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WorksheetsLecture 2: The law of Comparative Advantage
Total questions: 77
Worksheet time: 39mins
Name
Class
Date
1.
Mercantilists believed that
a)
trade can only benefit a country at the expense of another country.
b)
maintaining a balance of trade deficit was best.
c)
government should have no control over trade.
d)
accumulating large quantities of gold and silver were damaging to the health of a country.
2.
Based on Mercantilist thinking, governments should
a)
subsidize and encourage imports.
b)
subsidize and encourage exports.
c)
allow for free trade unencumbered by government regulations and restrictions.
d)
Both a and b.
3.
Which of the following is NOT consistent with the central beliefs of Mercantilism?
a)
Government should intervene to achieve a surplus in the balance of trade.
b)
Policies should be put in place to minimize exports and maximize imports.
c)
Imports should be limited by tariffs and quotas.
d)
Exports should be subsidized.
4.
The Mercantilists believed in
a)
running trade surplus.
b)
balanced trade.
c)
the logic of Adam Smith.
d)
promoting imports.
5.
Which of the following statements most accurately captures the main tenet of Mercantilism?
a)
It is in a country's best interests to not export products to less developed countries.
b)
It is in a country's best interests to import products that are most efficiently produced at home.
c)
It is in a country's best interests to import less specialized goods rather than to attempt to make them at home.
d)
It is in a country's best interests to maintain a trade surplus, or to export more than it imports.
6.
Which of the following is NOT true about Mercantilism?
a)
Under mercantilism, exports were encouraged and imports were discouraged.
b)
Mercantilists believed that one country’s gains from trade came at the expense of another country or countries’ well-being.
c)
Domestic producers were often hurt by mercantilism.
d)
Mercantilism focused on the accumulation of gold and silver bullion.
7.
The Mercantilists did not advocate
a)
free trade.
b)
stimulating the nation’s exports.
c)
restricting the nation’s imports.
d)
the accumulation of gold by the nation.
8.
The Mercantilists would have objected to
a)
export promotion policies initiated by the government.
b)
the use of tariff and quotas to restrict imports.
c)
trade policy designed to accumulate gold and precious metals.
d)
international trade based on open markets.
9.
The flaw with Mercantilism was that it viewed trade as a
a)
zero-sum game.
b)
mutually beneficial activity.
c)
nonessential economic activity.
d)
threat to a government's independence.
10.
Mercantilism viewed trade as a zero-sum activity, which means that
a)
there was nothing to be gained from international trade so there was no reason to trade.
b)
once a country's trade is established, it cannot be increased or decreased.
c)
one country's gains in international trade come at the expense of other countries.
d)
every country that engages in international trade gains from that trade because as trade activity increases, the amount of goods traded increases.
11.
Trade is a zero-sum game. This is mostly in line with __________?
a)
absolute advantage theory.
b)
the mercantilists’ view on trade.
c)
comparative advantage theory.
d)
factor endowment theory.
12.
The neo-mercantilists did NOT advocate
a)
free trade.
b)
stimulating the nation’s exports.
c)
restricting the nation’s imports.
d)
increasing the level of foreign reserves by the nation.
13.
According to Adam Smith, international trade was based on
a)
absolute advantage.
b)
comparative advantage.
c)
both absolute and comparative advantage.
d)
neither absolute nor comparative advantage.
14.
Absolute advantage is determined by
a)
actual differences in labor productivity between countries.
b)
relative differences in labor productivity between countries.
c)
actual differences in opportunity cost between countries.
d)
relative differences in factor abundance between countries.
15.
The concept of absolute advantage is based on
a)
the law of diminishing returns.
b)
differences in labor costs across countries.
c)
differences in relative costs across countries.
d)
differences in labor endowment across countries.
16.
When Adam Smith presented his theory of absolute advantage, he thought that all value was measured in terms of the amount of __________ used in the production of the good.
a)
land
b)
labor
c)
capital
d)
money
17.
