Question 1

Which of the following best describes the concept of 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 U.S. can produce 1,500 smartphones or 9,000 bushels of wheat with 1,000 hours, and China can produce 1,000 smartphones or 1,500 bushels of wheat with 1,000 hours. What is the opportunity cost for the U.S. to produce one smartphone?

Accepted Answer

$6$ bushels of wheat

Question 3

If the world price of ethanol is $1.00$ per gallon and the U.S. market price without trade is $2.00$ per gallon, what happens when the U.S. allows free trade in ethanol?

Accepted Answer

U.S. ethanol producers decrease production and consumer surplus rises.

Question 4

Which of the following is NOT a reason why countries do not completely specialize in the production of goods in which they have a comparative advantage?

Accepted Answer

Absolute advantage always leads to complete specialization.

Question 5

A tariff is imposed on imported shoes. Which of the following is a likely result?

Accepted Answer

The price of shoes in the domestic market rises.

Question 6

If the U.S. imposes a quota on sugar imports, which group is most likely to benefit?

Accepted Answer

U.S. sugar producers

Question 7

Which of the following best explains the deadweight loss from a tariff?

Accepted Answer

It is the loss of consumer and producer surplus that is not offset by government revenue or gains to any group.

Question 8

Suppose the U.S. eliminates all tariffs and quotas unilaterally. According to economic theory, what is the most likely outcome?

Accepted Answer

The U.S. economy would gain overall, even if other countries keep their trade barriers.

Question 9

Which of the following is an example of a non-tariff barrier to trade?

Accepted Answer

A requirement that imported food meet higher health standards than domestic food

Question 10

If a country has an absolute advantage in producing both goods, but a comparative advantage in only one, what should it do according to the theory of comparative advantage?

Accepted Answer

Specialize in the good with the comparative advantage and trade for the other.

Question 11

Which of the following best describes the effect of the Smoot-Hawley Tariff Act of 1930?

Accepted Answer

It raised tariffs to their highest levels in U.S. history and led to retaliatory tariffs from other countries.

Question 12

Suppose the U.S. government imposes a $0.50$ per gallon tariff on ethanol imports, raising the domestic price from $1.00$ to $1.50$. What is the effect on consumer surplus?

Accepted Answer

Consumer surplus decreases by more than the government gains in tariff revenue.

Question 13

Which of the following is a normative argument against globalization?

Accepted Answer

Globalization may destroy distinctive cultures.

Question 14

What is the main function of the World Trade Organization (WTO)?

Accepted Answer

To oversee international trade agreements and provide dispute resolution.

Question 15

Which of the following is an example of 'dumping' in international trade?

Accepted Answer

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

Question 16

If the opportunity cost of producing one bushel of wheat in China is $0.67$ smartphones, and in the U.S. it is $0.17$ smartphones, which country has the comparative advantage in producing wheat?

Accepted Answer

United States

Question 17

Which of the following is a likely long-term effect of trade protectionism?

Accepted Answer

Reduced consumer surplus and higher prices.

Question 18

Suppose the U.S. sugar quota causes a deadweight loss of $1.62$ billion per year. What does this deadweight loss represent?

Accepted Answer

The net loss in total surplus due to inefficiently low consumption and production.

Question 19

Which of the following is a source of comparative advantage for a country?

Accepted Answer

All of the above

Question 20

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

Accepted Answer

Refuse to trade, as it would be better off producing the good itself.

Ch. 7 - Comparative Advantage and the Gains from International Trade

Study Guide - Practice Questions

Study Guide - Flashcards