Multiple Choice Questions:
1. Assume that the opportunity cost of producing a pair of pants in the United States is 2 pounds of rice, while in China, it is 5 pounds of rice. As a result,
a. The United States has a comparative advantage over China in the production of pants.
b. China has a comparative advantage over the United States in the production of rice.
c. Mutual gains from trade can be realized by both countries if the United States exports rice to China in exchange for shoes.
d. Mutual gains from trade can be realized by both countries if the United States exports pants to China in exchange for rice.
e. All of the above except c are true.
2. In Samoa the opportunity cost of producing one coconut is four pineapples, while in Guam the opportunity cost of producing one coconut is five pineapples. In this situation,
a. if trade occurs, both countries will be able to consume beyond the frontiers of their original production possibilities.
b. Guam will be better off if it exports coconuts and imports pineapples.
c. both Samoa and Guam will be better off if Samoa produces both coconuts and pineapples.
d. mutually beneficial trade cannot occur.
3. Mutually beneficial trade will occur whenever the exchange rate between the goods involved is set at a level where?
a. Each country can export a good at a price above the opportunity cost of producing the good in the domestic market.
b. Each country can import a good at a price above the opportunity cost of producing the good in the domestic market.
c. The exchange ratio is exactly equal to the opportunity cost of producing the good in each country.
d. Each country will specialize in the production of those goods in which it has an absolute advantage.
e. Either b or d is true.
Questions 4–6 refer to the following data: Alpha can produce either 18 tons of oranges or 9 tons of apples in a year, while Omega can produce either 16 tons of oranges or 4 tons of apples in a year.
4. The opportunity costs of producing 1 ton of apples for Alpha and Omega, respectively, are?
a. 0.25 ton of oranges and 0.5 ton of oranges.
b. 9 tons of oranges and 4 tons of oranges.
c. 2 tons of oranges and 4 tons of oranges.
d. 4 tons of oranges and 2 tons of oranges.
e. 0.5 ton of oranges and 0.25 ton of oranges.
5. Which of the following statements is true?
a. Alpha should export to Omega, but Omega should not export to Alpha.
b. Because Alpha has an absolute advantage in both goods, no mutual gains from trade are possible.
c. If Alpha specializes in growing apples and Omega specializes in growing oranges, they could both gain by specialization and trade.
d. If Alpha specializes in growing oranges and Omega specializes in growing apples, they could both gain by specialization and trade.
e. Because Alpha has a comparative advantage in producing both goods, no mutual gains from trade are possible.
6. Which of the following exchange rates between apples and oranges would allow both Alpha and Omega to gain by specialization and exchange?
a. 1 ton of apples for 3 tons of oranges
b. 3 tons of apples for 3 tons of oranges
c. 2 tons of apples for 3 tons of oranges
d. 1 ton of oranges for 0.2 ton of apples
e. 1 ton of oranges for 0.8 ton of apples
7. After the United States introduces a tariff in the market for steel, the price of steel in the United States will?
a. Decrease.
b. Increase.
c. Remain the same.
d. Change in an indeterminate manner.
8. If Japan does not have a comparative advantage in producing rice, the consequences of adopting a policy of reducing or eliminating imports of rice into Japan would include the following?
a. Japan will be able to consume a combination of rice and other goods beyond their domestic production possibilities curve.
b. The real incomes of Japanese rice producers would rise, but the real incomes of Japanese rice consumers would fall.
c. The real incomes of Japanese rice consumers would rise, but the real incomes of Japanese rice producers would fall.
d. The price of rice in Japan would fall.
9. The infant-industry argument for protectionism claims that an industry must be protected in the early stages of its development so that?
a. Firms will be protected from subsidized foreign competition.
b. Domestic producers can attain the economies of scale to allow them to compete in world markets.
c. Adequate supplies of crucial resources will be available if needed for national defense.
d. None of the above reflect the infant-industry argument.