Adam Smith's economic theories focused on
a)
labor because he thought all value was determined by and measured in hours of labor.
b)
gold and silver as the only measure of a country's success in international trade.
c)
all aspects of the costs of producing goods for export.
d)
balancing imports and exports so that a country does not gain or lose from international trade.
18.
__________holds that nations can increase their economic well-being by specializing in the production of goods they produce more efficiently than anyone else.
a)
The factor endowment theory.
b)
The opportunity cost theory.
c)
The theory of absolute advantage.
d)
The theory of comparative advantage.
19.
If Britain’s labor productivity in the production of umbrellas is greater than Vietnam’s labor productivity in umbrellas, we would say that Britain has a(n) __________ in the production of umbrellas.
a)
comparative advantage
b)
absolute advantage
c)
opportunity cost
d)
superiority
20.
_______________________means that the labor productivity for a particular product in a particular country is higher than the rest of the world's labor productivity of that product.
a)
Comparative advantage
b)
Absolute advantage
c)
Labor efficiency
d)
Ability to export
21.
In Adam Smith’s absolute advantage theory of trade,
a)
a country with the absolute advantage in all products eventually will be the powerful nation.
b)
a country with the absolute advantage will have a larger trade surplus.
c)
a country will lose its absolute advantage if it does not protect its industry with tariff barriers.
d)
both countries will gain from trade if each exports the product for which it has lower labor cost.
22.
Adam Smith said that trade freely transacted between countries
a)
is dangerous since there are no controls on what is exported and what is imported.
b)
generally leads to gains for all countries, so international trade is a positive - sum activity.
c)
only benefits a country if that country has an absolute advantage in all products.
d)
only benefits a country if that country has a comparative advantage in a specific product.
23.
Unlike Mercantilists, Adam Smith maintained that
a)
trade benefits one nation only at the expense of another nation.
b)
government controls of trade leads to maximum economic welfare.
c)
the world’s output of goods must remain constant over time.
d)
all nations can gain from free trade.
24.
The author of the Wealth of Nations was
a)
David Ricardo.
b)
Paul Samuelson.
c)
Adam Smith.
d)
Karl Marx.
25.
Having an absolute disadvantage in all products means that a country
a)
cannot profitably engage in international trade.
b)
is less productive than other countries.
c)
is able to negotiate below-market prices for imports.
d)
can import products but cannot export products.
26.
One limitation of Adam Smith’s theory of absolute advantage is that the theory cannot explain trade pattern
a)
in a case that if one country has absolute advantage in both products.
b)
in a case that if one country has comparative advantage in both products.
c)
between developing countries and developed countries.
d)
between countries with different production conditions.
27.
What proportion of international trade is explained by absolute advantage theory?
a)
All
b)
Most
c)
Some
d)
None
28.
The common assumption in Adam Smith’s theory of absolute advantage, David Ricardo’s theory of comparative advantage and opportunity cost theory is
a)
increasing return to scale.
b)
two factors of production.
c)
no barrier to trade.
d)
labor is mobility across the nations.
29.
Basis for trade is comparative advantage in the following theories:
a)
Mercantilism, Adam Smith’s theory of absolute advantage and Opportunity cost theory.
b)
Neo-mercantilism, Opportunity cost theory and David Ricardo’s theory of comparative advantage.
c)
David Ricardo’s theory of comparative advantage, Opportunity cost theory and the Heckscher - Ohlin theory.
d)
Mercantilism, Neo-mercantilism and the Heckscher - Ohlin theory.
30.
Explanation of basis for trade in Adam Smith’s theory of absolute advantage and David Ricardo’s theory of comparative advantage is based on
a)
opportunity cost.
b)
labor theory of value.
c)
economies of scale.
d)
different factor endowment.
31.
The basis for international trade according to David Ricardo’s theory is
a)
comparative advantage.
b)
established trade patterns.
c)
the size of gold holdings of two countries.
d)
shipping and transportation costs.
32.
The person credited with the first systematic expression of the principle of comparative advantage was
a)
Ricky Ricardo.
b)
Adam Smith.
c)
Heckscher and Ohlin.
d)
David Ricardo.
