International Trade Concepts Quiz
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Questions and Answers

What primarily determines the pattern of trade?

  • Comparative advantage (correct)
  • Absolute advantage
  • Resource availability
  • Comparative disadvantage

    • Gains from trade arise from producing goods where a country has an absolute advantage.

    False

    What does the term 'comparative advantage' imply in trade?

    It implies producing goods more efficiently than others.

    Trade expands consumption possibilities beyond the __________.

    <p>production possibility frontier</p> Signup and view all the answers

    What is a common misconception about trade?

    <p>Trade is only beneficial for strong countries.</p> Signup and view all the answers

    Specializing in goods with a comparative advantage can lead to greater overall production.

    <p>True</p> Signup and view all the answers

    The indirect method of production refers to converting __________ into another good.

    <p>goods</p> Signup and view all the answers

    What is the opportunity cost of producing 1 unit of tea in Country A?

    <p>0.5 units of coffee</p> Signup and view all the answers

    Which industry is noted for its heavy use of unskilled workers?

    <p>Textiles &amp; apparel</p> Signup and view all the answers

    Match the following concepts with their definitions:

    <p>Comparative advantage = Producing a good more efficiently than others Absolute advantage = Producing more of a good with the same resources Trade = Exchanging goods between countries Specialization = Focusing on the production of specific goods</p> Signup and view all the answers

    Country B has a higher opportunity cost for coffee compared to Country A.

    <p>True</p> Signup and view all the answers

    According to the Heckscher-Ohlin theorem, countries will export goods that use their abundant factors of production.

    <p>True</p> Signup and view all the answers

    What does Ricardo’s theory primarily discuss?

    <p>Comparative advantage in trade.</p> Signup and view all the answers

    What do abundant factors tend to produce according to the Heckscher-Ohlin model?

    <p>cheap goods</p> Signup and view all the answers

    In the Heckscher-Ohlin model, comparative advantage is influenced by the interaction between nations' __________ and the technology of production, called __________.

    <p>factor abundance; factor intensity</p> Signup and view all the answers

    According to the theory of ______, countries should produce goods they can create most efficiently.

    <p>comparative advantage</p> Signup and view all the answers

    Match the countries with their coffee production capability:

    <p>Country A = 30 units of coffee Country B = 40 units of coffee</p> Signup and view all the answers

    What is the correct source of comparative advantage according to the Heckscher-Ohlin model?

    <p>Factor endowments</p> Signup and view all the answers

    Match the industries with their main factor intensities:

    <p>Agriculture = Land Textiles &amp; apparel = Unskilled labor Autos = Capital Computers = Human capital</p> Signup and view all the answers

    What is a common misconception about comparative advantage highlighted in the content?

    <p>Efficient producers must give up their industries.</p> Signup and view all the answers

    What does the Heckscher-Ohlin theory emphasize regarding countries?

    <p>Differences in resources and factor endowments</p> Signup and view all the answers

    Pat Buchanan agrees with Ricardo's view on comparative advantage.

    <p>False</p> Signup and view all the answers

    In the Heckscher-Ohlin model, technology has no influence on comparative advantage.

    <p>False</p> Signup and view all the answers

    How many units of tea can Country B produce in a day?

    <p>10 units of tea</p> Signup and view all the answers

    What is the opportunity cost of producing 1 unit of textiles in the UK?

    <p>4 books</p> Signup and view all the answers

    For India, the opportunity cost of producing 1 unit of textiles is equivalent to how many books?

    <p>1.5 books</p> Signup and view all the answers

    The UK has a comparative advantage in producing textiles over India.

    <p>False</p> Signup and view all the answers

    How many total books are produced after specialization in the UK and India?

    <p>8</p> Signup and view all the answers

    If Country X can produce either 200 barrels of oil or _______ tons of grain, it has a comparative advantage in grain production.

    <p>50</p> Signup and view all the answers

    Country Y can produce either 150 barrels of oil or _______ tons of grain.

    <p>75</p> Signup and view all the answers

    Match the countries with their opportunity costs for producing textiles.

    <p>UK = 4 books India = 1.5 books</p> Signup and view all the answers

    Which statement is true regarding the total production after specialization?

    <p>India produces no textiles.</p> Signup and view all the answers

    What happens to domestic workers when the relative price of apple, PA/PB, falls below aLA/aLB?

    <p>They will specialize in banana production.</p> Signup and view all the answers

    When the relative price of apple equals aLA/aLB, both domestic and foreign workers will prefer to produce apples.

    <p>False</p> Signup and view all the answers

    What does the variable 'Q' represent in the demand function?

