Question 1

Which of the following best describes 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 opportunity cost of producing 1 smartphone in China is 0.5 bushels of wheat, and in the U.S. it is 2 bushels of wheat. Which country has a comparative advantage in producing smartphones?

Accepted Answer

China, because it has a lower opportunity cost for producing smartphones.

Question 3

If the world price of ethanol is $1.00 per gallon and the U.S. domestic price is $2.00 per gallon, what is the likely effect of allowing free trade in ethanol?

Accepted Answer

U.S. consumers will benefit from lower prices, while domestic producers will lose surplus.

Question 4

Which formula correctly represents the calculation of opportunity cost for producing good X in terms of good Y?

Accepted Answer

$Opportunity\ Cost\ of\ X = \frac{Units\ of\ Y\ given\ up}{Units\ of\ X\ produced}$

Question 5

A tariff is best defined as:

Accepted Answer

A tax imposed by a government on imports.

Question 6

If the U.S. imposes a quota on sugar imports, allowing only a limited amount to be imported, what is the most likely effect on the domestic sugar market?

Accepted Answer

Domestic sugar producers will benefit from higher prices, while consumers will pay more.

Question 7

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

Accepted Answer

Equal opportunity costs for all goods across countries.

Question 8

Suppose the U.S. and China specialize according to their comparative advantage and then trade 1,500 smartphones for 1,500 bushels of wheat. What is the result compared to autarky?

Accepted Answer

Both countries consume more of at least one good than in autarky.

Question 9

Which equation represents the total economic surplus in a market?

Accepted Answer

$Economic\ Surplus = Consumer\ Surplus + Producer\ Surplus$

Question 10

Which of the following is a likely consequence of imposing a tariff on imported goods?

Accepted Answer

Consumer surplus decreases, producer surplus increases, and government revenue rises.

Question 11

Why do some domestic industries lobby for protectionist measures such as tariffs and quotas?

Accepted Answer

Because the benefits of protection are concentrated among a few producers, while the costs are spread across many consumers.

Question 12

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

Accepted Answer

Health and safety standards that are stricter for imports than for domestic goods.

Question 13

What is the main argument in favor of maintaining import restrictions such as the U.S. sugar quota?

Accepted Answer

They preserve domestic jobs.

Question 14

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 15

If a country unilaterally eliminates its tariffs and quotas, what is the expected effect according to economic theory?

Accepted Answer

The country will gain from the elimination of tariffs and quotas, even if other countries do not reciprocate.

Question 16

Which organization oversees international trade agreements and provides dispute resolution for trade disputes?

Accepted Answer

World Trade Organization (WTO)

Question 17

Which of the following is a normative statement regarding international trade?

Accepted Answer

"The government should protect domestic industries from foreign competition."

Question 18

Suppose the U.S. 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 deadweight loss?

Accepted Answer

Deadweight loss increases due to reduced consumption and inefficient domestic production.

Question 19

Which of the following best explains why complete specialization does not occur in the real world?

Accepted Answer

Production of many goods involves increasing opportunity costs and differences in tastes.

Comparative Advantage and the Gains from International Trade

Study Guide - Practice Questions

Study Guide - Flashcards