4. International Trade

11) To ensure mutually beneficial trade, the terms of trade between two countries should always A) Be between their respective opportunity costs in production. B) Be set to favor the larger country because its output will be greater. C) Be set to favor the country with the least comparative advantage in a good to ensure the greatest gains from specialization. D) Allow each country to develop its area of absolute advantage.

A) Be between their respective opportunity costs in production.

12) A country will not trade unless A) The terms of trade are superior to domestic opportunities. B) It has an absolute advantage. C) Its balance of trade is in a surplus position. D) The production possibilities increase.

A) The terms of trade are superior to domestic opportunities.

1) Which of the following is a gain from trade? A) A higher price level for all trading countries. B) A level of self-sufficiency for all trading countries. C) A shorter workweek for all trading countries. D) A higher standard of living for all trading countries.

D) A higher standard of living for all trading countries.

2) A country has a comparative advantage in a good if A) It can specialize only in two goods. B) It can produce more of the good than another country. C) It always has an absolute advantage in the production of the good. D) It can produce a good at a lower opportunity cost relative to another country.

D) It can produce a good at a lower opportunity cost relative to another country.

7) Suppose the United States can produce 2,000 cars or 2,000 trucks. Japan can produce either 2,000 cars or 1,000 trucks. In terms of car production we can conclude that A) The United States has an absolute advantage. B) Japan has an absolute advantage. C) The United States has a comparative advantage. D) Japan has a comparative advantage.

D) Japan has a comparative advantage.

3) Two countries will have zero incentive to trade if their production possibilities curves are parallel straight lines because A) An intersection of the two lines is not possible, and therefore a trade equilibrium is not possible. B) One country has an absolute advantage in the production of both goods, thus providing that country with no incentive for trade. C) One country has a comparative advantage in the production of both goods, thus providing that country with no incentive for trade. D) The opportunity costs for both countries are the same.

D) The opportunity costs for both countries are the same.

4) Two countries with differing comparative advantages may engage in trade because A) They will be able to consume more goods in total due to specialization and trade. B) They will be able to produce and consume goods on their production possibilities curves. C) They will achieve an absolute advantage with one another. D) They are required to because they are part of the World Trade Organization.

A) They will be able to consume more goods in total due to specialization and trade.

6) Suppose the production of 12 tons of copper in the United States requires the same amount of resources as the production of 3 tons of aluminum. In Mexico, 12 tons of copper requires the same amount of resources as 2 tons of aluminum. Implicitly A) Mexico has an absolute advantage in producing copper. B) Mexico has a comparative advantage in producing copper. C) The United States has an absolute advantage in producing aluminum. D) Neither country has a comparative advantage in producing aluminum.

B) Mexico has a comparative advantage in producing copper.

5) A country with a comparative advantage in producing computer chips A) Has greater capacity to produce computer chips, given its resources, than do its trading partners. B) Can achieve better terms of trade in selling computer chips than its trading partners. C) Has a lower opportunity cost of producing computer chips than its trading partners. D) Can produce computer chips with fewer resources than its trading partners.

C) Has a lower opportunity cost of producing computer chips than its trading partners.

8) When one country can produce a given amount of a good using fewer inputs than any other country, A) Specialization will definitely increase worldwide consumption possibilities. B) Specialization will definitely increase worldwide production possibilities. C) It has an absolute advantage in producing the good. D) It always has a comparative advantage in producing the good.

C) It has an absolute advantage in producing the good.

10) The amount of good A given up for good B in trade is the A) Comparative advantage. B) Exploitation of consumers. C) Terms of trade. D) Absolute advantage.

C) Terms of trade.

9) Assume the United States and Australia have the same amount of resources. In a given time period, the United States can produce 2 tons of beef or 200,000 cars. Australia can produce 1 ton of beef or 100,000 cars. This means that A) Australia has an absolute advantage in both beef and cars. B) The United States has a comparative advantage in beef. C) The United States has an absolute advantage in both beef and cars. D) Australia has a comparative advantage in cars.

C) The United States has an absolute advantage in both beef and cars.