Topic Questions (EASY): Free Trade, Absolute Advantage, Comparative Advantage

What could lead to a country losing its comparative advantage in corn production?

Another country can produce corn at a lower opportunity cost than the country in question.

There is a global decline in demand for corn.

There is a drop in subsidies given to other corn exporters.

Transport costs of international trade for corn decrease.

Based on the production possibility curves for countries X and Y shown in the diagram, what can be inferred?

Both countries could gain from specialization in producing different goods.

Producing rice costs Country X more than it does Country Y.

Country Y has a comparative advantage in both goods.

Trade between the two countries would not take place.

In each country, P and Q, one person can either produce the quantity of X or the quantity of Y shown.

In which scenario does country P have an absolute advantage in producing Y and country Q has a comparative advantage in producing X?

A

B

C

D

What is the formula used to calculate the terms of trade index?

A

B

C

D

If a country's terms of trade increase from a base year value of 100 to 120 in the following year due to a 50% increase in export prices, what was the percentage change in the price of the country's imports?

-30%

-25%

+25%

+30%

Which scenario will definitely improve the terms of trade?

Import prices rise whilst export prices fall.

Import prices rise by the same amount as export prices.

Import prices rise faster than export prices.

Export prices rise whilst import prices remain constant.