33.
The earliest statement of the principle of comparative advantage is associated with
a)
Adam Smith.
b)
David Ricardo.
c)
Eli Heckscher.
d)
Bertil Ohlin.
34.
Which theory holds that nations should produce those goods for which it can produce most efficiently?
a)
The factor endowment theory.
b)
Mercantilism.
c)
The theory of absolute advantage.
d)
The theory of comparative advantage.
35.
__________that nations should produce those goods for which they have the greatest absolute advantage.
a)
The factor endowment theory
b)
Mercantilism
c)
The theory of absolute advantage
d)
The theory of comparative advantage
36.
Comparative advantage is determined by
a)
actual differences in labor productivity between countries.
b)
relative differences in labor productivity between countries.
c)
relative differences in opportunity cost between countries.
d)
relative differences in factor abundance between countries.
37.
The concept of comparative advantage is based on
a)
differences in labor endowment across countries.
b)
differences in relative labor costs across countries.
c)
the barter terms of trade.
d)
the law of diminishing returns.
38.
The commodity in which the nation has the smallest absolute disadvantage is the commodity of its
a)
absolute advantage.
b)
absolute disadvantage.
c)
comparative advantage.
d)
comparative disadvantage.
39.
When David Ricardo presented his theory of comparative advantage, he thought that all value was measured in terms of the relative amount of __________ used in the production of the good.
a)
land
b)
labor
c)
capital
d)
money
40.
A country can have a(n) _________________ even if they do not have any _________________
a)
comparative advantage, absolute advantage
b)
absolute advantage, production possibility curve
c)
absolute advantage, labor efficiency
d)
comparative advantage, labor efficiency
41.
If in a two-nation (A and B), two-commodity (X and Y) world, it is established that nation A has a comparative advantage in commodity X, then nation B must have
a)
an absolute advantage in commodity Y.
b)
an absolute disadvantage in commodity Y.
c)
a comparative disadvantage in commodity Y.
d)
a comparative advantage in commodity Y.
42.
Unlike Adam Smith, David Ricardo’s trading principle emphasizes the
a)
demand side of the market.
b)
supply side of the market.
c)
role of comparative cost.
d)
role of absolute cost.
43.
The source of beneficial free trade in the Ricardian world is
a)
comparative advantage based on different factor endowments.
b)
comparative advantage based on different labor productivities.
c)
economies of scale in production.
d)
comparative advantage based on increasing returns to scale technology.
44.
Each country can benefit from trade by
a)
balancing its imports and exports so that it does not send its financial resources to other countries.
b)
controlling imports so that imported products do not compete with domestically produced products.
c)
exporting products in which it has the greatest relative advantage and importing products in which it has the least relative advantage.
d)
importing only products for which it has excessive domestic demand.
45.
The comparative advantage model of Ricardo was based on
a)
intra-industry specialization and trade.
b)
inter-industry specialization and trade.
c)
demand conditions underlying specialization and trade.
d)
income conditions underlying specialization and trade.
46.
According to the principle of comparative advantage
a)
each country should specialize in the good it can produce most efficiently compared with its trading partner.
b)
buyers should compare goods before signing a contract.
c)
wealthier countries have significant advantages compared to poorer countries.
d)
each country should produce at least some quantity of every important consumer good.
47.
If a country exports the good that it can produce at a low opportunity cost and imports those goods that it would otherwise produce at a high opportunity cost, we say that such trade is based upon
a)
absolute advantage.
b)
arbitrage.
c)
labor productivity differences.
d)
comparative advantage.
48.
In a world of two nations and two commodities, if a nation has a comparative advantage in the production of a certain good, it means that this nation
a)
also has an absolute advantage in the production of this good.
b)
will start importing this good.
c)
can produce this good at a lower opportunity cost.
d)
can produce this good at higher productivity.
49.
In New Zealand one worker can produce 40 walking sticks or 10 boomerangs each hour. What is the opportunity cost of producing one walking stick?
a)
40 boomerangs.
b)
10 boomerangs
c)
4 boomerangs
d)
1/4 boomerangs
50.
