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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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
36. Costa Rica allows trade with the rest of the world. We can determine whether Costa Rica has a comparative advantage
in producing pharmaceuticals if we
a.
know whether Costa Rica imports or exports pharmaceuticals.
b.
compare the world price of pharmaceuticals to the price of pharmaceuticals that would prevail in Costa Rica if
trade with the rest of the world were not allowed.
c.
compare the quantity of pharmaceuticals consumed in Costa Rica with the quantity of pharmaceuticals that
would be consumed in Costa Rica if trade with the rest of the world were not allowed.
d.
All of the above are correct.
37. Spain allows trade with the rest of the world. We know that Spain has a comparative advantage in producing olive oil
if we know that
a.
Spain imports olive oil.
b.
the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other
countries were not allowed.
c.
consumer surplus in Spain would exceed producer surplus in Spain if trade with other countries were not
allowed.
d.
All of the above are correct.
38. The nation of Farmland forbids international trade. In Farmland, you can exchange 1 pound of beef for 2 pounds of
pepper. In other countries, you can exchange 1 pound of beef for 4 pounds of pepper. These facts indicate that
a.
Farmland has a comparative advantage, relative to other countries, in producing beef.
b.
other countries have an absolute advantage, relative to Farmland, in producing beef.
c.
the price of beef in Farmland exceeds the world price of beef.
d.
if Farmland were to allow trade, it would export pepper.
39. The nation of Isolani forbids international trade. In Isolani, you can exchange 1 car for 5 motorcycles. In other
countries, you can exchange 1 car for 4 motorcycles. These facts indicate that
a.
other countries have an absolute advantage, relative to Isolani, in producing cars.
b.
Isolani has a comparative advantage, relative to other countries, in producing cars.
c.
if Isolani were to allow trade, it would import motorcycles.
d.
the world price of motorcycles exceeds the price of motorcycles in Isolani.
40. Assume for Guatemala that the domestic price of coffee without international trade is higher than the world price of
coffee. This suggests that
a.
Guatemala has a comparative advantage over other countries in the production of coffee, and Guatemala will
export coffee.
b.
Guatemala has a comparative advantage over other countries in the production of coffee, and Guatemala will
import coffee.
c.
other countries have a comparative advantage over Guatemala in the production of coffee, and Guatemala will
export coffee.
d.
other countries have a comparative advantage over Guatemala in the production of coffee, and Guatemala will
import coffee.
41. Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil. This situation suggests
a.
Russia has a comparative advantage over Brazil in producing coffee, and Ireland has a comparative advantage
over Russia in producing sunflower seeds.
b.
Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative
advantage over Russia in producing coffee.
c.
Russia has an absolute advantage over Ireland in producing sunflower seeds, and Brazil has an absolute
advantage over Russia in producing coffee.
d.
Russia has an absolute advantage over Brazil in producing coffee, and Ireland has an absolute advantage over
Russia in producing sunflower seeds.
42. Suppose that the US market for soybeans is not open to international trade. Currently, soybeans sell for $6.00 per
bushel in the US and the world price for soybeans is $8.00 per bushel. This information implies that
a.
the US has an absolute advantage in the production of soybeans and if the market opens to international trade,
the US would export soybeans.
b.
the US does not have an absolute advantage in the production of soybeans and if the market opens to
international trade, the US would import soybeans.
c.
the US has a comparative advantage in the production of soybeans and if the market opens to international
trade, the US would export soybeans.
d.
the US does not have a comparative advantage in the production of soybeans and if the market opens to
international trade, the US would import soybeans.
43. Jamaica has a comparative advantage in the production of aluminum, but currently allows no international trade in
aluminum. We can conclude that
a.
the domestic price of aluminum in Jamaica is higher than the world price for aluminum.
b.
Jamaica has an absolute advantage in the production of aluminum.
c.
Jamaica should import aluminum.
d.
the domestic price of aluminum in Jamaica is lower than the world price for aluminum.
44. Suppose that Honduras opens its markets to international trade. As a result of this, the domestic price of coffee
decreases. We can conclude that
a.
Honduras has a comparative advantage in the production of coffee.
b.
Honduras has begun to import coffee into the country.
c.
the price of coffee in Honduras prior to the opening of trade was lower than the world price.
d.
Honduras should specialize in the production of coffee.
