Unit 4 International Test Review

As nations learn to specialize in production, they will trade with other nations when what happens?

• they have absolute advantage in trade.

• they have comparative advantage in trade.

• they will not trade with another country.

• when they lose their advantage in that area of trade.

Which of these BEST describes a situation in which a country has a "trade deficit"?

• their inflation exceeds 1%

• their unemployment exceeds 6%

• their exports exceed their imports

• their imports exceed their exports

If the the United States imports $100 million of goods and exports $150 million, what does the United States have?

• a trade deficit

• a trade surplus

• a budget deficit

• a budget surplus

The United States can produce 10 computers or 20 drills.

Germany can produce 2 computers or 10 drills.

Using this information, determine which of the statements is correct.

• Germany has an absolute advantage in both drill and computer production.

• The U.S. has an absolute advantage in both drill and computer production.

• Germany has a comparative advantage in both drill and computer production.

• The U.S. has an absolute advantage in drill production, and Germany has an absolute advantage in computer production.

Which relationship BEST illustrates a comparison of absolute advantage and comparative advantage?

• A country with an absolute advantage will always have a comparative advantage in producing products.

• A country with a comparative advantage can produce a greater output of a products than a country with an absolute advantage.

• A country with an absolute advantage can produce a product at a lower opportunity cost than a country with a comparative advantage in producing all products.

• A country with a comparative advantage can produce a product at a lower opportunity cost, even if another country has an absolute advantage in the production of all goods.

Countries around the world specialize production, and trade with other countries based upon

• the overall size of the economy.

• the rate of inflation in the economy.

• the comparative advantage in production.

• the amount of capital available to produce products with.

Country X and Country Y are the same size in terms of population, area, and capital stock. If both countries devote all of their efforts to producing widgets, Country X can produce 10 million widgets, while Country Y can produce 5 million. Based on the information given, Country X has

• a monopoly on the production of widgets.

• an absolute advantage in producing widgets.

• a comparative advantage in producing widgets.

• a lower opportunity cost in the production of widgets.

Country X can produce 1,000 units of food and 2,000 units of clothes. Country Y can produce 1,000 units of food and 1,000 units of clothes. In order to maximize trade according to the principles of comparative advantage,

• country X should produce food and import clothes from country Y.

• country Y should produce food and import clothes from country X.

• country X and Y should produce both food and clothes to meet their own needs.

• country Y should produce both food and clothes, and import additional clothes from country X.

The country of "Econoland" can use its resources to produce either 500 tons of crab or 200 tons of plywood. Its rival, "Arcadonia," is able to produce either 200 tons of crab or 100 tons of plywood.

From this passage it can be concluded that

• Arcadonia should specialize in producing plywood.

• Econoland has a comparative advantage in plywood.

• Arcadonia has an absolute advantage in the production of both crab and plywood.

• Econoland should specialize in producing plywood, and trade them with Arcadonia for crabs.

Comparative means that a country is

• producing enough of a specific final good to export.

• producing the products they produce relatively best/at a lower opportunity cost

• producing enough of a good to consume domestically with enough to export.

• producing only products they can produce with greater output than any other country.