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

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

Question 1

Suppose Country A can produce either 100 units of wheat or 50 units of cloth with its available resources, while Country B can produce either 80 units of wheat or 80 units of cloth. According to the principle of comparative advantage, which good should Country A specialize in producing?

Accepted Answer

Country A should specialize in producing wheat because it has a lower opportunity cost in wheat.

Question 2

Which of the following best describes the Heckscher-Ohlin model's prediction about trade patterns?

Accepted Answer

Countries will export goods that use their abundant factors of production intensively.

Question 3

If the United States exports high-technology goods and imports clothing from developing countries, what is the likely effect on wages in the U.S. according to the material?

Accepted Answer

Wages for highly educated workers increase, while wages for unskilled workers decrease.

Question 4

A country that does not trade with other countries is said to be in:

Accepted Answer

Autarky

Question 5

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

Accepted Answer

Differences in consumer preferences

Question 6

Suppose the domestic equilibrium price of a good is $$10. After opening to trade, the world price is 7. $$What will happen in the domestic market?

Accepted Answer

The country will import the good, and domestic consumers will benefit from lower prices.

Question 7

A tariff on imported steel will have which of the following effects?

Accepted Answer

Increase domestic production, decrease domestic consumption, and reduce total gains from trade.

Question 8

Which formula correctly represents the opportunity cost of producing one unit of Good X in terms of Good Y?

Accepted Answer

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

Question 9

Which of the following is a likely effect of trade protection policies such as tariffs or quotas?

Accepted Answer

Consumer surplus decreases, producer surplus increases, and there is a deadweight loss.

Question 10

An import quota differs from a tariff in that:

Accepted Answer

Quota license holders receive the revenue instead of the government.

Question 11

Which argument for trade protection is based on the need to allow new industries time to develop?

Accepted Answer

The infant industry argument

Question 12

If a country imposes a tariff on imported cars, what is the effect on the domestic market for cars?

Accepted Answer

Domestic car prices rise, domestic production increases, and imports decrease.

Question 13

Which of the following best explains why trade can increase income inequality within a country like the United States?

Accepted Answer

Trade increases demand for skilled labor and decreases demand for unskilled labor.

Question 14

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

Accepted Answer

It is difficult for governments to predict which industries will become competitive.

Question 15

Suppose the U.S. government imposes a quota on imported sugar. Who benefits most directly from this policy?

Accepted Answer

Domestic sugar producers and quota license holders

Question 16

Which of the following equations represents the calculation of consumer surplus?

Accepted Answer

$$	ext{Consumer Surplus} = 	ext{Willingness to Pay} - 	ext{Price Paid}$$

Question 17

Which of the following is a real-world example of the national security argument for trade protection?

Accepted Answer

Restricting imports of steel to ensure domestic production for defense needs

Question 18

If a country opens to trade and exports a good, what happens to the domestic price of that good?

Accepted Answer

The domestic price rises to the world price.

Question 19

Which of the following best describes the effect of international trade on income inequality between countries?

Accepted Answer

Trade reduces income inequality between countries by allowing poorer countries to improve their standard of living.

Question 20

Suppose a country has a relative abundance of capital and a scarcity of labor. According to the Heckscher-Ohlin model, which type of good is the country likely to export?

Accepted Answer

Capital-intensive goods

LESSON 8: Comparative Advantage and the Gains from International Trade

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