Section 5 : International Trade

Trade decisions are based on the principle of absolute advantage

• True

• False

Assume, for the U.S., that the domestic price of beef without international trade is lower than the world price of beef. This suggests that, in the production of beef,

• the U.S. has a comparative advantage over other countries and the U.S. will export beef

• the U.S. has a comparative advantage over other countries and the U.S. will import beef

• other countries have a comparative advantage over the U.S. and the U.S. will export beef

• other countries have a comparative advantage over the U.S. and the U.S. will import beef

Government revenue raised by the tariff is represented by the area

• E

• B + E

• D + E + F

• B + D + E + F

Assume for the United States that the opportunity cost of each airplane is 50 cars. Which of these pairs of points could be on the United States' production possibilities frontier?

• (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars)

• (200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars)

• (300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars)

• (300 airplanes, 25,000 cars) and (200 airplanes, 40,000 cars)

If Shawn can produce more donuts in one day than Sue can produce in one day, then

• Shawn has a comparative advantage in the production of donuts

• Sue has a comparative advantage in the production of donut

• Shawn has an absolute advantage in the production of donuts

• Sue has an absolute advantage in the production of donuts

Which of the following is not correct ?

• The producer who requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good

• The producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X

• The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good

• The gains from specialization and trade are based not on comparative advantage but on absolute advantage

A production possibilities frontier is a straight line when

• the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good

• an economy is interdependent and engaged in trade instead of self-sufficient

• the rate of tradeoff between the two goods being produced is constant

• the rate of tradeoff between the two goods being produced depends on how much of each good is being produced

The figure below illustrates a tariff. On the graph, Q represents quantity and P represents price. The area C + D + E + F represents

• the decrease in consumer surplus caused by the tariff

• the decrease in total surplus caused by the tariff

• the deadweight loss of the tariff minus government revenue raised by the tariff

• the deadweight loss of the tariff plus government revenue raised by the tariff

When a country allows international trade and becomes an importer of a good, domestic producers of the good are better off, and domestic consumers of the good are worse off

• True

• False

Assume that Falda and Varick can switch between producing wheat and producing cloth at a constant rate. Falda’s opportunity cost of one bushel of wheat is

• 2/3 yard of cloth and Varick’s opportunity cost of one bushel of wheat is 2/5 yard of cloth

• 2/3 yard of cloth and Varick’s opportunity cost of one bushel of wheat is 5/2 yards of cloth

• 3/2 yards of cloth and Varick’s opportunity cost of one bushel of wheat is 2/5 yard of cloth

• 3/2 yards of cloth and Varick’s opportunity cost of one bushel of wheat is 5/2 yards of cloth