Cam Econ unit 6

What is absolute advantage?

• A country produces all goods more efficiently
• A country produces a good with fewer resources than others
• A country has lower labor costs
• A country imports more than it exports

Comparative advantage considers:

• Absolute production costs
• Relative efficiency (opportunity cost)
• Transport costs
• Government subsidies

In Figure 6.1, Country 1 has a comparative advantage in:

• Agricultural goods
• Manufactured goods
• Both goods equally
• Neither good

Bilateral trade involves:

• Trade between two countries
• Trade within a free trade area
• Global trade networks
• Trade regulated by the WTO

Multilateral trade is enabled by:

• Protectionism
• Globalization
• Import quotas
• Embargoes

The WTO primarily promotes:

• Trade barriers
• Free trade
• Subsidies
• Bilateral agreements

A trading possibility curve shows:

• Production limits
• Consumption possibilities with trade
• Tariff effects
• Exchange rate fluctuations

Terms of trade formula is:

• (Export prices/Import prices) × 100
• (Imports/Exports) × 100
• (GDP/Exports) × 100
• (Trade surplus/GDP) × 100

If export price index=110 and import price index=105, terms of trade are:

• 95.5
• 104.8
• 105
• 115

Unfavorable terms of trade occur when:

• Export prices rise faster than imports
• Import prices rise faster than exports
• Trade balance is zero
• GDP increases