Chap33 - Test Bank for Chapter 33 PDF

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Test Bank for Chapter 33...

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Economics - Canadian Edition, 14e (Ragan) Chapter 33 The Gains from International Trade 1) Since 1950, the world's real GDP has increased by seven times and the volume of world trade has increased by rou A) the same amount. B) two times. C) ten times. D) fifteen times. E) thirty times. Answer: E Diff: 2 Topic: 33.1a. trade and specialization Skill: Recall User2: Qualitative 2) In 2011 the value of goods exported from Canada was approximately $________ while the value of goods imported % of Canada's GDP. A) 50 billion; 30 billion; 6 B) 450 billion; 450 billion; 32 C) 12 billion; 12 billion; 1 D) 100 billion; 100 billion; 15 E) 25 billion; 25 billion; 10 Answer: B Diff: 2 Topic: 33.1a. trade and specialization Skill: Recall Objective: NEW User2: Qualitative 3) A country that engages in no foreign trade is said to be in a situation of A) comparative advantage. B) absolute advantage. C) reciprocal absolute advantage. D) autarky. E) isolation. Answer: D Diff: 1 Topic: 33.1a. trade and specialization Skill: Recall User2: Qualitative 4) The increases in a nation's output and consumption that result from specialization and trade are called A) the terms of trade. B) the gains from trade. C) autarky. D) absolute advantage. E) comparative advantage. Answer: B Diff: 1 Topic: 33.1a. trade and specialization Skill: Recall User2: Qualitative 5) Trade, whether between individuals or nations, generally promotes A) self-sufficiency. B) specialization. C) lower living standards. D) higher product prices. E) autarky. Answer: B

Diff: 1 Topic: 33.1a. trade and specialization Skill: Recall User2: Qualitative 6) The existence of any "gains from trade" relies on A) closed economies. B) absolute advantage. C) comparative advantage. D) both absolute and comparative advantage. E) tariffs. Answer: C Diff: 2 Topic: 33.1b. absolute and comparative advantage Skill: Applied User2: Qualitative

7) The existence of "absolute advantage" A) implies that there will be no benefits from trade between two nations. B) refers to a situation where one country can produce one unit of a given product with fewer resources than the oth C) fosters the self-sufficiency of nations. D) refers to a situation in which one country can produce one unit of all goods with fewer resources than can anothe E) is not physically possible. Answer: B Diff: 1 Topic: 33.1b. absolute and comparative advantage Skill: Recall User2: Qualitative 8) One region is said to have an absolute advantage over another region in the production of good X when A) the first region has a more productive labour force than the second. B) the first region has a larger supply of the raw materials required to produce good X. C) an equal quantity of resources can produce more of good X in the first region than in the second region. D) there is no demand for good X in the second region. E) the opportunity cost of one unit of X is lower in the first region than in the second region. Answer: C Diff: 2 Topic: 33.1b. absolute and comparative advantage Skill: Recall User2: Qualitative 9) The concept of "comparative advantage" refers to the A) ability of one region to produce a commodity at a lower opportunity cost than another region. B) ability of one region to produce a commodity with less labour input than another region. C) ability of one region to produce a commodity with fewer total inputs than another region. D) gains from international trade. E) terms of trade index. Answer: A Diff: 1 Topic: 33.1b. absolute and comparative advantage Skill: Recall User2: Qualitative

10) The principle of comparative advantage was first formulated in the 18th century by A) David Hume. B) Thomas Malthus. C) Karl Marx. D) David Ricardo. E) Adam Smith.

Answer: D Diff: 1 Topic: 33.1b. absolute and comparative advantage Skill: Recall User2: Qualitative 11) There will be no gains from specialization and trade between two countries if 1) neither country has an absolute advantage in the production of any good; 2) neither country has a comparative advantage in the production of any good; 3) opportunity costs are the same in the two countries. A) 1 only B) 2 only C) 3 only D) 1 and 2 E) 2 and 3 Answer: E Diff: 2 Topic: 33.1b. absolute and comparative advantage Skill: Recall User2: Qualitative 12) There will be no gains from specialization and trade between two countries if 1) neither country has an absolute advantage in the production of any good; 2) neither country has a comparative advantage in the production of any good; 3) opportunity costs differ too much between the two countries. A) 1 only B) 2 only C) 3 only D) 1 and 2 E) 2 and 3 Answer: B Diff: 2 Topic: 33.1b. absolute and comparative advantage Skill: Recall User2: Qualitative

