Question 1

Which of the following best describes comparative advantage?

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 either 100 units of corn or 50 units of cars with its resources, while Japan can produce either 80 units of corn or 80 units of cars. What is the opportunity cost of producing 1 car in the U.S.?

Accepted Answer

$\frac{100}{50} = 2$ units of corn

Question 3

Which of the following is NOT a source of comparative advantage according to the study materials?

Accepted Answer

Government regulation of prices

Question 4

If the U.S. market for ethanol is in autarky, what happens to consumer and producer surplus compared to a situation with free trade?

Accepted Answer

Producer surplus is higher and consumer surplus is lower.

Question 5

A country imposes a tariff $t$ on imported automobiles. Which of the following is a direct effect of this policy?

Accepted Answer

Domestic prices rise to $P_w + t$ and imports decrease.

Question 6

Which of the following best explains why international trade leads to gains from specialization?

Accepted Answer

Countries can focus on producing goods for which they have a lower opportunity cost and trade for others.

Question 7

What is the main difference between a tariff and a quota?

Accepted Answer

A tariff imposes a tax on imports, while a quota sets a numerical limit on imports.

Question 8

Which of the following is a fallacy about trade restrictions according to the study materials?

Accepted Answer

Trade restrictions that limit imports save jobs for Americans.

Question 9

Suppose the world price of peanuts is $P_w$, and the U.S. imposes a quota that limits imports to $Q_2 - Q_{d2}$. What happens to the domestic price and consumer surplus?

Accepted Answer

Domestic price rises to $P_2$ and consumer surplus decreases.

Question 10

Which argument for trade restrictions is considered most persuasive by economists?

Accepted Answer

Protecting infant industries

Question 11

If a country is in autarky, what is true about its terms of trade?

Accepted Answer

The terms of trade are undefined because there is no trade.

Question 12

Which of the following is an example of external economies as a source of comparative advantage?

Accepted Answer

A country with a large industry for computer chips experiences lower costs due to industry size.

Question 13

What is the effect of free trade on the U.S. soybean market if the U.S. has a comparative advantage?

Accepted Answer

Domestic price rises to the world price and producers gain.

Question 14

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

Accepted Answer

It raised tariffs to their highest value in U.S. history, restricting imports.

Question 15

A country exports shirts and imports pants. After trade, it consumes more shirts and pants than it could produce domestically. This illustrates:

Accepted Answer

Gains from specialization and trade

Question 16

Which of the following is a direct result of economies of scale in international trade?

Accepted Answer

Lower per-unit costs for large-scale production

Question 17

If a country restricts imports of shoes and foreign producers have a comparative advantage, what is the likely effect on domestic consumers?

Accepted Answer

Domestic consumers pay higher prices for shoes.

Question 18

Which of the following is a plausible reason for governments to restrict international trade?

Accepted Answer

To protect infant industries

Question 19

According to the study materials, what is a major criticism of protectionism?

Accepted Answer

It delivers visible benefits to the protected parties while imposing hidden costs on the public.

Question 20

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

Accepted Answer

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

Comparative Advantage and the Gains from International Trade

Study Guide - Practice Questions

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