Macro ECO Quiz 4, Chapter 7 Comparative Advantage and the Gains from International Trade

A. PUS B. PNT C. Incorrect

A student makes the following​ argument: ​"Tariffs on imports of foreign goods into the United States will cause the foreign companies to add the amount of the tariff to the prices they charge in the United States for those goods. Instead of putting a tariff on imported​ goods, we should ban importing them. Banning imported goods is better than putting tariffs on them because U.S. producers benefit from the reduced competition and U.S. consumers​ don't have to pay the higher prices caused by​ tariffs." Graph shows Supply and Demand lines crossing. Y axis variables starting from higher up on the graph and descending; PNT, PUS (PW + Tariff), PW Use the​ student's argument along with the corresponding graph to answer the following questions. a. Which line represents the price of goods with​ tariffs? b. Which line represents the price of goods without​ trade? c. Is the​ student's reasoning correct or​ incorrect?

a lower opportunity cost of producing the product than the other country.

An article in the New York Times quoted an economist as arguing that​ "global free trade and the European single market...encourage countries to specialize in sectors where they enjoy comparative advantage.​ Germany's [comparative​ advantage] is in cars and machine​ tools." For the​ author's observation to be​ correct, must Germany be able to produce more cars and machine tools per hour worked than do​ France, Italy, the United​ Kingdom, and​ Germany's other trading​ partners? For Germany to have a comparative advantage in a product relative to France or another​ country, it would have...

Both countries would benefit from trade if Columbia were to trade 20,000 bananas for 16,000 pineapples with the Philippines. (This was a lucky guess. I found the opportunity cost by dividing the bananas and pineapples and vice versa. Look at powerpoint regarding calculating Opportunity Cost).

Assume the table below shows the quantities of bananas and pineapples that a plot of land can produce in a growing season in Columbia and the Philippines. Suppose each country has​ 2,000 plots of land and consumes the following​ (per season) without trade from allocating​ 1,000 plots of land to banana production and​ 1,000 plots of land to pineapple​ production: Chart shows: Columbia; Bananas (40,000), Pineapples (12,000). Philippines; Bananas (20,000), Pineapples (32,000). If both countries specialize completely by producing only that for which they have a comparative advantage and then​ trade, what would be the terms of trade that would benefit both​ countries?

First blank, a comparative Second blank, opportunity Third blank, terms of trade

Briefly explain how international trade increases a​ country's consumption. By specializing in the production of the goods and services in which they have ________ ​advantage, countries allocate resources more efficiently. In other​ words, goods and services are produced at their lowest ________ cost and world output increases. Since countries are producing goods and services at different opportunity​ costs, ___________ can be negotiated that will allow all countries to consume more with trade than in autarky.

If the U.S. trades at all with​ Bolivia, then the argument above is false. There would be no trade unless both countries were made better​ off, and this would imply Bolivia has the comparative advantage in the production of at least one good or service.

Briefly explain whether you agree with the following​ argument: ​"Unfortunately, Bolivia does not have a comparative advantage with respect to the United States in the production of any good or​ service." ​(​Hint: You do not need any specific information about the economies of Bolivia or the United States to be able to answer this​ question.)

All of these: -shifting production to the more efficient country—the one with the comparative advantage—increases total production. -inefficiencies in resource allocation are reduced. -world production of both goods increases after trade.

By​ trading, countries are able to consume more than they could without trade. This outcome is possible because....

False

Countries gain from specializing in producing goods in which they have an absolute advantage and trading for goods in which other countries have an absolute advantage. T/F?

production of most goods involves increasing opportunity costs.

Economic theory suggests countries benefit from international trade by producing more of those good and services for which they have a comparative advantage​ (and less of that for which a country does not have a comparative​ advantage). ​ However, countries rarely specialize completely. ​ Why? Even with international​ trade, countries rarely specialize completely because..... -all goods and services can be traded internationally. -some countries would lose as a result of free trade. -consumers in different countries have homogeneous tastes. -production of most goods involves increasing opportunity costs. -some countries do not have an absolute advantage producing anything.

First blank, tariff Second blank, quota

If the government wants to protect import competing industries and its workers from foreign​ competition, it can impose a tax on imports called a _______. Another restriction with a similar outcome would be to impose a limit on the amount of a specific good that can be imported. This restriction is called a _______.

His argument is incorrect because the United States should free up resources to produce the goods in which it has the comparative advantage.

Patrick J.​ Buchanan, a former presidential​ candidate, argues in his book on the global economy that there is a flaw in David​ Ricardo's theory of comparative advantage​: ​"Classical free trade theory fails the test of common sense. According to​ Ricardo's law of comparative advantage. . . if America makes better computers and textiles than China​ does, but our advantage in computers is greater than our advantage in​ textiles, we should​ (1) focus on​ computers, (2) let China make​ textiles, and​ (3) trade U.S. computers for Chinese textiles . . .The doctrine begs a question. If Americans are more efficient than Chinese in making clothes . . . why surrender the more efficient American​ industry? Why shift to a reliance on a Chinese textile industry that will take years to catch up to where American factories are​ today?" According to comparative​ advantage, why is​ Buchanan's argument​ incorrect?

Q1: All of these: -The use of quotas to protect domestic industries. -The use of​ non-tariff barriers to protect domestic industries. -The use of tariffs to protect domestic industries. Q2: No

Political commentator B.​ Bruce-Biggs once wrote the following in the Wall Street​ Journal: ​"This is not to say that the case for international free trade is​ invalid; it is just irrelevant. It is an​ 'if only everybody. . .​ .' argument. . . . In the real world almost everybody sees benefits in economic​ nationalism." Q1: Choose the correct answer that might refer to​ "economic nationalism." -The use of quotas to protect domestic industries. -The use of​ non-tariff barriers to protect domestic industries. -The use of tariffs to protect domestic industries. -All of the above Q2: Do you agree that a country only benefits from free trade if every other country also practices free​ trade?

