Chapter 21 Comparative Advantage Practice Quiz

The benefits from international trade include

Greater efficiency in the use of the world's limited resources.

A country with a comparative advantage in producing computer chips

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

The expansion of world output as a result of trade is mainly due to the effects of

Specialization according to comparative advantage.

World output of goods and services increases with specialization because

The world's resources are being used more efficiently.

Suppose Canada can produce either 300 tons of paper or 200 HDTVs, and India can produce either 200 tons of paper or 100 HDTVs. The terms of trade between the two countries will lie between

1/2 and 2/3 of an HDTV per ton of paper

When one country can produce a given amount of a good using fewer inputs than any other country,

It has an absolute advantage in producing the good.

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

Japan has a comparative advantage.

If trade is mutually beneficial, then increasing trade

Leads to increased output in export industries.

Without trade, a country's consumption possibilities are

Limited to its domestic production possibilities.

Tariffs tend to reduce the volume of imports by

Making them more expensive to domestic consumers.

Suppose the country of Maverick has specialized in the production of a good but has not yet entered into trade. At this point in time, Maverick has

Moved along its existing production possibilities curve.

The United States has an absolute advantage in producing T-shirts, but not a comparative advantage, because

Other countries, such as China, can produce T-shirts at a lower opportunity cost relative to the United States.

Increased trade restrictions

Reduce total consumption possibilities.

A country will not trade unless

The terms of trade are superior to domestic opportunities.

If the United States has a trade deficit, this means that

The trade balance is negative.

The General Agreement on Tariffs and Trade (GATT)

Committed GATT members to a reduction of protectionism.

Which of the following is not a reason to restrict trade?

Concern about high prices for consumers.

The purpose of the World Trade Organization (WTO) is to

Enforce the rules of free trade.