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Which of the following are benefits of international trade?

Choose one or more answers from the choices shown.

  1. A more efficient allocation of resources.

  2. A higher level of material well-being.

  3. Gains from specialization.

  4. Promoting competition.

  5. Deterring monopoly.

  6. Reducing the threat of war.

Short Answer

Expert verified

The correct options are:

  1. A more efficient allocation of resources.

  2. A higher level of material well-being.

  3. Gains from specialization.

  4. Promoting competition.

Step by step solution

01

Step 1. Explanation for correct options

Option a is correct as international trade requires efficient allocation of resources, by avoiding wastages and unnecessary costs, which increases profits.

Option b is correct as international trade increases the income of the people engaged in trade and the economy. Thus, it leads to a higher standard of living.

Option c iscorrect as international trade helps countries gain greater consumer and producer surplus by engaging in specialization. There isno wastage of resources;an efficient outcome is obtained.

Option d is correct as it promotes competition. The producer has to stay in the market with rising players. They must develop new technology or differentiated products so that their products are used extensively.

02

Step 2. Explanation for incorrect options

Option e is incorrect as import and export have some restrictions; it is not possible that trade will remove monopoly. Every country has its trade policy, and if a monopoly market gives a good revenue to the country, then the government would not want it to be dissolved by letting the foreign players take up the market.

Option f is incorrect as war between countries has different political implications.

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Most popular questions from this chapter

Suppose that the opportunity-cost ratio for sugar and almonds is 4S ≡ 1A in Hawaii but 1S ≡ 2A in California. Which state has the comparative advantage in producing almonds?

  1. Hawaii

  2. California

  3. Neither

Draw a domestic supply-and-demand diagram for a product in which the United States does not have a comparative advantage. What impact do foreign imports have on domestic price and quantity? On your diagram show a protective tariff that eliminates approximately one-half of the assumed imports. What are the price-quantity effects of this tariff on (a) domestic consumers, (b) domestic producers, and (c) foreign exporters? How would the effects of a quota that creates the same amount of imports differ?

Suppose that the opportunity-cost ratio for watches and cheese is 1C ≡ 1W in Switzerland but 1C ≡ 4W in Japan. At which of the following international exchange ratios (terms of trade) will Switzerland and Japan be willing to specialize and engage in trade with each other? Select one or more answers from the choices shown.

  1. 1C ≡ 3W

  2. 1°ä≡1/2°Â

  3. 1C ≡ 5W

  4. 1/2°ä≡1°Â

  5. 2C ≡ 1W

The following hypothetical production possibilities tables are for China and the United States. Assume that before specialization and trade the optimal product mix for China is alternative B and for the United States is alternative U.


China Production Alternatives

Product

A

B

C

D

E

F

Apparel (in thousands)

30

24

18

12

6

0

Chemicals (in tons)

0

6

12

18

24

30


U.S. Production Alternatives

Product

R

S

T

U

V

W

Apparel (in thousands)

10

8

6

4

2

0

Chemicals (in tons)

0

4

8

12

16

20

  1. Are comparative-cost conditions such that the two areas should specialize? If so, what product should each produce?

  2. What is the total gain in apparel and chemical output that would result from such specialization?

  3. What are the limits of the terms of trade? Suppose that the actual terms of trade are 1 unit of apparel for 1½ units of chemicals and that 4 units of apparel are exchanged for 6 units of chemicals. What are the gains from specialization and trade for each nation?

American apparel makers complain to Congress about competition from China. Congress decides to impose either a tariff or a quota on apparel imports from China. Which policy would Chinese apparel manufacturers prefer?

  1. Tariff

  2. Quota

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