International Trade Chapter 20 Quiz

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Questions and Answers

When nations increase production in their area of _________ and trade with each other, both sides can benefit.

comparative advantage

Intra-industry trade between similar trading partners allows the gains from ________________ that arise when firms and workers specialize in the production of a certain product.

learning and innovation

What are the mutual gains from trade between the USA and China regarding pants and wheat?

The USA can export wheat to China in exchange for pants.

__________________ identifies the area where a producer's absolute advantage is relatively greatest, or where the producer's absolute disadvantage in productivity is relatively least.

comparative advantage Signup and view all the answers

Jethro has a(n) ____________________ in all aspects of camping.

absolute advantage Signup and view all the answers

What matters most in determining the efficient distribution of production over the world?

Comparative advantage. Signup and view all the answers

A nation can have a comparative advantage in the production of every good.

False Signup and view all the answers

If a nation has a comparative disadvantage in the production of some commodity, what can it still achieve?

It can still gain from international trade by obtaining it at a lower opportunity cost. Signup and view all the answers

The theory of comparative advantage shows that the gains from international trade result from pursuing comparative advantage and producing at a lower ___________.

opportunity cost Signup and view all the answers

What advantage does Colombia have in coffee production?

Colombia has an absolute advantage in coffee production. Signup and view all the answers

The slope of the production possibility frontier is determined by the ________________ of expanding production of one good.

opportunity cost Signup and view all the answers

What is the underlying reason why trade benefits both sides of a trading arrangement?

The concept of opportunity cost. Signup and view all the answers

According to international trade theory, what should a country do?

Import goods in which it has a comparative disadvantage. Signup and view all the answers

What is a reason that nations trade?

No one country produces all of what citizens within the country want. Signup and view all the answers

What does the idea behind comparative advantage reflect?

The possibility that one party may be able to produce something at a lower opportunity cost than another party. Signup and view all the answers

International trade currently involves about _________________ worth of goods and services thundering around the globe.

$20 trillion Signup and view all the answers

What problem do some nations face when trying to produce all of their own needs?

Some industries are too small to be efficient if restricted to their domestic markets alone. Signup and view all the answers

The concept of ____________________ means that as the measure of output goes up, average costs of production decline—at least up to a point.

economies of scale Signup and view all the answers

Trade allows each country to take advantage of ______________ in the other country.

lower opportunity costs Signup and view all the answers

When one nation can produce a product at lower cost relative to another nation, it is said to have a(n)____________________ in producing that product.

absolute advantage Signup and view all the answers

Study Notes

Comparative Advantage and Trade

Nations benefit by increasing production in areas of comparative advantage and trading with others.
Comparative advantage indicates where a producer has the least absolute disadvantage in productivity.
A country can gain from international trade even with a comparative disadvantage by importing goods at a lower opportunity cost than domestic production.

Absolute Advantage

Absolute advantage refers to the ability of a producer to use fewer resources to produce a good compared to another producer.
Example: Colombia has an absolute advantage in coffee production due to lower labor and land use.

Opportunity Cost

Opportunity cost is key in determining efficient production distribution worldwide; it measures the cost of forgoing the next best alternative.
The production possibility frontier's slope reflects the opportunity cost of producing one good over another.

Intra-Industry Trade

Intra-industry trade occurs between similar trading partners and enhances gains from learning and innovation through specialization.

Gains from Trade

Gains from trade are not solely based on absolute advantage; they arise from lower opportunity costs associated with comparative advantage.
Current international trade is valued at approximately $20 trillion, highlighting its significance in the global economy.

Trade Policy and Benefits

International trade theory suggests countries should import goods where they have a comparative disadvantage.
No single nation produces everything its citizens want, necessitating trade among countries.

Economies of Scale

The concept of economies of scale indicates that as production output increases, average costs decline, improving efficiency in industries.

Challenge of Self-Sufficiency

Nations aiming for self-sufficiency often face inefficiencies, as some industries may not be viable if restricted to domestic markets only.

Conclusion on Opportunity Costs

The concept of opportunity cost underlies the reason why trade is mutually beneficial by allowing countries to specialize in goods they produce most efficiently.

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Description

Test your knowledge on key concepts in international trade with this quiz based on Chapter 20. From understanding comparative advantage to the benefits of intra-industry trade, this quiz covers essential terms and definitions that shape global commerce.