Q: Which formula correctly represents the opportunity cost of producing good X in terms of good Y?

$$\text{Opportunity Cost of X} = \frac{\text{Units of Y foregone}}{\text{Units of X produced}}$$

Q: Which equation best represents the calculation of the cost per job saved by a quota, given total consumer cost $$C$$ and number of jobs saved $$J$$?

$$\text{Cost per job} = \frac{C}{J}$$

Question 1

Which of the following best describes comparative advantage in international trade?

Accepted Answer

The ability of a country to produce a good or service at a lower opportunity cost than competitors.

Question 2

Suppose the opportunity cost of producing 1 smartphone in China is 0.5 bushels of wheat, and in the U.S. it is 2 bushels of wheat. Which country has the comparative advantage in producing smartphones?

Accepted Answer

China, because it has a lower opportunity cost for producing smartphones.

Question 3

If the world price of ethanol is $$1.00 per gallon and the U.S. domestic price is 2.00 $$per gallon, what is the likely effect of allowing free trade in ethanol?

Accepted Answer

U.S. consumers will benefit from lower prices, while domestic producers will lose surplus.

Question 4

Which formula correctly represents the opportunity cost of producing good X in terms of good Y?

Accepted Answer

$$	ext{Opportunity Cost of X} = \frac{	ext{Units of Y foregone}}{	ext{Units of X produced}}$$

Question 5

A country is in autarky. What does this mean?

Accepted Answer

It does not trade with other countries.

Question 6

If the U.S. imposes a $$0.50 per gallon tariff on imported ethanol, raising the domestic price from 1.00 to$$ $1.50, what is the likely effect on consumer surplus?

Accepted Answer

Consumer surplus will decrease.

Question 7

Which of the following is NOT a source of comparative advantage?

Accepted Answer

High domestic consumption of imports.

Question 8

Suppose the U.S. sugar quota restricts imports, raising the domestic price to $$0.36 per pound while the world price is 0.18. $$What is the economic effect of this quota?

Accepted Answer

Consumer surplus decreases and producer surplus increases.

Question 9

Which equation best represents the calculation of the cost per job saved by a quota, given total consumer cost $$C$$ and number of jobs saved $$J$$?

Accepted Answer

$$	ext{Cost per job} = \frac{C}{J}$$

Question 10

Which of the following is a likely unintended consequence of imposing tariffs to protect domestic industries?

Accepted Answer

Tariffs may cause job losses in other domestic industries due to higher prices.

Question 11

What is the main argument against using tariffs as a tool to slow climate change, according to critics?

Accepted Answer

Tariffs may disguise protectionist motives and provoke retaliatory measures.

Question 12

Which of the following best describes 'dumping' in international trade?

Accepted Answer

Selling a product for a price below its cost of production.

Question 13

Which organization replaced the General Agreement on Tariffs and Trade (GATT) and oversees international trade agreements?

Accepted Answer

World Trade Organization (WTO)

Question 14

If a country specializes in the production of a good for which it has a comparative advantage, what is the expected outcome according to trade theory?

Accepted Answer

The country will be able to consume more of both goods through trade.

Question 15

Which of the following is a normative statement regarding international trade?

Accepted Answer

"The government ought to protect domestic industries from foreign competition."

Question 16

What is the main reason why trade restrictions such as quotas and tariffs are politically difficult to remove?

Accepted Answer

The benefits of restrictions are concentrated among a few, while the costs are spread across many.

Question 17

Which of the following is NOT a reason why complete specialization does not occur in the real world?

Accepted Answer

All countries have identical opportunity costs.

Question 18

If the terms of trade between two countries are set at a ratio worse than a country's opportunity cost, what should the country do?

Accepted Answer

Refuse to trade and produce the good itself.

Question 19

Which of the following best explains the concept of external economies as a source of comparative advantage?

Accepted Answer

Reductions in a firm's costs resulting from an increase in the size of an industry.

Question 20

According to the study materials, what is a suggested policy to help those negatively affected by international trade?

Accepted Answer

Providing retraining and tax credits for skill development.

Comparative Advantage and the Gains from International Trade

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