Section 5: International Trade

Trade decisions are based on the principle of absolute advantage.

• True

• False

According to the principle of comparative advantage, all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.

• True

• False

Which of the following tools and concepts is useful in the analysis of international trade?

• total surplus

• domestic supply

• equilibrium price

• All of the above are correct.

A tariff is a

• limit on how much of a good can be exported

• limit on how much of a good can be imported

• tax on an exported good

• tax on an imported good

When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy

• falls

• stays the same

• rises

• may fall, rise, or stay the same.

By definition, imports are

• people who work in foreign countries

• goods in which a country has an absolute advantage

• limits placed on the quantity of goods leaving a country.

• goods produced abroad and sold domestically.

What is the fundamental basis for trade among nations?

• shortages or surpluses in nations that do not trade

• misguided economic policies

• absolute advantage

• comparative advantage

By definition, exports are

• limits placed on the quantity of goods brought into a country

• goods in which a country has an absolute advantage.

• people who work in foreign countries.

• goods produced domestically and sold abroad.

A logical starting point from which the study of international trade begins is

• the recognition that not all markets are competitive.

• the recognition that government intervention in markets sometimes enhances the economic welfare of the society

• the principle of absolute advantage.

• the principle of comparative advantage.

Suppose a gardener produces both green beans and corn in her garden.  If she must give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1 bushel of green beans is

• 0.36 bushel of corn.

• 2.8 bushels of corn.

• 14 bushels of corn.

• 70 bushels of corn.