Explaining the Theories of International Trade

6. According to the theory of comparative advantage in international trade, a country will export a good only if

a. It can produce it using less labor than other countries.

b. Its productivity is higher in producing the goods than the productivity of other countries in producing it.

c. Its wage rate in producing the good is lower than in other countries.

d. Its cost of producing the good, relative to other goods, is at least as low as in other countries.

11. Which of the following statements is most accurate?

a. Comparative advantage implies absolute advantage

b. Comparative advantage does not require absolute advantage

c. Comparative advantage requires absolute advantage

12. Which of the following economists is regarded as having developed the theory of comparative advantage?

13. If the international terms of trade settle at a level that is between each country’s opportunity cost

a. There is no basis for gainful trade for either country 

b. Both countries gain from trade

c. Only one country gains from trade

d. One country gains and the other country loses from trade 

14. International trade is based on the notion that:

a. Different currencies are an obstacle to international trade 

b. Goods are more mobile internationally than are resources

c. Resources are more mobile internationally that are goods

d. A country’s exports should always exceed its imports 

15. The classical trade theories of Smith and Ricardo predict that

a. Countries will completely specialize in the production of export goods.

b. Considerable trade will occur between countries with different levels of technology

c. Small countries could obtain all of the gains from trade when trading with large countries 

d. All of the above. 

1.  The exchange of goods and services are known as …………………………

a. Domestic Trade

b. International Trade

c. Trade

d. None of these.

3. Absolute advantage can be the result of a country’s natural endowment. True or False.

a. True

b. False

4. A country has a/an _____________________________ when a good can be produced at a lower cost in terms of other goods.

a. absolute advantage

b. comparative advantage

5. The concept of comparative advantage is based on this idea of opportunity cost from choice in a world of scarcity. True or False.

a. True

b. False

7. According to the theory of comparative advantage, countries gain from trade because

a. Trade makes firms behave more competitively, reducing their market power.

b. All firms can take advantage of cheap labor.

c. Output per worker in each firm increases.

d. World output can rise when each country specializes in what it does relatively best.

8. Suppose that Russia and Canada have the unit labor requirements for producing bread and butter shown in the table at the right. Then

a. Canada has a comparative advantage in butter.

b. Russia has a comparative advantage in bread.

c. Canada has an absolute advantage in bread.

d. all of the above

9. According to the theory of comparative advantage, which of the following is not a reason why countries trade?

a. Costs are higher in one country than in another.

b. Prices are lower in one country than in another.

c. The productivity of labor differs across countries and industries.

d. Exports give a country a political advantage over other countries that export less.

10. ______________________ simply compares the productivity of a worker between countries.

a. Comparative advantage

b. Absolute advantage

2. A country has a/an ___________________________in producing a good over another country if it uses fewer resources to produce that good.

a. comparative advantage 

b. absolute advantage