Macroeconomics Chapter #9

An important factor in the decline of the U.S. textile industry over the past 100 or so years is

foreign competitors that can produce quality textile goods at low cost.

With which of the Ten Principles of Economics is the study of international trade most closely connected?

Trade can make everyone better off.

Which of the following tools and concepts is useful in the analysis of international trade?

total surplus domestic supply equilibrium price All of the above are correct.

A logical starting point from which the study of international trade begins is

the principle of comparative advantage.

Which of the following is not an important question for economic policy raised by the experience of the textile industry?

Which argument for restricting free trade is politically feasible?

What is the fundamental basis for trade among nations?

comparative advantage

Patterns of trade among nations are primarily determined by

comparative advantage.

The market for soybeans in Canada consists solely of domestic buyers of soybeans and domestic sellers of soybeans if

Canada forbids international trade in soybeans.

The nation of Wheatland forbids international trade. In Wheatland, you can buy 1 pound of corn for 3 pounds of fish. In other countries, you can buy 1 pound of corn for 2 pounds of fish. These facts indicate that

if Wheatland were to allow trade, it would import corn.

Suppose the nation of Canada forbids international trade. In Canada, you can obtain a hockey stick by trading 5 baseball bats. In other countries, you can obtain a hockey stick by trading 8 baseball bats. These facts indicate that

if Canada were to allow trade, it would export hockey sticks.

The principle of comparative advantage asserts that

countries can become better off by specializing in what they do best.

A tax on an imported good is called a

tariff.

A tariff is a

tax on an imported good.

The price of a good that prevails in a world market is called the

world price.

The price of sugar that prevails in international markets is called the

world price of sugar.

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price,

the country will be an importer of the good.

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price,

the country will be an exporter of the good.

For any country, if the world price of copper is higher than the domestic price of copper without trade, that country should

export copper, since that country has a comparative advantage in copper.

For any country, if the world price of copper is lower than the domestic price of copper without trade, that country should

import copper.

If the world price of apples is higher than Argentina’s domestic price of apples without trade, then Argentina

has a comparative advantage in apples.

Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles,

other countries have a comparative advantage over Vietnam and Vietnam will import textiles.

Assume, for Vietnam, that the domestic price of textiles without international trade is lower than the world price of textiles. This suggests that, in the production of textiles,

Vietnam has a comparative advantage over other countries and Vietnam will export textiles.

Assume, for Mexico, that the domestic price of oranges without international trade is lower than the world price of oranges. This suggests that, in the production of oranges,

Mexico has a comparative advantage over other countries and Mexico will export oranges.

Suppose Ireland exports beer to China and imports pineapples from the United States. This situation suggests that

Ireland has a comparative advantage relative to China in producing beer, and the United States has a comparative advantage relative to Ireland in producing pineapples.

Trade among nations is ultimately based on

comparative advantage.

A country has a comparative advantage in a product if the world price is

higher than that country’s domestic price without trade.

Suppose Brazil has an absolute advantage over other countries in producing almonds, but other countries have a comparative advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil

will import almonds.

Suppose Brazil has a comparative advantage over other countries in producing almonds, but other countries have an absolute advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil

will export almonds.

Suppose Jamaica has an absolute advantage over other countries in producing sugar, but other countries have a comparative advantage over Jamaica in producing sugar. If trade in sugar is allowed, Jamaica

will import sugar.

Assume, for Japan, that the domestic price of automobiles without international trade is lower than the world price of automobiles. This suggests that, in the production of automobiles,

Japan has a comparative advantage over other countries and Japan will export automobiles.

Assume, for Mexico, that the domestic price of beets without international trade is higher than the world price of beets. This suggests that, in the production of beets,

other countries have a comparative advantage over Mexico and Mexico will import beets.

Assume, for England, that the domestic price of wine without international trade is higher than the world price of wine. This suggests that, in the production of wine,

other countries have a comparative advantage over England and England will import wine.

Assume, for England, that the domestic price of wine without international trade is lower than the world price of wine. This suggests that, in the production of wine,

England has a comparative advantage over other countries and England will export wine.

If the world price of coffee is lower than ColombiIf the world price of coffee is lower than Colombia’s domestic price of coffee without trade, then Colombiaa’s domestic price of coffee without trade, then Colombia

should import coffee.

If the world price of coffee is higher than Colombia’s domestic price of coffee without trade, then Colombia

has a comparative advantage in coffee and should export coffee.

If a country is an exporter of a good, then it must be the case that

the world price is greater than its domestic price.

Suppose Japan exports cars to Russia and imports wine from France. This situation suggests

Japan has a comparative advantage relative to Russia in producing cars, and France has a comparative advantage relative to Japan in producing wine.

Suppose Japan exports televisions to the United States and imports sugar from Argentina. This situation suggests

Japan has a comparative advantage relative to the United States in producing televisions, and Argentina has a comparative advantage relative to Japan in producing sugar.

