INTERNATIONAL TRADE
EXAM 1 STUDY GUIDE
QUESTIONS WITH ALL
PASSED SOLUTIONS!!
Question 1
● Q: Country A can produce 10 units of wine or 5 units of cloth with one hour of labor,
while Country B can produce 6 units of wine or 6 units of cloth with one hour of labor.
Which country has a comparative advantage in wine production, and which has a
comparative advantage in cloth production?
● A:
○ Country A has a comparative advantage in wine production.
○ Country B has a comparative advantage in cloth production.
Question 2
● Q: If two countries engage in trade and one country is more efficient in producing all
goods, why would they still benefit from trading with each other?
● A: Even if one country is more efficient in producing all goods, both countries can still
benefit from trade due to comparative advantage. Each country should specialize in the
production of the good for which it has a lower opportunity cost, allowing both countries
to consume beyond their production possibilities.
Question 3
● Q: Suppose there is a tariff imposed on imported goods. How would this affect the
domestic market for those goods?
● A: A tariff on imported goods typically increases the price of those goods in the domestic
market. This leads to a decrease in imports, an increase in the price of domestic
EXAM 1 STUDY GUIDE
QUESTIONS WITH ALL
PASSED SOLUTIONS!!
Question 1
● Q: Country A can produce 10 units of wine or 5 units of cloth with one hour of labor,
while Country B can produce 6 units of wine or 6 units of cloth with one hour of labor.
Which country has a comparative advantage in wine production, and which has a
comparative advantage in cloth production?
● A:
○ Country A has a comparative advantage in wine production.
○ Country B has a comparative advantage in cloth production.
Question 2
● Q: If two countries engage in trade and one country is more efficient in producing all
goods, why would they still benefit from trading with each other?
● A: Even if one country is more efficient in producing all goods, both countries can still
benefit from trade due to comparative advantage. Each country should specialize in the
production of the good for which it has a lower opportunity cost, allowing both countries
to consume beyond their production possibilities.
Question 3
● Q: Suppose there is a tariff imposed on imported goods. How would this affect the
domestic market for those goods?
● A: A tariff on imported goods typically increases the price of those goods in the domestic
market. This leads to a decrease in imports, an increase in the price of domestic
