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MITBch21 - CHAPTER 21 1INTERNATIONAL TRADE AND COMPARATIVE...

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C HAPTER 21 1I NTERNATIONAL T RADE AND C OMPARATIVE A DVANTAGE TRUE-FALSE QUESTIONS 1. Wages have risen spectacularly among the industrialized nations of the world over the last 25 years. ANSWER: T, E, R 2. Wages in other countries have increased as a percentage of U.S. wages in the past 20 years. ANSWER: T, E, R WHY TRADE? 3. Specialization permits larger outputs and offers economies of large-scale production. ANSWER: T, E, R 4. Unequal distribution of resources is one of the main reasons for international trade. ANSWER: T, E, R 5. International trade usually benefits one trading partner while making the other trading partner worse  off. ANSWER: F, E, A 6. One nation can gain from an exchange only at the expense of another. ANSWER: F, E, A 7. Voluntary exchange is based on the principle that all parties must gain from trade. ANSWER: T, E, A 8. The U.S. Constitution prevents tariffs on trade between the individual states. ANSWER: T, E, R 9. Capital, labor, and other factors of production move more freely from country to country than they  do within a country. ANSWER: F, M, R THE LAW OF COMPARATIVE ADVANTAGE 10. Specialization is a major obstacle to international trade. ANSWER: F, M, A 103
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104 Chapter/International Trade and Comparative Advantage 11. Specialization is the concept of devoting resources to the production of only a small number of  goods and services. ANSWER: T, M, A 12. Absolute advantage states that a country has an advantage over another if it can produce a good  with fewer resources. ANSWER: T, M, R 13. Trade occurs only when a country has an absolute advantage and not just a comparative advantage  over another country. ANSWER: F, M, R 14. Countries that are unable to produce goods as efficiently as other countries will never be able to  trade. ANSWER: F, M, A 15. One country has an absolute advantage over another country if it can produce a good using smaller  quantities of resources. ANSWER: T, M, R 16. If all countries produce the goods for which they have comparative advantages, all countries benefit  with the increased production of goods with no additional resources being used. ANSWER: T, M, A 17. Comparative advantage is the rule that ordinarily prevents a nation from independently producing  all of the goods it requires. ANSWER: T, M, A 18. If one country has an absolute advantage in every commodity, there is no reason for it to trade. ANSWER: F, M, A 19. If England uses one week’s time to produce ten yards of cloth or two barrels of wine and Portugal  uses one week’s time to produce twelve yards of cloth or six barrels of wine, England has the  comparative advantage in both goods.
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