PEC2143 (JULY 2021) KPTM BANGI

6 International
Trade

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

MULTIPLE-CHOICE QUESTIONS

1. A nation’s comparative advantage in the production of an item is determined by ______________.

A. which country has already specialized in the production of the item?
B. the total and marginal cost of producing the item.
C. the lower opportunity cost of producing the item relative to a trading partner’s.
D. specialization in the production of all goods.

2. Which of the following benefit the most from protectionist policy?

A. Big firms.
B. Domestic industry.
C. Importers.
D. Unemployed.

3. Protectionism can best be described as ______________.

A. imposing tariff barrier only.
B. reducing export duties to raise the price of export.
C. increasing import duties to reduce imported goods.
D. the actions and policies are taken by the government to restrict imports.

4. The basic difference between the economic effects of tariff and quota is that ______________.
A. quota generates revenue for the government
B. tariff generates revenue for the government
C. quota raise product price, but a tariff does not raise product prices
D. the quota will increase the supply of such goods

5. Dumping is ______________.
A. a form of illegal price discrimination.
B. referred to a tariff imposed on imports.
C. defined as selling more goods than allowed by import quota.
D. the practice of selling goods at lower prices in foreign countries.

6. The difference between domestic trade and international trade are as follows except
______________.
A. there is greater specialization in international trade than in domestic trade.
B. trade documentation is much simpler in domestic trade than in international trade.
C. fewer trade barriers in international trade.
D. different currencies are used in international trade.

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

7. A country possess a comparative advantage in the production of a good if ______________.

A. the opportunity cost in terms of foregone output of alternative goods is lower for this country
than it is for its trading partner.
B. it posses an absolute advantage in the production of this good.
C. it can produce more of this good per hour than any other country.
D. all of the above.

8. The principle concept behind comparative advantage is that a nation should ______________.
A. compare its volume of trade with other nations.
B. concentrate on the production of those products for which it has the lowest opportunity cost.
C. be self-sufficient in the production of critical goods and services.
D. impose protectionist policies to protect its advantages against other nations.

9. Which of the following is not an argument used in favor of trade restriction?

A. Infant industry argument.
B. National security.
C. Increase efficiency argument.
D. Protection of workers from cheap labor.

10. The infant industry argument for protectionism is based on the concern that ______________.
A. firms in a newly developing domestic industry will have difficulty growing if they face strong
competition from established foreign firms.
B. foreign buyers will absorb all of the output of domestic producers in a growing industry unless
trade restrictions are imposed.
C. the growth of an industry that is new to a nation will be too rapid.
D. firms in an economy will not grow unless the economy is highly diversified.

11. Term of trade refers to the ______________.

A. balance from all international transactions.
B. rate of exchange between the domestic currency and foreign currencies.
C. the ratio of the export of goods to the import of goods.
D. difference between invisible exports and invisible imports.

12. International trade benefits trading countries because it leads to ______________.

A. greater efficiency.
B. greater self-sufficiency.
C. higher product prices.
D. lower standard of living

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

13. When a country produces a good at a lower opportunity cost than any other country, this country is
said to have ______________.
A. an absolute advantage
B. a free-trade advantage
C. a comparative advantage
D. a trading advantage

14. A quota affects trade by ______________.

A. limiting the number of goods that can be imported
B. imposing a tax on imported goods
C. offering a subsidy to producer who exports to foreign countries
D. the voluntary action of foreign manufacturers to limit their exports.

15. Based on the table below, which of the following statement is correct?

Country Rice Wheat

Malaysia 30 8
Indonesia 40 20

A. Malaysia should export wheat

B. Indonesia has the comparative advantage in rice
C. Malaysia has the comparative advantage in wheat
D. Indonesia has the comparative advantage in wheat

16. For international trade, specialization means ______________.

A. each country consumes what it produces
B. most goods and services that are traded internationally are produced in only one or two nations
C. each country consumes a small fraction of what it produces
D. labor and other resources in a nation are used to produce the products and services for which
they are best suited.

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

TRUE OR FALSE QUESTIONS

1. If Japan has an absolute advantage in the production of an item, it must also have a comparative
advantage in the production of that item. (T/F)

2. Comparative advantage, not an absolute advantage, determines the decision to specialize in

production. (T/F)

3. Absolute advantage is a comparison based on productivity. (T/F)

4. Comparative advantage is a comparison based on opportunity cost. (T/F)

5. Countries import goods for which they have a comparative advantage. (T/F)

6. Hard work can enhance comparative advantage. (T/F)

7. If a country's workers can produce 5 hamburgers per hour or 10 bags of French fries per hour, the
opportunity cost for, the price of 1 bag of fries is 2 hamburgers. (T/F)

8. Talented people that are the best at everything have a comparative advantage in the production
of everything. (T/F)

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

STRUCTURED QUESTIONS
QUESTION 1

Table 3 shows the production of rice and sugar in Thailand and Malaysia.

