TRADE QUIZ 1

Absolute advantage means.....

• Where one country can produce more of a good or service than another assuming the same amount of resources

• Where one country can produce more of a good or service at a lower opportunity cost

• Where one country has a higher GDP than another

• Where one country is more open to trade than another

The most accurate definition of comparative advantage is...

• Where one country can produce a good/service at a lower opportunity cost than another

• Where one country is more efficient at producing a good or service

• Where one country has more skilled labour than another

• Countries that specialise in labour intensive production

Assume a country uses 50% of its resources to produce coal and produces 100m tonnes and uses 50% of their resources to produce copper and produces 50m tonnes. What is the opportunity cost of producing copper?

• 0.5

• 1

• 2

• 3

What will happen to total production of all goods if all countries specialise where they have a lower opportunity cost?

• Decrease

• Increase

• Stay the same

• double

Which of the following are assumptions of comparative advantage theory?

• Ignores environmental costs from transportation

• Ignores economies of scale

• Ignores labour costs

• Ignores capital costs

What is the terms of trade?

• Index price exports relative to index price of imports

• Value of exports relative to value of imports

• Volume of exports relative to volume of imports

• exports minus imports

Which of the following would not worsen the terms of trade

• Increase in price of raw materials assuming net importer

• Increase in inflation

• fall in the value of ex rate relative to trading partners

• Increase in tariffs

What does prebisch singer hypothesis show?

• worsening terms of trade for primary dependent countries

• improving terms of trade for primary dependent countries

• improving terms of trade for service sector driven economies

• worsening terms of trade for industrialised economies

For trade to be mutually beneficial between two countries the terms of trade must be an improvement on

• opportunity cost ratios

• output before specialisation

• relative efficiencies

• relative labour endowment

Which of the following is not a reason for changes in the patterns of trade?

• Exchange rate changes

• Emergence of BRIC economies

• Increased in trade blocs

• Absolute advantage