First blank, lower Second blank, raise

Suppose China decides to pay large subsidies to any Chinese company that exports goods or services to the United States. As a​ result, these companies are able to sell products in the United States at far below their cost of production. In​ addition, China decides to bar all imports from the United States. The dollars that the United States pays to import Chinese goods are left in banks in China. (I am not quite sure I understand this question) The strategy will _____ the standard of living in China. The strategy will ______ the standard of living in the U.S.

A. 500 million pounds of beef. (I got this by subtracting 1100-600. These two numbers are the far left and far right numbers on the graph) B. 200 million pounds of beef. (I got this by subtracting 1000-800. These two numbers are the closest to the middle on the left and right sides of the graph) C. Gain D. Gain E. Lose

The United States produces beef and also imports beef from other countries. The graph to the right shows the supply and demand for beef in the United​ States, under the assumption that the United States can import as much as it wants at the world price of beef without causing the world price of beef to increase. The Graph Shows: Supply and Demand lines crossing. Two prices: $2.50 (which is higher on the graph) indicates World Price + Tariffs. $2.00 (which is lower on the graph) indicates World Price. The Quantities on the bottom are 600 and 800 on the left and 1000 and 1100 on the right. a. How much beef does the United States import at the world​ price(WP)? b. Now suppose that the United States imposes a tariff on beef of​ $0.50 a pound. How much beef is now​ imported? c. Do domestic producers of beef gain or lose when the United States imposes a tariff on​ beef? d. Does the government gain or lose when the United States imposes a tariff on​ beef? e. Do domestic consumers of beef gain or lose when the United States imposes a tariff on​ beef?

First blank, 0.50 Second blank, 2.00 Third blank, 2.00 Fourth blank, 0.50

The following table shows the hourly output per worker measured as quarts of olive oil and pounds of pasta in Greece and​ Italy: Chart shows: Greece: Olive oil (2) and Pasta (1). Italy: Olive oil (3) and Pasta (6). Q1: The opportunity cost of producing one more quart of olive oil in Greece is ______ pounds of pasta. Q2: The opportunity cost of producing one more quart of olive oil in Italy is ______ pounds of pasta. Q3: The opportunity cost of producing one more pound of pasta in Greece is _______ quarts of olive oil. ​ Q4: The opportunity cost of producing one more pound of pasta in Italy is ______ quarts of olive oil. Look at powerpoint for calculating Opportunity Cost

Q1: A​ + B​ + C​ + D. Q2: A. Q3: C. Q4: B​ + D.

The graph at right shows the situation after the U.S. removes a tariff on imports of canned tuna. The graph shows Supply and Demand lines crossing, and under those lines are the areas A, B, C, D. Q1: Which areas show the gain in consumer​ surplus? Q2: Which area shows the loss in producer​ surplus? Q3: Which area shows the loss in government tariff​ revenue? Q4: Which areas show the reduction in deadweight​ loss?

Q1: A​ + B​ + C​ + D. Q2: A. Q3: B​ + D.

The graph shows the effect on consumer​ surplus, producer​ surplus, government tariff​ revenue, and economic surplus of a tariff of​ $1 per unit on imports of plastic combs into the United States. Use the areas denoted in the graph to answer the following questions. Graph shows: Demand and Supply line crossing. US Price (World price + tariffs) is $5.00, and the World Price is $4.00. Areas A, B, C, D are in between the US. Price and World price on graph. Q1: Which​ area(s) shows the total loss to U.S. consumers as a result of the tariff on​ combs? Q2: Which​ area(s) shows the amount of surplus transferred from consumers to producers as a result of the tariff on​ combs? Q3: Which​ area(s) show the deadweight loss to the U.S. economy as a result of the tariff on​ combs?

The opportunity cost for Canada to produce one Smartphone is 0.60 Fitness Bracelet. (Look at powerpoint for calculating Opportunity Cost). First blank, Canada Second blank, Switzerland

Using the numbers in the​ table, determine which country has a comparative advantage in producing each product. Chart shows: Switzerland; Smartphones (8) and Fitness Bracelets (10). Canada; Smartphones (5) and Fitness Bracelets (3). Which of the following statements is​ true? -The opportunity cost for Canada to produce one Smartphone is 1.67 Fitness Bracelets. -The opportunity cost for Canada to produce one Smartphone is 0.60 Fitness Bracelet. -The opportunity cost for Switzerland to produce one Smartphone is 0.80 Fitness Bracelet. -The opportunity cost for Switzerland to produce one Fitness Bracelet is 1.25 Smartphones. _______ should produce Smartphones and ________ should produce Fitness Bracelets.

It shifts resources toward producing only those goods where it has a comparative​ advantage; No

What is meant by a country specializing in the production of a​ good? Is it typical for countries to be completely​ specialized?

First blank, Comparative Second blank, absolute Third blank, a comparative

What is the difference between absolute advantage and comparative​ advantage? ___________ advantage is the ability of an ​individual, a​ firm, or a country to produce a good or service at a lower opportunity cost than competitors. While _______ advantage is the ability of an ​individual, a ​firm, or a country to produce more of a good or service than competitors when using the same amount of resources. A country will always be an exporter of a good where it has ________ advantage in production.

Ad valorem tax on imports

Which of the following is not a​ non-tariff barrier to​ trade? -National security grounds -Quotas -Ad valorem tax on imports -Health and safety requirements -Embargos

Autarky, terms of trade

_____ is a situation in which a country does not trade with other countries. The​ _____ is the ratio at which a country can trade its exports for imports from other countries.