Question 1

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

Accepted Answer

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

Question 2

Suppose the U.S. can produce 1,500 smartphones or 9,000 bushels of wheat with 1,000 hours, while China can produce 1,000 smartphones or 1,500 bushels of wheat with 1,000 hours. What is the opportunity cost of producing 1 smartphone in the U.S.?

Accepted Answer

$\frac{9,000}{1,500} = 6$ bushels of wheat$

Question 3

If the world price of ethanol is $1.00 per gallon and the U.S. imposes a $0.50 per gallon tariff, what happens to consumer surplus in the U.S. ethanol market?

Accepted Answer

Consumer surplus decreases by $A + C + T + D$.

Question 4

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

Accepted Answer

Absolute advantage in all goods

Question 5

What is the main economic effect of a quota on sugar imports in the U.S.?

Accepted Answer

It increases producer surplus for U.S. sugar producers and creates deadweight loss.

Question 6

Why don’t we see complete specialization in production among countries, even when comparative advantage exists?

Accepted Answer

Because production of many goods involves increasing opportunity costs and tastes for products differ.

Question 7

If the U.S. unilaterally eliminates tariffs and quotas, what is the expected effect according to economic analysis?

Accepted Answer

The U.S. economy would gain, even if other countries did not reduce their tariffs and quotas.

Question 8

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

Accepted Answer

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

Question 9

What is the opportunity cost of producing 1 bushel of wheat in China, given that China can produce 1,000 smartphones or 1,500 bushels of wheat with 1,000 hours?

Accepted Answer

$\frac{1,000}{1,500} = 0.67$ smartphones$

Question 10

Which of the following is a plausible reason for governments to restrict imports based on health and safety standards?

Accepted Answer

To ensure imported goods meet higher standards than domestic goods.

Question 11

If the U.S. market for ethanol is in autarky and the equilibrium price is $2.00 per gallon, what happens to producer surplus when the U.S. allows imports at a world price of $1.00 per gallon?

Accepted Answer

Producer surplus decreases to area $E$.

Question 12

Which of the following is a normative argument against globalization?

Accepted Answer

Globalization destroys distinctive cultures.

Question 13

What is the deadweight loss caused by a tariff in the U.S. ethanol market, according to the diagram?

Accepted Answer

Deadweight loss is represented by areas $C + D$.

Question 14

Which of the following best explains why sugar producers are able to lobby successfully for quotas, despite the high cost to society?

Accepted Answer

The benefit is concentrated among a few people, while the cost is spread over many consumers.

Question 15

Which of the following is an example of a real-world external economy that contributes to comparative advantage?

Accepted Answer

Silicon Valley for technology firms

Question 16

If a country specializes in producing the good for which it has a comparative advantage and trades with another country, what is the expected outcome?

Accepted Answer

Both countries will be better off, consuming more than they could in autarky.

Question 17

Which of the following is a plausible effect of the Smoot-Hawley Tariff Act (1930)?

Accepted Answer

It led to retaliatory tariffs from other countries, reducing international trade.

Question 18

What is the main argument for using tariffs to slow climate change, as discussed in the materials?

Accepted Answer

Tariffs can level the playing field for domestic producers who comply with stricter environmental regulations.

Question 19

Which of the following is a positive analysis statement regarding trade restrictions?

Accepted Answer

Trade restrictions reduce consumer surplus and create deadweight loss.

Ch7: Comparative Advantage and the Gains from International Trade: Study Guide

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