TRUE OR FALSE
If the statement is true, skip it. If the statement is false, write a sentence that explains why the statement is false.
1. In a country that does not engage in international trade, the consumption possibility curve will be below its production possibility curve.
_____ 2. If two nations are engaged in international trade, their consumption possibilities curves will have the same slopes.
_____ 3. The balance of trade is equal to the value of imports minus the value of exports.
_____ 4. When a country begins to engage in international trade, the domestic price of the good it exports will fall.
_____ 5. When a country engages in international trade, it is able to consume a combination of goods that lies above its production possibility frontier.
_____ 6. When one country gains from international trade another country must lose from international trade.
_____ 7. A country has an absolute advantage if it has greater productivity than another country in the production of all goods.
_____ 8. Most developing countries do not have a comparative advantage in the production of any goods.
_____ 9. Often countries import goods which are very similar to the goods that they export.
_____ 10. Even in the short-run, everyone in every country gains from international specialization and exchange.
_____ 11. It is not possible for small countries to benefit from economies of scale.
_____ 12. When a country imposes a tariff on its imports, it is likely to reduce its exports.
_____ 13. A quota provides domestic importers with a profit but a voluntary export restraint (VER) provides foreign exporters with a profit.
_____ 14. Generally the number of people who benefit from engaging in free trade is much smaller than the number of people who lose.
______15. World trade has been growing faster than world GDP.
______ 16. The law of comparative advantage states that countries specialize in producing and exporting those goods that they produce at a lower labor cost than other countries.
____ 17. At the equilibrium exchange rate, a country must have at least one good that it can export in order to pay for its imports.
_____ 18. According to the theory of comparative advantage, countries with a relatively high endowment of capital should tend to export capital-intensive goods.
_____ 19. Intra-industry trade occurs because of scale economies and consumer demand for diversity.
_____ 20. Trade protection is usually harmful to society.
PART II: FILL IN THE BLANKS
1. A country has a ___________________ advantage in producing a good if it can produce that good at a lower opportunity cost than any other country can.
2. ___________________ of scale are the tendency for the average costs of production to be lower, the larger the scale of production.
3. Selling a good in a foreign market for less than the price in the domestic market is called ____________________.
4. Production and trade patterns will depend on comparative advantage and relative costs because the ____________________ rate will take care of differences in absolute advantage.
5. _____________________ policy is government policy that influences international trade through tariffs or subsidies.