Q: Which of the following equations correctly represents the opportunity cost of producing one unit of good X in terms of good Y?

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

Question 1

Which of the following best describes the concept of comparative advantage?

Accepted Answer

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

Question 2

Suppose the United States can produce 100 cars or 200 computers with the same resources, while Japan can produce 80 cars or 160 computers. What is the opportunity cost for the United States to produce one car?

Accepted Answer

$$2$$ computers

Question 3

If the world price of oranges is below the domestic price in Mexico and Mexico opens its market to trade, what will happen to consumer surplus and producer surplus in Mexico?

Accepted Answer

Consumer surplus will increase, and producer surplus will decrease.

Question 4

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

Accepted Answer

High tariffs on imports

Question 5

A tariff is imposed on imported ethanol, raising the domestic price from $$1.00 to 1.50 $$per gallon. What is the most likely effect on the quantity of ethanol imported?

Accepted Answer

Imports will decrease.

Question 6

Which of the following equations correctly represents the opportunity cost of producing one unit of good X in terms of good Y?

Accepted Answer

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

Question 7

Which of the following is a likely unintended consequence of banning goods made with child labor in developing countries?

Accepted Answer

Children may turn to less desirable alternatives such as begging or prostitution.

Question 8

Which of the following best explains why not all goods and services are traded internationally?

Accepted Answer

Production of most goods involves increasing opportunity costs and tastes for products differ.

Question 9

Suppose the U.S. government imposes a quota on imported sugar. What is the most likely effect on the U.S. sugar market?

Accepted Answer

The price of sugar will rise above the world price, and domestic producers will supply more.

Question 10

Which of the following is a traditional economic argument for protectionism?

Accepted Answer

To protect infant industries

Question 11

If a country has an absolute advantage in producing both goods, can it still benefit from trade?

Accepted Answer

Yes, if it specializes in the good for which it has a comparative advantage.

Question 12

Which of the following best describes the effect of a tariff on the domestic market for a good?

Accepted Answer

It raises the domestic price above the world price and reduces imports.

Question 13

Which of the following is a critique of the infant industry argument for protectionism?

Accepted Answer

Industries often fail to become competitive when protected from competition.

Question 14

Suppose the U.S. imposes a $$0.50 per gallon tariff on ethanol, raising the price from 1.00 to$$ $1.50. If U.S. consumers reduce their purchases from 9.0 billion to 7.5 billion gallons, what is the change in quantity demanded?

Accepted Answer

$$1.5$$ billion gallons decrease

Question 15

Which of the following is true about the World Trade Organization (WTO)?

Accepted Answer

It oversees international trade agreements.

Question 16

Which of the following best explains why trade is considered a positive sum game?

Accepted Answer

Both parties to a transaction can gain from voluntary exchange.

Question 17

Which of the following is a likely effect of globalization on domestic employment?

Accepted Answer

Some workers may lose jobs, but increased trade usually creates jobs in other industries.

Question 18

Which of the following is a correct statement about outsourcing?

Accepted Answer

Outsourcing can result in a net increase in income for the country as a whole.

Question 19

Which of the following equations represents the gains from trade for a country?

Accepted Answer

$$	ext{Gains from Trade} = 	ext{Consumption with Trade} - 	ext{Consumption without Trade}$$

Comparative Advantage and the Gains from International Trade

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