International Trade

1. The terms of trade are:

A. provisions of international trade legislation.

B. the rate at which goods will exchange for each other in trade.

C. a country's marginal rate of transformation.

D. set by the General Agreement on Tariffs and Trade (GATT).

2. If the United States can produce a bushel of wheat per man-hour and a computer for ten man-hours, while Armenia can produce a bushel of wheat for every 12 man hours and a computer for every 15 man-hours, then:

A. the U.S. has a comparative advantage in computer production.

B. the U.S. has a comparative advantage in producing both goods.

C. Armenia has a comparative advantage in computer production.

D. Armenia has an absolute advantage in wheat production.

3. Worldwide, capital is scarce and labor is abundant. The reverse is true in the United States. Thus, with free trade, U.S.:

A. wages will rise while the return on capital will increase in foreign countries.

B. workers will face competition from foreign labor and U.S. capital will also face competition.

C. owners of capital will benefit more than U.S. workers.

D. workers will leave the U.S. in the long run.

4. The Consumption Possibility Frontier for a country:

A. shows the different possible production levels that the country could choose.

B. is always identical to the production possibility frontier.

C. is always greater than the production possibility frontier.

D. decreases as the terms of trade become less advantageous.

E. increases as the terms of trade become less advantageous.

5. For trade between the U.S. and China to be mutually beneficial ALL that is needed is that:

A. the U.S. have an absolute advantage in all goods.

B. China have an absolute advantage in at least one good.

C. the U.S. have an absolute advantage in at least one good.

D. the U.S. have an absolute advantage in at least one good while China have an absolute advantage in a different good.

E. none of the above.

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