Chapter 20: International Trade

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International trade currently involves about _________________ worth of goods and services thundering around the globe.

$20 trillion

Which of the following is true?

A nation cannot have a comparative advantage in the production of every good.

Jethro has a(n) ____________________ in all aspects of camping: he is faster at carrying a backpack, gathering firewood, paddling a canoe, setting up tents, making a meal, and washing up

absolute advantage

When one nation can produce a product at lower cost relative to another nation, it is said to have a(n)____________________in producing that product.

absolute advantage

Colombia produces coffee with less labor and land than any other country; it therefore necessarily has:

an absolute advantage in coffee production

What matters most in determining the efficient distribution of production over the world is:

comparative advantage

When nations increase production in their area of _________ and trade with each other, both sides can benefit

comparative advantage

__________________ identifies the area where a producer's absolute advantage is relatively greatest, or where the producer's absolute disadvantage in productivity is relatively least.

comparative advantage

The concept of ____________________ means that as the measure of output goes up, average costs of production decline—at least up to a point

economies of scale

According to international trade theory, a country should:

import goods in which it has a comparative disadvantage

If a nation has a comparative disadvantage in the production of some commodity:

it can still gain from international trade in that commodity, by getting it at a lower opportunity cost than if it produced it domestically.

Intra-industry trade between similar trading partners allows the gains from ________________ that arise when firms and workers specialize in the production of a certain product.

learning and innovation

Trade allows each country to take advantage of ______________ in the other country.

lower opportunity costs

The idea behind comparative advantage reflects the possibility that one party:

may be able to produce something at a lower opportunity cost than another party.

The reasons that nations trade includes the fact that:

no one country produces all of what citizens within the country want.

The slope of the production possibility frontier is determined by the ________________ of expanding production of one good, measured by how much of the other good would be lost

opportunity cost

The theory of comparative advantage shows that the gains from international trade do not just result from the absolute advantage of producing at lower cost, but also from pursuing comparative advantage and producing at a lower ___________.

opportunity cost

The underlying reason why trade benefits both sides of a trading arrangement is rooted in the concept of

opportunity cost

Some nations that seek to produce all of their own needs face the problem that

some industries are too small to be efficient if restricted to their domestic markets alone.

The opportunity cost of producing a pair of pants in the USA is 5 bushels of wheat, while in China, it is 2 bushels of wheat. As a result:

there can be mutual gains from trade to the two countries if the USA exports wheat to China in exchange for pants.


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