International Trade and Economics Review Quiz

What is comparative advantage?

• when relative costs of production differ between nations

• when transportation costs are almost zero

• when a country can produce a product more efficiently than another country

• when a country can produce more of some product than other nations can

What does a trade deficit imply?

• exports of goods and services exceed imports of goods and services

• imports of goods and services exceed exports of goods and services

• investment income received from abroad exceeds investment income paid to foreigners

• investment income paid to foreigners exceeds investment income received from abroad

Which of the following is true if a nation does NOT have an absolute advantage in producing any good or service?

• it cannot have a comparative advantage either

• It will have a comparative advantage in the production of the good or service in which it has a lower opportunity cost

• It will export raw materials and import finished products

• No country will want to trade with this nation because it is not cost effective to do so

Suppose two countries are each capable of individually producing two given commodities. Instead, each specializes by producing the commodity for which it has a comparative advantage and then trades with the other country. Which of the following is most likely to result?

• The two countries will become more independent of each other

• Unemployment will increase in one country and decrease in the other

• There will be more efficient production in one country but less efficient production in the other

• Both countries will become better off

If other things are held constant, an increase in the United States imports will

• tend to cause the dollar to appreciate because the world supply of dollars will rise

• tend to cause the dollar to appreciate because the world demand for dollars will rise

• tend to cause the dollar to depreciate because the world supply of dollars will rise

• tend to cause the dollar to depreciate because the world demand for dollars will rise

Tariffs and quotas can have all of the following effects EXCEPT:

• Promoting third-world development

• Increasing prices consumers pay for goods

• Protecting domestic industry

• Reducing trade deficits

A persistent trade deficit causes:

• Unemployment to increase in import industries

• Unemployment to increase in export industries

• The dollar to grow stronger

• Lower prices on imported goods

The United States trade deficit causes

• The value of the dollar to strengthen in foreign exchange markets

• The value of the dollar to fall in foreign exchange markets

• Increased employment opportunities for Americans in export industries

• Worldwide recessions

The price at which a currency can be bought or sold is its:

• Export rate

• Foreign Rate

• Market Rate

• Exchange Rate

Which of the following is NOT an example of trade barriers?

• Quota

• Tariff

• Flat Tax

• Embargo