Country A has 5000 units of labor. It takes 50 units of labor to produce one computer and 1 unit to create a Web page. What is the opportunity cost of a Web page in terms of computers?
a)
0.01
b)
0.02
c)
50
d)
100
51.
Country A can produce 10,000 roses or 1,000 computers with its total labors of 5000. What is the opportunity cost of a rose in terms of computer?
a)
0.10
b)
0.20
c)
0.50
d)
10.0
52.
In the presence of trade and constant opportunity cost, a nation’s production will move towards
a)
the goods that the nation has absolute advantage.
b)
incomplete specialization.
c)
maximization of the goods that the nation can produce most efficiently.
d)
Both a and c.
53.
A nation that gains from trade will find its consumption point being located
a)
inside its production possibility frontier.
b)
along its production possibility frontier.
c)
outside production possibility frontier.
d)
None of the above
54.
If a country has a linear (downward sloping) production possibilities frontier (PPF), then production is said to be subject to
a)
constant opportunity costs.
b)
decreasing opportunity costs.
c)
first increasing and then decreasing opportunity costs.
d)
increasing opportunity costs.
55.
In the absence of trade, the optimum consumption points available to a nation
a)
are above the production possibilities curve.
b)
are on or inside the production possibilities curve.
c)
lie on the production possibilities curve.
d)
cannot be identified.
56.
In the absence of trade, the optimum production points available to a nation
a)
are above the production possibilities curve.
b)
are on or inside the production possibilities curve.
c)
lie on the production possibilities curve.
d)
cannot be identified.
57.
If the international rate of exchange (international price) stays at a level that is between two countries’ opportunity costs,
a)
there is no basic for gainful trade for either country.
b)
both countries gain from trade.
c)
one country gains and the other country gains nothing from trade
d)
one country gains and the other country loses from trade.
58.
In a world of two countries, mutually beneficial trade will be conducted at
a)
whatever price set by the country with absolute advantage.
b)
whatever price set by the country with comparative advantage.
c)
whatever price that stays between two countries' opportunity costs.
d)
the price set by government regulations in the importing country.
59.
Mutually beneficial trade
a)
allows both countries to consume a larger bundle of goods than before trade occurred.
b)
allows only the more productive country to consume a larger bundle of goods than before trade occurred.
c)
allows only the less productive country to consume a larger bundle of goods than before trade occurred.
d)
causes changes only in production, not consumption.
60.
An important insight of international trade theory is that when a country exchanges goods and services with another,
a)
it is not beneficial to both countries.
b)
it is usually beneficial to both countries.
c)
it is typically beneficial only to the developed countries.
d)
it is typically harmful to the technologically lagging country.
61.
If there is no trade, each country will have to produce all products demanded in that country. When trade is established, countries can
a)
increase domestic production for domestic consumption and avoid the necessity of imports.
b)
decrease dependency on foreign imports and export domestically produced products.
c)
increase exports of products that it is not very efficient at producing.
d)
shift labor resources toward producing goods in which it has a comparative advantage.
62.
Which of the following statements refutes mercantilist thinking? I.National well-being is based on the ability to consume products now and in the future. Imports are part of the expanding national consumption that a nation seeks, not an evil to be suppressed.
II.Trade freely transacted between countries generally leads to gains for the exporting countries and losses for importing countries.
III.The importance of national production and exports is only indirect. They provide the income to buy products to consume. Exports are not desirable on their own; rather, exports are useful because they pay for imports.
a)
(I) + (II)
b)
(I) + (III)
c)
(I)
d)
(II)
63.
Mercantilism maintained that government regulation of trade was
a)
necessary to provide the greatest national benefit because individual merchants tended to look after their own interests and not the national interests.
b)
not justified because it interfered with the rights of merchants to do business as they thought best.
c)
necessary to prevent wealthy countries from taking advantage of poorer countries.
d)
necessary to monitor imports and exports so that a trade surplus can be attained.
64.