    <p>Individual firm's sales</p> Signup and view all the answers

    What is relative demand of apple?

    <p>The quantity of apple demanded in all countries relative to the quantity of banana demanded in all countries at each relative price.</p> Signup and view all the answers

    The relative price of apples is denoted as _____ / _____

    <p>PA, PB</p> Signup and view all the answers

    In equilibrium, all firms in monopolistic competition charge different prices.

    <p>False</p> Signup and view all the answers

    Match the terms with their definitions:

    <p>Relative Supply = The amount of a product produced in relation to another product. Specialization = Focusing on the production of a specific good. Free Trade = Unrestricted import and export of goods between countries. Relative Demand = The demand for a product compared to another product at various prices.</p> Signup and view all the answers

    What is the formula for the total cost of production represented as 'C'?

    <p>C = F + cxQ</p> Signup and view all the answers

    In a monopolistically competitive market, as the number of firms ______ in the industry, the price charged by each firm tends to decrease.

    <p>increases</p> Signup and view all the answers

    At what point will foreign workers not find it desirable to produce apples?

    <p>When PA/PB &lt; aLA/aLB</p> Signup and view all the answers

    As the relative price of apple increases, the relative quantity of apple demanded also increases.

    <p>False</p> Signup and view all the answers

    Match the following terms to their descriptions:

    <p>Q = Total cost of production F = Fixed cost c = Marginal cost n = Number of firms in the industry</p> Signup and view all the answers

    What characterizes the pattern of trade between two countries in this context?

    <p>One country specializes in apple production while the other specializes in banana production.</p> Signup and view all the answers

    What is represented by the constant 'b' in the demand function?

    <p>Responsiveness of a firm's sales to its price</p> Signup and view all the answers

    As total sales 'S' of the industry increase, the average cost for each firm also increases.

    <p>False</p> Signup and view all the answers

    What happens to the average cost 'AC' of production as the number of firms increases?

    <p>AC increases</p> Signup and view all the answers

    Study Notes

    Overview of Trade Theories

    • Trade theories explain why countries engage in international trade. Different theories highlight different reasons for trade, such as differences in technology, resources, or preferences.

    Classical Trade Theories

    • Ricardian Model: Focuses on differences in labor productivity (which is often a result of technology). Countries specialize in producing goods where they have a comparative advantage, leading to gains from trade.
    • Heckscher-Ohlin (H-O) Model: Argues that countries specialize and trade based on their relative abundance of factors of production (e.g., labor, capital). Countries export goods that use their relatively abundant resources intensively. Relatively abundant factors gain, while scarce factors lose from trade.

    Modern Trade Theories

    • External Economies of Scale: These arise when the cost per unit of output decreases as the size of the industry increases due to factors like transportation or knowledge spillovers. External economies of scale can also lead to trade.
    • Internal Economies of Scale: Internal economies of scale arise when the cost per unit of output decreases as the size of the firm increases due to specialized inputs, bulk purchasing, or better organization. Internal economies of scale can also result in a smaller number of companies dominating the market and lead to trade.
    • First Mover Advantages: Early entrants into a market can benefit from economies of scale and brand recognition, creating barriers for late entrants, and hence, resulting in trade. The early producers may even control larger shares of the global market.

    Trade Policy Instruments

    • Tariffs: Taxes on imported goods.
    • Export Subsidies: Payments to domestic producers to encourage exports.
    • Import Quotas: Restrictions on the quantity of imported goods.
    • Voluntary Export Restraints (VERs): Export restrictions imposed by the exporting country, often at the request of the importing country.
    • Local Content Requirements: Rules requiring a certain percentage of a good's components to be produced domestically.
    • Other trade policies include export credit subsidies and government procurement of goods and services.

    Measuring the Amount of Protection

    • Effective rate of protection considers the impact trade rules and barriers have on the entire value chain, not solely on tariff rates.

    Summary of Key Trade Concepts

    • Countries benefit from trade through specialization in the production of goods for which they have a comparative advantage.
    • Trade can lead to economic gains overall but can create winners and losers within a country or globally.
    • Different types of trade policies, like tariffs and quotas, can have varied impacts on production, consumption, prices, and terms of trade.
    • Differences in factors of production (like relative labor or capital abundance) and economies of scale can also shape trade patterns.

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    Description

    Test your knowledge on key concepts of international trade, including absolute and comparative advantage, opportunity costs, and the Heckscher-Ohlin theorem. This quiz will challenge your understanding of trade patterns and factor endowments. Perfect for students studying economics or trade theory.

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