13) Consider two countries that can produce rice and other products. If neither country has an absolute advantage in A) there is no possibility that either country will import rice from the other. B) neither country can possibly have a comparative advantage in the production of rice. C) rice will still be traded as long as one of the countries has a comparative advantage in its production. D) the opportunity cost of producing rice must be identical in the two countries. E) then rice should not be produced. Answer: C Diff: 2 Topic: 33.1b. absolute and comparative advantage Skill: Applied User2: Qualitative 14) If a country has a comparative advantage in the production of soybeans, and it trades freely with other countries A) derive no advantage from any trade in soybeans. B) increase its consumption of soybeans. C) export soybeans. D) import soybeans. E) not consume soybeans. Answer: C Diff: 1 Topic: 33.1b. absolute and comparative advantage Skill: Applied User2: Qualitative 15) Consider a country that is initially autarkic and then engages freely in international trade. If a country has a comp

t probably A) derive no advantage from any trade in soybeans. B) decrease the production of soybeans for domestic consumption. C) increase the production of soybeans for domestic consumption. D) increase the production of soybeans to allow for the export of soybeans. E) import soybeans Answer: D Diff: 2 Topic: 33.1b. absolute and comparative advantage Skill: Applied User2: Qualitative

Consider the following information about the production of two goods, X and Y, in two countries, A and B: ·฀In Country A it takes Xa units of resources to produce one unit of X and Ya units ฀of resources to produce one unit of Y. ·฀In Country B it takes Xb units of resources to produce one unit of X and Yb units ฀of resources to produce one unit of Y. ·฀Assume that the amount of resources used to produce the goods in the two countries ฀can be compared unambiguously. TABLE 33-1 16) Refer to Table 33-1. Country A has an absolute advantage in producing good X if A) (Xa/Ya) is less than (Xb/Yb). B) Xa is less than Xb. C) Xa is less than Ya. D) (Xa/Xb) is less than (Ya/Yb). E) Xa = Xb. Answer: B Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 33.1b. absolute and comparative advantage Skill: Applied User1: Table User2: Quantitative 17) Refer to Table 33-1. Country A has a comparative advantage in producing good X if A) (Xa/Ya) is less than (Xb/Yb). B) (Xa/Xb) is greater than (Ya/Yb). C) (Xa/Ya) is greater than (Xb/Yb). D) Xa is less than Yb. E) Xa = Xb. Answer: A Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 33.1b. absolute and comparative advantage Skill: Applied User1: Table User2: Quantitative 18) Refer to Table 33-1. There is no scope for gains from trade due to specialization between the two countries if A) (Xa/Ya) is greater than (Xb/Yb). B) Xa is equal to Yb. C) (Xa/Ya) is equal to (Xb/Yb). D) Xa is less than Yb and Ya is less than Yb. E) Xa is less than Xb. Answer: C Diff: 3

Topic: 33.1b. absolute and comparative advantage Skill: Applied User1: Table User2: Quantitative 19) Suppose that Spain is currently producing 90 units of wine and 10 units of cheese, but to produce 10 more units at Portugal produces 45 units of wine and 45 units of cheese, but to produce 10 more units of cheese it must sacrific A) Portugal has an absolute advantage in both wine and cheese production. B) Portugal has an absolute advantage in wine production and Spain has an absolute advantage in cheese productio C) Spain has an absolute advantage in both wine and cheese production. D) neither country has an absolute advantage in the production of either wine or cheese. E) more information is needed to conclude anything about absolute advantage in either country. Answer: E Diff: 3 Topic: 33.1b. absolute and comparative advantage Skill: Applied User2: Quantitative

20) Suppose that Spain is currently producing 90 units of wine and 10 units of cheese, but to produce 10 more units at Portugal produces 45 units of wine and 45 units of cheese, but to produce 10 more units of cheese it must sacrific A) Portugal has an absolute advantage in both wine and cheese production. B) Portugal has an absolute advantage in wine production and Spain has an absolute advantage in cheese productio C) Spain has an absolute advantage in both wine and cheese production. D) Spain has a comparative advantage in the production of wine and Portugal has a comparative advantage in the pr E) more information is needed to conclude anything about comparative advantage in either country. Answer: D Diff: 3 Topic: 33.1b. absolute and comparative advantage Skill: Applied User2: Quantitative 21) Which of the following statements about comparative advantage is true? A) A country with a rising price level will lose any existing comparative advantage. B) To have a comparative advantage a country must also have an absolute advantage. C) Comparative advantage is based solely on differences in factor endowments. D) Comparative advantage for certain products may be acquired by deliberate domestic government policy. E) Comparative advantage is based solely on differences in climate. Answer: D Diff: 2 Topic: 33.1b. absolute and comparative advantage Skill: Recall User2: Qualitative 22) If two nations want to trade with one another, they can determine their respective comparative advantages by A) hiring economists to gather and interpret the relevant data. B) first determining which has absolute advantage in the production of goods and services. C) allowing firms in each country to freely engage in international trade. D) making certain that the prices of tradable goods and services are equal in both nations. E) computing the opportunity costs of all goods and services. Answer: C Diff: 3 Topic: 33.1b. absolute and comparative advantage Skill: Applied User2: Qualitative