Which of the following holds that a government can improve the economic well-being of a country by encouraging exports and discouraging imports without a reliance on precious metals?
a)
Neo-mercantilism
b)
Mercantilism
c)
The theory of absolute advantage
d)
The theory of comparative advantage
65.
The key difference between Neo-mercantilists’ and Mercantilists’ thinking is related to
a)
role of trade.
b)
gains from trade.
c)
emphasis on development.
d)
government intervention in trade.
66.
Which of the following statements is true?
a)
Both Mercantilists and Neo-mercantilists advocate promoting exports and limiting imports.
b)
Mercantilists depict trade as a zero-sum activity while Neo-mercantilists describe trade as a positive-sum game.
c)
Mercantilists advocate trade protectionism while Neo-mercantilists support free trade.
d)
Mercantilists explain trade pattern based on constant return to scale while Neo-mercantilists explain it based on increasing return to scale.
67.
Adam Smith maintained that national well-being depends on the ability to consume, so
a)
a country should produce all products that its citizen can consume and export products that its citizens cannot consume.
b)
imports are valuable because national consumption can increase.
c)
government should encourage domestic production so that domestic consumption can increase without increasing imports.
d)
government should closely monitor imports and exports so that a proper balance can be maintained.
68.
Adam Smith’s theory of absolute advantage differs from Mercantilism by arguing that
a)
trade is a zero-sum game because one nation gains at the expense of the other nation.
b)
nature of wealth of a nation depends on the amount of goods and services that a country can produce.
c)
government should promote trade protectionism to create job for domestic workers.
d)
basis for trade is absolute advantage, which can be explained by difference in relative productivities among countries.
69.
Which of the following is not an assumption generally made in the study of classical international trade theory?
a)
two nations
b)
two commodities
c)
two factors of production
d)
no international mobility of factors
70.
Comparative advantage is based on assuming away
a)
constant returns to scale.
b)
the effects of trade on income distribution within a country.
c)
that the resources can move freely from the production of one good to another.
d)
that free trade does not change the efficiency with which the countries use their resources.
71.
Ricardo's principle of comparative advantage unrealistically assumes that
a)
marginal opportunity costs will be constant when, in fact, they are generally increasing.
b)
prices will continue to increase so comparative advantages may disappear over time.
c)
the number of countries that import and export will remain constant in the short term.
d)
total production costs will remain constant so long as input prices remain the same.
72.
In the Ricardian model, if the economy is producing at a point on its production possibility frontier then
a)
all of the country’s workers are specialized in one product.
b)
all of the country’s capital is used for one product.
c)
all of its capital is used, but not efficiently.
d)
all of the country’s workers are employed.
73.
The assumption of constant opportunity costs of production in the classical model results in a _________ production possibilities frontier (curve), and _________ specialization with trade.
a)
linear; complete
b)
linear; incomplete
c)
concave-to-the-origin; complete
d)
convex-to-the origin; incomplete
74.
Which of the following is NOT true about a constant cost production possibilities curve?
a)
It is drawn as a straight line.
b)
Along it, opportunity cost is constant.
c)
The opening up of free trade causes it to shift to the right.
d)
It can lead to complete specialization when free trade opens.
75.
Complete specialization by countries is not common. For instance, the United States
a)
imports essentially the same value of goods as it exports.
b)
produces some amount of most products that are also imported.
c)
imports significantly more than it exports.
d)
exports products that are also imported.
76.
David Ricardo's theory of comparative advantage attempts to rationalize why some countries export automobiles, consumer electronics, and machine tools, while other countries export chemicals, watches, and jewelry.
a)
absolute advantage in terms of resources.
b)
international differences in labor productivity.
c)
the proportions in which the factors of production are available.
d)
the cultural histories of the exporting nations.
77.
A country gains more from trade if
a)
it exports a variety of products and imports products that are not produced domestically.
b)
other countries lose from trade because they do not produce as effectively as this country.
c)
it receives a higher price for its exports relative to the price it pays for its imports.
d)
its domestic production is well-established and protected from imports.
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