International Trade and Comparative Advantage
140 questions· page 1 of 14
Country X trades with country Y.
What are the terms of trade for country X?
Options
A average price of country X's exports divided by the average price of country Y's exports
B the ratio of an index of country X's export prices to an index of its import prices
C value of country X's exports divided by the value of country Y's exports
D value of country X's imports divided by the value of country Y's imports
In 2020, there was a worldwide pandemic. High-income countries quickly developed a vaccine. Low-income countries built high-tech factories to manufacture large quantities of the vaccine for export.
What explains this international division of labour?
Options
| high-income countries | low-income countries | |
|---|---|---|
| A | availability of specialists in research and development | lower costs of production |
| B | scarce human resources | over-supply of unskilled labour |
| C | many people tended to avoid the disease | many people tended to catch the disease |
| D | no government control over resource allocation | strict government control over resource allocation |
Why does the value of a country’s terms of trade have no monetary units?
Options
A It cannot be calculated accurately enough.
B It includes more than one currency.
C It is a ratio of two index numbers.
D It measures change over time.
Which formula is used to calculate the terms of trade?
Options
A the average price of exports divided by the average price of imports
B the average price of imports divided by the average price of exports
C the value of exports divided by the value of imports
D the value of imports divided by the value of exports
The table gives the terms of trade index for a country over three years.
| year 1 | year 2 | year 3 | |
|---|---|---|---|
| terms of trade | 100 | 105 | 112 |
What is the most likely impact of this change?
Options
A there will be a decrease in cost-push inflation
B there will be a decrease in living standards
C there will be an increase in the budget surplus
D there will be an increase in the volume of exports
Country X and country Y use the same amount of resources to produce mobile phones and televisions. The table shows how much of each product can be produced if all resources are used to produce that product.
| mobile phones | televisions | |
|---|---|---|
| country X | 500 | 400 |
| country Y | 100 | 200 |
What can be deduced about absolute advantage and comparative advantage?
Options
A Country X has an absolute advantage in producing mobile phones and a comparative advantage in producing televisions.
B Country X has an absolute advantage in producing televisions and a comparative advantage in producing mobile phones.
C Country Y has an absolute advantage in producing mobile phones and a comparative advantage in producing televisions.
D Country Y has an absolute advantage in producing televisions and a comparative advantage in producing mobile phones.
The table shows the ability of two countries, P and Q, to produce two goods, Y and Z.
| production of good Y per person | production of good Z per person | |
|---|---|---|
| country P | 1000 | 1600 |
| country Q | 1500 | 2000 |
Which statement is correct?
Options
A P has an absolute advantage in Z and Q has a comparative advantage in Y.
B P has an absolute advantage in Z and Q has an absolute advantage in Y.
C P has a comparative advantage in Y and Q has an absolute advantage in Z.
D P has a comparative advantage in Z and Q has an absolute advantage in Y.
What are the terms of trade?
Options
A the difference in value between a country’s exports and imports
B the rate at which one currency can be exchanged for another
C the rate at which tariffs can legally be applied to exports and imports
D the ratio of average export prices to average import prices
The terms of trade of a developing country fell from 90 in 2010 to 80 in 2015.
Assuming the index of its import prices remained constant at 110 between these two years, what happened to its index of export prices?
Options
A fell by 10
B fell by 11
C increased by 10
D increased by 30
What is not a limitation of the theory of comparative advantage?
Options
A the movement of factors of production between countries
B governments’ imposition of trade restrictions
C one country being more efficient in the production of all goods
D transport costs outweighing any comparative advantage