23) Two nations want to engage in trade but discover that one of them is more efficient in producing all goods. In thi A) each nation should export the good in which it has a comparative advantage. B) no trade is possible. C) the more efficient country should produce all goods and export them.

D) the less efficient country should engage in importation of goods only. E) the more efficient country should import all goods. Answer: A Diff: 2 Topic: 33.1b. absolute and comparative advantage Skill: Applied User2: Qualitative 24) In moving from a no-trade to a free-trade situation, a country will A) experience increases in employment in all industries. B) be consuming inside its production possibilities boundary. C) import those goods which are acquired more cheaply through trade than through domestic production. D) expect a decrease in the average standard of living, but will see increased profits for firms in the export business. E) experience an increase in its average standard of living only if it begins with an absolute advantage in the producti Answer: C Diff: 2 Topic: 33.1b. absolute and comparative advantage Skill: Recall User2: Qualitative 25) If Canada has an absolute advantage in the production of oil relative to the United States, then A) Canada also has a comparative advantage in producing oil. B) Canada also has a comparative advantage in producing some good other than oil. C) the opportunity cost of producing oil is higher in Canada than in the United States. D) the opportunity cost of producing oil is lower in Canada than in the United States. E) Canada may or may not have a comparative advantage in producing oil relative to the United States. Answer: E Diff: 3 Topic: 33.1b. absolute and comparative advantage Skill: Applied User2: Qualitative

26) Suppose Canada could produce all goods and services more cheaply than all other countries. In that case, A) no trade would occur because Canada would have an absolute advantage in producing everything. B) no trade would occur because Canada would not have a comparative advantage in producing anything. C) trade would probably take place because Canada would still have a comparative disadvantage in producing some D) trade would occur but only if other countries also have an absolute advantage. E) trade would occur but only if other countries subsidize the import of Canadian goods and services. Answer: C Diff: 3 Topic: 33.1b. absolute and comparative advantage Skill: Applied User2: Qualitative Ireland and Japan are assumed to produce only wool and steel, to have full employment and complete mobility of re s before trade are drawn in solid lines. It is assumed that the two countries have the same amount of resources. The lines. The outputs of wool and steel are given in physical units.

FIGURE 33-1 27) Refer to Figure 33-1. Japan has an absolute advantage in A) wool. B) steel. C) both goods. D) neither good. E) Insufficient information to determine the answer. Answer: B Diff: 3 Topic: 33.1b. absolute and comparative advantage

Skill: Applied User1: Graph User2: Qualitative

28) Refer to Figure 33-1. Before any trade takes place, the opportunity cost of a unit of steel is A) 3/4 unit of wool in Ireland; 3/8 unit of wool in Japan. B) 4/3 unit of wool in Ireland; 8/3 unit of wool in Japan. C) 3 units of wool in Ireland; 3 units of wool in Japan. D) 4 units of wool in Ireland; 8 units of wool in Japan. E) 4 units of wool in Ireland; 4 units of wool in Japan. Answer: A Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 33.1c. opportunity cost and comparative advantage Skill: Applied User1: Graph User2: Quantitative 29) Refer to Figure 33-1. The comparative advantage is held by A) neither country in either good. B) Japan in both goods. C) Ireland in both goods. D) Ireland in wool, Japan in steel. E) Ireland in steel, Japan in wool. Answer: D Diff: 3 Topic: 33.1c. opportunity cost and comparative advantage Skill: Applied User1: Graph User2: Quantitative 30) Refer to Figure 33-1. When trade between Ireland and Japan begins, the probable trade pattern is to A) export wool from Ireland to Japan and steel from Japan to Ireland. B) export wool from Japan to Ireland and steel from Ireland to Japan. C) export both wool and steel from Ireland to Japan. D) export both wool and steel from Japan to Ireland. E) impose tariffs on both goods in both countries. Answer: A Diff: 3 Topic: 33.1c. opportunity cost and comparative advantage Skill: Applied User1: Graph User2: Qualitative

