes
Coconuts
Mangoes
Coconuts
300
0
1,200
0
200
400
800
1,200
100
800
400
2,400
0
1,200
0
3,600
A comparative advantage in the production of coconuts is held by:
A. Kiribati.
B. Tuvalu.
C. both countries.
D. neither country.
30. Production Possibility Schedules for Two South Pacific Island Nations
Kiribati
Tuvalu
Mangoes
Coconuts
Mangoes
Coconuts
300
0
1,200
0
200
400
800
1,200
100
800
400
2,400
0
1,200
0
3,600
Which of the following statements is true?
A. Gains from trade are possible for both countries.
B. Only Kiribati will benefit from trade with Tuvalu.
C. Only Tuvalu will benefit from trade with Kiribati.
D. No gains from trade are possible for either Kiribati or Tuvalu.
31. The country with a comparative advantage in the production of good X is the one that:
A. has the greatest technical efficiency in producing good X.
B. has the greatest supply of the natural resources used in producing good X.
C. can produce good X with the least labor.
D. can produce good X at the lowest opportunity cost.
32. Refer to the table shown.
Botswana
Zimbabwe
Gold
Nickel
Gold
Nickel
0
300
0
90
60
200
18
60
120
100
36
30
180
0
54
0
Botswana’s opportunity cost of producing nickel (in terms of gold) is:
A. 3/5.
B. 5/3.
C. 60.
D. 100.
33. Refer to the table shown.
Botswana
Zimbabwe
Gold
Nickel
Gold
Nickel
0
300
0
90
60
200
18
60
120
100
36
30
180
0
54
0
A comparative advantage in the production of gold is held by:
A. Zimbabwe.
B. Botswana.
C. neither country.
D. both countries.
34. Refer to the table shown.
Botswana
Zimbabwe
Gold
Nickel
Gold
Nickel
0
300
0
90
60
200
18
60
120
100
36
30
180
0
54
0
In this example:
A. there are gains from trade for Botswana.
B. there are gains from trade for Zimbabwe.
C. there are gains from trade for both countries.
D. there are no possible gains from trade.
35. If the United States were to stop trading with other nations, economists would predict that in
the long run the United States would end up with:
A. more jobs.
B. lower prices.
C. a higher standard of living.
D. a lower standard of living.
36. Refer to the graph shown.
We can conclude from the diagram that:
A. Graustark has a comparative advantage in both goods.
B. Norstrilia has a comparative advantage in both goods.
C. Norstrilia has a comparative advantage in manufacturing and Graustark has a comparative
advantage in agriculture.
D. Norstrilia has a comparative advantage in agriculture and Graustark has a comparative
advantage in manufacturing.
37. Refer to the graph shown.
We would expect that if the two countries trade with each other (and neither trades with the rest
of the world):
A. Norstrilia will export manufactured goods and Graustark will export agricultural goods.
B. Norstrilia will export agricultural goods and Graustark will export manufactured goods.
C. Norstrilia will export both goods to Graustark, which will have a permanent trade deficit.
D. Graustark will export both goods to Norstrilia, which will have a permanent trade deficit.
38. Refer to the graph shown.
Widgets
Wadgets
AB
Given these production possibility curves, you would suggest that:
A. Country A should specialize in widgets and Country B in wadgets.
B. No trade should take place.
C. Country A should specialize in wadgets and Country B in widgets.
D. Both countries should produce an equal amount of each.
39. Refer to the graph shown.
The graph demonstrates Saudi Arabia’s and the United States’ production possibility curves for
widgets and wadgets. Given these production possibility curves, you would suggest that:
A. Saudi Arabia specialize in widgets and the United States in wadgets.
B. No trade should take place.
C. Saudi Arabia specialize in wadgets and the United States in widgets.
D. Both countries should produce an equal amount of each.
Widgets
Wadgets
Saudi Arabia
United States
40. A widget has an opportunity cost of 4 wadgets in Saudi Arabia and 2 wadgets in the United
States. Given these opportunity costs, you would suggest that:
A. Saudi Arabia specialize in widgets and the United States in wadgets.
B. No trade should take place.
C. Saudi Arabia specialize in wadgets and the United States in widgets.
D. Both countries should produce an equal amount of each.
41. Country A’s cost of widgets is $4.00 and cost of wadgets is $8.00. Country B’s cost of
widgets is 8 euros and cost of wadgets is 16 euros. Which of the following would you suggest?