Assume the nation of Teeveeland does not trade with the rest of the world. By comparing the world price of televisions to the price of televisions in Teeveeland, we can determine whether

Teeveeland has a comparative advantage in producing televisions.

By comparing the world price of pecans to India’s domestic price of pecans, we can determine whether India

will export pecans (assuming trade is allowed). will import pecans (assuming trade is allowed). has a comparative advantage in producing pecans. All of the above are correct.

Costa Rica allows trade with the rest of the world. We can determine whether Costa Rica has a comparative advantage in producing pharmaceuticals if we

know whether Costa Rica imports or exports pharmaceuticals. compare the world price of pharmaceuticals to the price of pharmaceuticals that would prevail in Costa Rica if trade with the rest of the world were not allowed. compare the quantity of pharmaceuticals consumed in Costa Rica with the quantity of pharmaceuticals that would be consumed in Costa Rica if trade with the rest of the world were not allowed. All of the above are correct.

Spain allows trade with the rest of the world. We know that Spain has a comparative advantage in producing olive oil if we know that

the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other countries were not allowed.

The nation of Farmland forbids international trade. In Farmland, you can exchange 1 pound of beef for 2 pounds of pepper. In other countries, you can exchange 1 pound of beef for 4 pounds of pepper. These facts indicate that

Farmland has a comparative advantage, relative to other countries, in producing beef.

The nation of Isolani forbids international trade. In Isolani, you can exchange 1 car for 5 motorcycles. In other countries, you can exchange 1 car for 4 motorcycles. These facts indicate that

the world price of motorcycles exceeds the price of motorcycles in Isolani.

Assume for Guatemala that the domestic price of coffee without international trade is higher than the world price of coffee. This suggests that

other countries have a comparative advantage over Guatemala in the production of coffee, and Guatemala will import coffee.

Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil. This situation suggests

Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative advantage over Russia in producing coffee.

When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,

producer surplus increases and total surplus decreases in the market for that good.

When, in our analysis of the gains and losses from international trade, we assume that a country is small, we are in effect assuming that the country

cannot affect world prices by trading with other countries.

When, in our analysis of the gains and losses from international trade, we assume that a particular country is small, we are

making an assumption that is not necessary to analyze the gains and losses from international trade.

In analyzing international trade, we often focus on a country whose economy is small relative to the rest of the world. We do so

because then we can assume that world prices of goods are unaffected by that country’s participation in international trade.

In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that

Moldova is a price taker.

When a country allows trade and becomes an exporter of a good,

domestic producers gain and domestic consumers lose.

Trade enhances the economic well-being of a nation in the sense that

trade results in an increase in total surplus.

When a country allows trade and becomes an importer of a good,

domestic producers become worse off, and domestic consumers become better off.

When a country allows trade and becomes an importer of a good,

the gains of the winners exceed the losses of the losers.

When the nation of Worldova allows trade and becomes an exporter of silk,

residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova rises.

When the nation of Duxembourg allows trade and becomes an importer of software,

residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg rises.

When a nation first begins to trade with other countries and the nation becomes an importer of corn,

the nation’s consumers of corn become better off and the nation’s producers of corn become worse off.

When a nation first begins to trade with other countries and the nation becomes an exporter of soybeans,

this is an indication that the world price of soybeans exceeds the nation’s domestic price of soybeans in the absence of trade. this is an indication that the nation has a comparative advantage in producing soybeans. the nation’s consumers of soybeans become worse off and the nation’s producers of soybeans become better off. All of the above are correct.

Trade raises the economic well-being of a nation in the sense that

the gains of the winners exceed the losses of the losers.

When a country allows trade and becomes an exporter of a good,

the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good.

When a country allows trade and becomes an importer of coal,

the gains of the domestic consumers of coal exceed the losses of the domestic producers of coal.

When a country allows trade and becomes an exporter of a good, which of the following is not a consequence?

The losses of domestic consumers of the good exceed the gains of domestic producers of the good.

When a country allows trade and becomes an importer of bottled water, which of the following is not a consequence?

The losses of domestic producers of bottled water exceed the gains of domestic consumers of bottled water.

When a country allows trade and becomes an exporter of a good,

consumer surplus decreases and producer surplus increases

When a country allows trade and becomes an importer of a good,

consumer surplus increases and producer surplus decreases.

Which of the following statements is true?

Free trade benefits a country both when it exports and when it imports.

When a country allows international trade and becomes an exporter of a good,

domestic producers of the good become better off. domestic consumers of the good become worse off. the gains of the winners exceed the losses of the losers. All of the above are correct.

Suppose Iceland goes from being an isolated country to being an exporter of coats. As a result,

producer surplus increases for producers of coats in Iceland.

Suppose Iceland goes from being an isolated country to being an importer of coats. As a result,

consumer surplus increases for consumers of coats in Iceland.

When a country allows international trade and becomes an importer of a good,

the gains of the winners exceed the losses of the losers.

Assume, for Colombia, that the domestic price of coffee without international trade is higher than the world price of coffee. This suggests that

other countries have a comparative advantage over Colombia in producing coffee.