Table 3

Country Rice (tonnes) Sugar (tonnes)

Thailand 5,800 4,200
Malaysia 3,500 6,000

a. Which country has an absolute advantage in the production of rice? Give a

reason.
(2 points)

b. Calculate the opportunity cost of producing rice and sugar by each country.
(4 points)

c. According to the principle of comparative advantage, which country should

specialize in producing sugar? Give a reason.
(2 points)

d. Suggest a term of trade that will benefit both countries equally?

(2 points)

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 2
Table 3 shows the production of smartphones and notebooks in Korea and Japan.

Table 3

Country Smartphone (units) Notebook

(units)
Korea 45,000 8,000

Japan 20,500 12,000

a. Which country has an absolute advantage in the production of smartphones

and notebooks?
(2 points)

b. Calculate the opportunity cost of producing smartphones and notebooks by

each country.
(4 points)

c. According to the principle of comparative advantage, which country should

specialize in producing smartphones and Notebook.
(2 points)

d. Suggest a term of trade that will benefit both countries equally.

(2 points)

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 3
Table 3 shows the production of clothes and shoes in China and Bangladesh.

Table 3

Country Clothes (units) Shoes(units)

China 130,000 50,000

Bangladesh 75,000 98,000

a. Which country has an absolute advantage in the production of clothes and

shoes?
(2 points)

b. Calculate the opportunity cost of producing clothes and shoes in each

country.
(4 points)

c. According to the principle of comparative advantage, which country should

specialize in producing clothes and shoes.
(2 points)

d. Based on (b), which country should import clothes and which country should
import shoes.
(2 points)

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 4

Table 3 shows the production possibilities of two countries in 2015. Both countries divide their
resources equally to produce cement and machinery.

Table 3

Country Cement (kg) Machinery (units)

Belgium 650 1000
Cyprus 1100 850

a. Which country has an absolute advantage in the production of cement? Why? (2 points)

b. Calculate the opportunity cost of producing each product in each country. (4 points)

c. Which country has the comparative advantage of producing: (1 point)

i. Cement

ii. Machinery

d. Construct the output table after specialization. (2 points)

e. Suggest a term of trade that will equally benefit both countries. (1 point)

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 5

Table 3 shows the output that can be produced by Thailand and Indonesia. Assumed that the
resources are divided equally between these two products.

Table 3

Country Watermelon (kg) Papaya (kg)

Thailand 800 1400
Indonesia 600 700

a. Which country has an absolute advantage in the production of watermelon? (2 points)

Why?

b. Calculate the opportunity cost of producing each product in each country. (4 points)

c. Determine which country has a comparative advantage in producing papaya. (1 point)

d. Based on your answer in (b), construct a table to show the number of goods (2 points)
after specialization.

e. Suggest a term of trade that will equally benefit both countries. (1 point)

10

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 6

The table below shows the output produced by two countries in the year 2012 before international trade.

Million units
Country
Electronic goods Passenger cars
Japan 1400 1600
Germany 1200 1160

a) In the production of which good does Japan has an absolute advantage? (1 mark)

b) Calculate the opportunity cost of producing each product in each country. (2 marks)

c) Which country should specialize in the production of electronic goods? (1 mark)

d) Which country should import passenger cars? Why? (2 marks)

11

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 7

Brazil can produce 100 pounds of beef or 10 autos; in contrast, the United States can produce 40
pounds of beef or 30 autos. Which country has the absolute advantage in beef? Which country has the
absolute advantage in producing autos? What is the opportunity cost of producing one pound of beef
in Brazil? What is the opportunity cost of producing one pound of beef in the United States?

QUESTION 8

In France, it takes one worker to produce one sweater, and one worker to produce one bottle of wine.
In Tunisia, it takes two workers to produce one sweater, and three workers to produce one bottle of
wine. Who has the absolute advantage in the production of sweaters? Who has the absolute advantage
in the production of wine? How can you tell?

12

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 9

France and Tunisia both have Mediterranean climates that are excellent for producing/harvesting green
beans and tomatoes. In France, it takes two hours for each worker to harvest green beans and two
hours to harvest a tomato. Tunisian workers need only one hour to harvest the tomatoes but four hours
to harvest green beans. Assume there are only two workers, one in each country, and each works 40
hours a week.
a. Identify which country has the absolute advantage in green beans and which country has the
absolute advantage in tomatoes.
b. Identify which country has the comparative advantage.
c. How much would France have to give up in terms of tomatoes to gain from trade? How much
would it have to give up in terms of green beans?

13

Compiled by: haslin hs