A. Country A should specialize in widgets and Country B in wadgets.
B. Trade of widgets for wadgets would not benefit the countries.
C. Country A should specialize in wadgets and Country B in widgets.
D. Both countries should produce an equal amount of each.
42. In considering the distribution of the gains from trade:
A. Smaller countries usually get a larger proportion of the gains from trade.
B. Larger countries usually get a larger proportion of the gains from trade.
C. The gains are generally split equally between small and large countries.
D. No statement can be made about the general nature of the split.
43. The analysis of international trade suggests that trading companies earn higher than normal
profits in:
A. the long run but not in the short run.
B. the short run but not in the long run.
C. both the short run and the long run.
D. neither the short run nor the long run.
44. The U.S. textile industry is relatively small because the United States imports most of its
clothing. A clear result of the importation of clothing is that:
A. there is less variety available than there would be without imports.
B. the quality of clothing is lower than it would be without imports.
C. the price of clothing is higher than it would be without imports.
D. the price of clothing is lower than it would be without imports.
45. Which of the following statements correctly summarizes a difference between the
layperson’s and the economist’s views of the net benefits of trade?
A. Economists often argue that the gains from trade in the form of low consumer prices tend to
be widespread and not easily recognizable while the costs in jobs lost tend to be concentrated and
readily identifiable.
B. Economists often argue that most U.S. jobs are at risk of outsourcing while laypeople
intuitively recognize that inherent in comparative advantage is that each country has a
comparative advantage in the production of some good.
C. Economists focus on trade in manufactured goods while laypeople also focus on trade
involving the services of people who manage the trade.
D. Economists most often argue that the costs of trade outweigh the benefits while laypeople
often argue that the benefits of trade outweigh the costs.
46. In the United States, globalization has caused workers in the education, healthcare, and
government sectors to face:
A. lower wages.
B. higher prices on consumer goods.
C. little or no downward pressure on their wages.
D. longer hours to compete with the higher production levels abroad.
47. When Ross Perot ran for president as a third party candidate in the 1992 presidential
elections, he argued that free trade with Mexico would result in massive job losses in the United
States because Mexican wages were so low. Which of the following is the best explanation of
why few economists agreed with Perot?
A. Economists did not believe that any jobs would be lost in the United States.
B. Economists believed that the U.S. unemployment rate would rise.
C. Although economists agreed that in some areas the United States would lose jobs, they
expected that the United States would gain jobs in other areas.
D. Although economists predicted that unemployment would rise, the increased profits of
corporations would raise stock prices enough to compensate for the lost jobs.
48. Economists and laypeople see the pros and cons of international trade in different ways.
Which of the following is one of those ways?
A. Laypeople enjoy the benefits of trade in terms of lower consumer prices.
B. Laypeople believe in the law of one price and economists do not.
C. Laypeople tend to think of foreign trade only in terms of manufactured goods.
D. Laypeople recognize that the United States has a comparative advantage in services.
49. The loss of jobs due to international trade is often:
A. more visible than the decline in consumer prices due to international trade.
B. less visible than the decline in prices due to international trade.
C. greater than the benefit of trade in the form of decline in prices.
D. spread across all sectors while decline in prices is concentrated in one sector.
50. When considering outsourcing, most laypeople:
A. recognize its benefits to raising foreign wages.
B. oppose it because of the visible loss of jobs.
C. support it because they enjoy lower consumer prices.
D. recognize it frees resources for other jobs for which the U.S. has a comparative advantage.