ECON 340 EXAM I QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
What are some major arguments for and against an open trading system? - Answers Proponents of
an open trading system maintain that free trade leads to lower prices, the development of more
efficient production methods, and a greater range of consumption choices. Free trade permits
resources to move from their lowest productivity to their highest productivity. Critics of an open
trading system maintain that import competition may displace domestic firms and workers. It is also
argued that during periods of national emergency, it is in the best interests of a nation to protect
strategic industries.
Identify the major fallacies of international trade - Answers The chapter describes three fallacies of
international trade:
a.Trade is a zero sum activity
b.Imports reduce employment and burden the economy
c.Tariffs and quotas will save jobs and promote a higher level of employment
What do researchers have to say about the relation between a firms productivity and exposure to
global competition? - Answers Researchers have found that global competitiveness is a bit like sports.
You get better by playing against folks who are better than you. This means companies are exposed to
intense global competition tend to be more productive than those who aren't.
When is international trade an opportunity for workers? When is it a threat to workers? - Answers
International trade benefits most workers, especially those in exporting industries. In addition to
providing them jobs and income, it allows them to shop for consumption goods that are cheapest and
of the highest quality. However, workers in import-competing industries often feel threatened from
competition of cheap foreign labor.
Identify some of the major challenges confronting the international trading system. - Answers Among
the challenges confronting the international trading system are maintaining fair standards for labor
and promoting environmental quality.
How did Smiths views on international trade differ from those of the mercantilists? - Answers The
mercantilists maintained that government should stimulate exports and restrict imports so as to
increase a nation's holdings of gold. A nation could only gain at the expense of other nations because
not all nations could simultaneously have a trade surplus. Smith maintained that with free trade,
international specialization of resources in production leads to an increase in world output which can
be shared by both trading partners. All nations simultaneously can enjoy gains from trade in terms of
production and consumption.
What is meant by constant opportunity costs and increasing opportunity costs? Under what
conditions will a country experience constant or increasing costs? - Answers Constant opportunity
costs refer to a situation where the cost of each additional unit of one product in terms of another
product remains the same. Constant costs occur when resources are completely adaptable to
alternative uses. Under increasing cost conditions, a nation must sacrifice more and more of one
product to produce each additional unit of another product. Increasing costs occur when resources
are not completely adaptable to alternative uses.
What factors underlie whether specialization in production will be partial or complete on an
international basis? - Answers Under constant opportunity cost conditions, specialization is complete.
A country can devote all of its resources to the production of a good without losing its comparative
advantage. Under increasing cost conditions, specialization tends to be partial. As production costs
rise with expanded production, the home country eventually loses its comparative advantage.
What is it meant by the term Trade Triangle? - Answers The trade triangle includes a nation's exports,
its imports, and international terms of trade.
Table 2.9 gives hypothetical export price indexes and import price indexes (2000 = 100) for Japan,
Canada, and Ireland. Compute the commodity terms of trade for each country for the period 2000-
2016. Which country's terms of trade improved, worsened, or showed no change? - Answers
FORMULA: Terms of Trade=EXPORT/IMPORTS*100
What are some major arguments for and against an open trading system? - Answers Proponents of
an open trading system maintain that free trade leads to lower prices, the development of more
efficient production methods, and a greater range of consumption choices. Free trade permits
resources to move from their lowest productivity to their highest productivity. Critics of an open
trading system maintain that import competition may displace domestic firms and workers. It is also
argued that during periods of national emergency, it is in the best interests of a nation to protect
strategic industries.
Identify the major fallacies of international trade - Answers The chapter describes three fallacies of
international trade:
a.Trade is a zero sum activity
b.Imports reduce employment and burden the economy
c.Tariffs and quotas will save jobs and promote a higher level of employment
What do researchers have to say about the relation between a firms productivity and exposure to
global competition? - Answers Researchers have found that global competitiveness is a bit like sports.
You get better by playing against folks who are better than you. This means companies are exposed to
intense global competition tend to be more productive than those who aren't.
When is international trade an opportunity for workers? When is it a threat to workers? - Answers
International trade benefits most workers, especially those in exporting industries. In addition to
providing them jobs and income, it allows them to shop for consumption goods that are cheapest and
of the highest quality. However, workers in import-competing industries often feel threatened from
competition of cheap foreign labor.
Identify some of the major challenges confronting the international trading system. - Answers Among
the challenges confronting the international trading system are maintaining fair standards for labor
and promoting environmental quality.
How did Smiths views on international trade differ from those of the mercantilists? - Answers The
mercantilists maintained that government should stimulate exports and restrict imports so as to
increase a nation's holdings of gold. A nation could only gain at the expense of other nations because
not all nations could simultaneously have a trade surplus. Smith maintained that with free trade,
international specialization of resources in production leads to an increase in world output which can
be shared by both trading partners. All nations simultaneously can enjoy gains from trade in terms of
production and consumption.
What is meant by constant opportunity costs and increasing opportunity costs? Under what
conditions will a country experience constant or increasing costs? - Answers Constant opportunity
costs refer to a situation where the cost of each additional unit of one product in terms of another
product remains the same. Constant costs occur when resources are completely adaptable to
alternative uses. Under increasing cost conditions, a nation must sacrifice more and more of one
product to produce each additional unit of another product. Increasing costs occur when resources
are not completely adaptable to alternative uses.
What factors underlie whether specialization in production will be partial or complete on an
international basis? - Answers Under constant opportunity cost conditions, specialization is complete.
A country can devote all of its resources to the production of a good without losing its comparative
advantage. Under increasing cost conditions, specialization tends to be partial. As production costs
rise with expanded production, the home country eventually loses its comparative advantage.
What is it meant by the term Trade Triangle? - Answers The trade triangle includes a nation's exports,
its imports, and international terms of trade.
Table 2.9 gives hypothetical export price indexes and import price indexes (2000 = 100) for Japan,
Canada, and Ireland. Compute the commodity terms of trade for each country for the period 2000-
2016. Which country's terms of trade improved, worsened, or showed no change? - Answers
FORMULA: Terms of Trade=EXPORT/IMPORTS*100
