Economics 【Reading 20】Sample statements, 2012, following, benefits

karoliukas

Which of the following statements about the costs and benefits of international trade is most accurate?

A) The costs of trade primarily affect those in domestic industries that compete with imports.

B) The costs of trade are greater than the benefits with regard to domestic employment.

C) Increased international trade benefits all groups in the trading countries.

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The benefits of trade are greater than the costs for the overall economy, but those in domestic industries competing with imports may suffer costs in the form of reduced profits or employment.

karoliukas

Suppose labor in Venezuela is less productive than labor in the United States in all areas of production. Which of the following statements about trading between Venezuela and the U.S. is most accurate?

A) Venezuela will not have a comparative advantage in any good.

B) Both nations can benefit from trade.

C) Venezuela can benefit from trade but the U.S. cannot.

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Although one country may have an absolute advantage in all areas, trade is based on differences in opportunity costs, or comparative advantage. Any country will always have a comparative advantage in the production of some goods; thus, all countries can benefit from trade.

karoliukas

The law of comparative advantage explains why a nation will benefit from trade when it:

A) exports more than it imports.

B) exports goods for which it is a low-cost producer, while importing those for which it is a high-cost producer.

C) exports goods for which it is a high-cost producer, while importing those for which it is a low-cost producer.

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Comparative advantage is the ability to produce a good at a lower opportunity cost than others can produce it. When trading partners specialize in producing products for which they have a comparative advantage; costs are minimized, output is greater, and both trading partners benefit.

karoliukas

According to the law of comparative advantage:

A) a nation will benefit from trade when it imports goods for which it is the high cost producer and exports goods for which it is the low-cost producer.

B) if a foreign government subsidizes the textile industry, the domestic government should impose a tariff.

C) Mexico is considered to have a comparative advantage in plastics if Mexico can produce plastic using fewer resources than the U.S.

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This statement is the law of comparative advantage.
The other choices are incorrect. The law of comparative advantage supports international trade. According to the law of comparative advantage, both trading partners are better off if they specialize in the production of goods for which they are the low-opportunity cost producer and trade for those goods for which they are the high-opportunity cost producer. Mexico is considered to have an absolute advantage in plastics if Mexico can produce plastic using fewer resources than the U.S.

karoliukas

A country has a comparative advantage over another when:

A) a nation has the ability to produce a good with a lower opportunity cost than another nation.

B) a nation can produce more output with a given amount of input than another nation.

C) it can produce a product with the fewest resources.

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A nation will have a comparative advantage in the production of good A when the number of units of B, given up to produce one unit of A, is lower than that for any other country.

karoliukas

Which type of advantage determines the pattern of trade in the world?

A) Absolute advantage.

B) Advantages due to tariffs and quotas.

C) Comparative advantage.

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Comparative advantage is the ability to produce a good at a lower opportunity cost than others can produce it. According to the law of comparative advantage, trading partners are both better off if they specialize in the production of goods for which they are the low-opportunity cost producer and trade for goods for which they are the high-opportunity cost producer.

karoliukas

The law of comparative advantage holds that trading partners can be made better off if they:

A) specialize in production of goods for which they are the low exchange rate adjusted producer.

B) import those goods for which they have a comparative advantage.

C) specialize in production of goods for which they are the low opportunity cost producer.

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The law of comparative advantage holds that trading partners can be made better off if they specialize in production of goods for which they are the low opportunity cost producer. They should export, not import, goods for which they have a comparative advantage. Absolute and exchange rate adjusted costs are not relevant to the concept of comparative advantage.

karoliukas

The table below outlines the possible tradeoffs of producing beer and cheese for Germany and Holland.

Germany		Holland
Cheese	Beer	Cheese	Beer
0	10	0	6
5	0	4	0

Which of the following statements is most accurate?

A) Both countries would gain if Germany traded beer for Holland's cheese.

B) Both countries would gain if Germany traded cheese for Holland's beer.

C) Germany would not gain from trade, because it has an absolute advantage in the production of both goods.

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Germany has an absolute advantage in both beer and cheese because it can produce more of both than Holland. Holland has a comparative advantage in producing cheese because it can produce either 4 cheeses or 6 beers, which is a ratio of 2 to 3, whereas Germany can produce 5 cheeses or 10 beers, which is a ratio of 1 to 2. Because of Holland's comparative advantage in producing cheese, both countries would benefit if Germany used its absolute advantage in producing beer in exchange for Holland's comparative advantage in cheese.

karoliukas

In the Ricardian model of trade, the source of comparative advantage is:

A) labor productivity.

B) capital productivity.

C) the difference between labor productivity and capital productivity.

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The Ricardian model of trade only considers labor as a factor of production. Comparative advantage results from differences in labor productivity. Labor and capital inputs are both considered in the Heckscher–Ohlin model of trade.

karoliukas

Which of the following arguments in favor of trade restrictions is least likely to be supported by economists?

A) Infant industries should be protected.

B) Trade with low-wage countries depresses wage rates in high-wage countries.

C) National defense industries should be protected.

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Trade with low-wage countries does not in itself depress wage rates since productivity must be considered. The other arguments have some support among economists.