Q: Which formula represents the opportunity cost of producing good X in terms of good Y?

$\text{Opportunity Cost of X} = \frac{\text{Units of Y foregone}}{\text{Units of X produced}}$

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 China can produce 4 smartphones or 2 bushels of wheat per hour, and the United States can produce 6 smartphones or 12 bushels of wheat per hour. What is the opportunity cost for China to produce one smartphone?

Accepted Answer

$0.5$ bushels of wheat

Question 3

If the United States specializes in wheat and China specializes in smartphones, and they trade at a one-for-one ratio, what is the total gain in production compared to autarky?

Accepted Answer

$4,000$ smartphones and $12,000$ bushels of wheat

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 effect of a tariff on consumer surplus in the domestic market?

Accepted Answer

Consumer surplus decreases

Question 6

If the world price of ethanol is $1.00$ per gallon and the U.S. imposes a $0.50$ per gallon tariff, what will happen to the domestic price?

Accepted Answer

$1.50$ per gallon

Question 7

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

Question 8

A country is considering imposing a quota on sugar imports. What is the likely effect on domestic sugar producers and consumers?

Accepted Answer

Producers gain and consumers lose

Question 9

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

Accepted Answer

$	ext{Opportunity Cost of X} = \frac{	ext{Units of Y foregone}}{	ext{Units of X produced}}$

Question 10

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

Accepted Answer

The government should protect domestic industries from foreign competition.

Question 11

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

Accepted Answer

The country will gain overall economic surplus, even if other countries do not reciprocate.

Question 12

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 13

Suppose the U.S. sugar quota costs consumers $4.92$ billion per year and saves $3,000$ jobs. What is the annual cost per job saved?

Accepted Answer

$1,640,000$

Question 14

Which of the following is an example of an external economy that can create comparative advantage?

Accepted Answer

A region with many firms in the same industry, reducing costs for all

Question 15

If the U.S. market for ethanol is opened to free trade and the world price is lower than the domestic price, what happens to producer surplus?

Accepted Answer

Producer surplus decreases

Question 16

Which of the following is a likely political reason for maintaining import restrictions?

Accepted Answer

The benefits to producers are highly concentrated

Question 17

Which equation best represents the calculation of deadweight loss from a tariff?

Accepted Answer

$	ext{Deadweight Loss} = C + D$

Question 18

Which of the following is a positive analysis statement?

Accepted Answer

Tariffs increase the price of imported goods.

Question 19

Which organization oversees international trade agreements and provides dispute resolution?

Accepted Answer

World Trade Organization (WTO)

Question 20

If a country faces increasing opportunity costs as it produces more of a good, what is the likely effect on its production and trade patterns?

Accepted Answer

It will produce some of both goods and trade for the rest.

Comparative Advantage and the Gains from International Trade – Chapter 9 Study Notes

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