A sudden appreciation in the exchange rate of a country deteriorates the terms of trade of the country.
a. True
b. False
Indicate whether the statement is true or false
Question 2According to international trade theory, a country should:
a. import goods in which it has an absolute advantage.
b. specialize in the production of the good in which it has an absolute disadvantage.
c. export goods when it has either a comparative or absolute disadvantage in producing them.
d. specialize in the production of the good in which they have a comparative advantage.
Question 3The optimal quantity of pollution is:
a. zero.
b. the level where the marginal cost of pollution abatement exceeds the marginal benefit of pollution abatement by the greatest amount.
c. the level where the marginal benefit of pollution abatement exceeds the marginal cost of pollution abatement by the greatest amount.
d. none of the above.
Question 4Dutch Disease is associated with a dramatic decline in the demand for a primary commodity produced by a country.
a. True
b. False
Indicate whether the statement is true or false
Question 5If the United States could produce 1 ton of potatoes or 1 ton of wheat per worker per year, while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year, there can be mutual gains from trade if:
a. the United States specializes in potatoes because of its comparative advantage in producing potatoes.
b. the United States specializes in wheat because of its absolute advantage in producing wheat.
c. the United States specializes in wheat because of its comparative advantage in producing wheat.
d. there can be no mutual gains from trade.
Question 6A chemical manufacturer dumps waste into a river, which harms owners of resorts downstream from the chemical factory. Which of the following best describes the situation?
a. The socially efficient level of output exceeds the chemical firm's privately optimal output level.
b. River pollution should be reduced until it is technologically impossible to reduce it further.
c. The firm's privately optimal output level exceeds the socially efficient level of output.
d. If the firm were forced to bear the external costs of dumping chemicals into the river, it would increase its production of output.
Question 7A country with a strong bargaining power is likely to direct the terms of trade in its favor.
a. True
b. False
Indicate whether the statement is true or false
Question 8If the United States could produce 4 tons of potatoes or 2 tons of wheat per worker per year, while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year, the country with the comparative advantage in producing potatoes is ____ and the country with the absolute advantage in producing potatoes is ____.
a. the United States; the United States
b. the United States; Ireland
c. Ireland; the United States
d. Ireland; Ireland
Question 9If the production of a product creates external costs, there is an ____ to production of that good which the government can correct for by ____.
a. overallocation of resources; granting a subsidy
b. overallocation of resources; imposing a per-unit tax
c. underallocation of resources; granting a subsidy
d. underallocation of resources; imposing a per-unit tax
Question 10If Bolivia can produce 6 calculators or 3 televisions in a day, and Argentina can produce 4 calculators or 12 televisions in a day, then Bolivia would be willing to trade 1 calculator for 1 television with Argentina.
a. True
b. False
Indicate whether the statement is true or false
Question 11If the United States could produce 4 tons of potatoes or 2 tons of wheat per worker per year, while Ireland could produce 2 tons of potatoes or 3 tons of wheat per worker per year, the country with the comparative advantage in producing potatoes is ____ and the country with the absolute advantage in producing potatoes is ____.
a. the United States; the United States
b. the United States; Ireland
c. Ireland; the United States
d. Ireland; Ireland
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