31) Refer to Figure 33-1. If Ireland and Japan were each to specialize in the good for which they have a comparative a e ________. A) 0 units of wool and 6 units of steel; 4 units of wool and 0 units of steel B) 3 units of wool and 6 units of steel; 4 units of wool and 8 units of steel C) 3 units of wool and 4 units of steel; 3 units of wool and 8 units of steel D) 3 units of wool and 0 units of steel; 0 units of wool and 8 units of steel E) 4 units of wool and 0 units of steel; 0 units of wool and 8 units of steel Answer: D Diff: 2 Topic: 33.1b. absolute and comparative advantage

Skill: Applied Objective: NEW User1: Graph User2: Quantitative

FIGURE 33-2 32) Refer to Figure 33-2. Each of the two diagrams is illustrating A) a budget line. B) a terms of trade index. C) a production possibilities boundary. D) a downward sloping demand curve. E) absolute advantage. Answer: C Diff: 1 Topic: 33.1c. opportunity cost and comparative advantage Skill: Applied User1: Graph User2: Qualitative 33) Refer to Figure 33-2. The diagrams illustrate that the ________ is lower in Austria than in Switzerland. A) opportunity cost of producing shoes B) opportunity cost of producing bicycles C) total cost of producing shoes D) average cost of producing bicycles E) comparative advantage in producing bicycles Answer: A Diff: 2 Topic: 33.1c. opportunity cost and comparative advantage Skill: Applied User1: Graph User2: Qualitative 34) Refer to Figure 33-2. The diagrams illustrate that Switzerland A) has an absolute advantage in the production of bicycles. B) has a comparative advantage in the production of shoes. C) has an absolute advantage in the production of shoes. D) has a higher consumption of bicycles than Austria. E) has a comparative advantage in the production of bicycles. Answer: E Diff: 2 Topic: 33.1c. opportunity cost and comparative advantage Skill: Applied User1: Graph User2: Qualitative 35) Refer to Figure 33-2. Assume that Austria and Switzerland do not engage in international trade. In that case, A) Austria will produce all shoes and no bicycles. B) Switzerland will produce all bicycles and no shoes. C) each country will consume according to comparative advantage anyway. D) the downward-sloping lines illustrate each country's consumption possibilities. E) each country will produce according to comparative advantage anyway. Answer: D Diff: 2 Topic: 33.1c. opportunity cost and comparative advantage Skill: Applied User1: Graph User2: Qualitative

36) Refer to Figure 33-2. If Austria and Switzerland engage in free trade with each other, it is likely that Switzerland w ll specialize in the production of ________. A) bicycles; bicycles B) shoes; bicycles C) shoes; shoes D) bicycles; shoes Answer: D Diff: 2 Topic: 33.1c. opportunity cost and comparative advantage Skill: Applied User1: Graph User2: Qualitative

37) When opportunity costs differ between countries, A) comparative advantages may not exist. B) specialization and trade can lead to increases in the production of all commodities. C) each country should produce only those goods for which it has an absolute advantage. D) only the smaller countries will benefit from trade. E) only the larger countries will benefit from trade. Answer: B Diff: 2 Topic: 33.1c. opportunity cost and comparative advantage Skill: Applied Objective: REVISED User2: Qualitative 38) When opportunity costs are identical between two countries for all goods, A) there can be no gains from trade unless there are economies of scale in some of the products. B) international trade will be advantageous only to the country that has an absolute advantage in the production of s C) there will be gains from trade for both countries if one country has an absolute advantage in the production of so D) absolute advantages will determine the gains from trade. E) there will be absolute advantages from trade but no comparative advantages from trade. Answer: A Diff: 3 Topic: 33.1c. opportunity cost and comparative advantage Skill: Applied User2: Qualitative 39) Consider two countries that can produce wheat and coffee. The gains from trade when the two countries have di A) production possibility boundaries shift inward. B) the two countries continue to produce the same quantities of wheat and coffee. C) each country has an absolute advantage in one of the two commodities. D) resources are reallocated within the two countries such that each specializes in the production of the good in whi E) resources are reallocated within the two countries such that each specializes in the production of the good in whic Answer: E Diff: 2 Topic: 33.1c. opportunity cost and comparative advantage Skill: Applied User2: Qualitative

40) If two countries each produce wool and cotton, the country with the lower opportunity cost for cotton (in terms o A) a comparative advantage in the production of wool. B) a comparative advantage in the production of cotton. C) an absolute advantage in the production of wool. D) an absolute advantage in the production of cotton. E) an...