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An important insight of international trade theory is that when two countries engage in voluntary trade A) one country always benefits at the expense of the other. B) it is almost always beneficial to both countries. C) it only benefits the low wage country. D) it only benefits the high wage country. E) it is almost never beneficial to both countries. - CORRECT ANSWERS โโB) it is almost always beneficial to both countries. Because the Constitution forbids restraints on interstate trade A) the U.S. may not impose tariffs on imports from NAFTA countries. B) the U.S. may not affect the international value of the $ U.S. C) the U.S. may not put restraints on foreign investments in California if it involves a financial intermediary in New York State. D) the U.S. may not impose export duties. E) the U.S. may not disrupt commerce between Florida and Hawaii. - CORRECT ANSWERS โโE) the U.S. may not disrupt commerce between Florida and Hawaii.
"Trade is generally harmful if there are large disparities between countries in wages." A) This is generally true. B) This is generally false. C) Trade theory has nothing to say about this issue. D) This is true if the trade partner ignores child labor laws. E) This is true if the trade partner uses prison labor - CORRECT ANSWERS โโB) This is generally false. International capital markets experience a kind of risk not faced in domestic capital markets, namely A) "economic meltdown" risk. B) Flood and hurricane crisis risk. C) the risk of unexpected downgrading of assets by Standard and Poor. D) the risk of exchange rate fluctuations. E) the risk of political upheaval - CORRECT ANSWERS โโD) the risk of exchange rate fluctuations The gravity model suggests that over time A) trade between neighboring countries will increase. B) trade between all countries will increase.
D) This fails to be consistent with the gravity model, since these are large countries. E) This is explained by the gravity model, since they do not share borders.
- CORRECT ANSWERS โโC) This fails to be consistent with the gravity model, since these are small countries. Which of the following does NOT explain the extent of trade between Ireland and the U.S.? A) historical ties B) cultural Linguistic ties C) Gravity Model D) multinational corporations E) large numbers of Irish-Americans - CORRECT ANSWERS โโC) Gravity Model In the present, most of the exports from China are A) manufactured goods. B) services. C) primary products including agricultural. D) technology intensive products. E) overpriced by world market standards. - CORRECT ANSWERS โโA) manufactured goods
The two neighbors of the United States do a lot more trade with the United States than European economies of equal size. A) This contradicts predictions from gravity models. B) This is consistent with predictions from gravity models. C) This is irrelevant to any inferences that may be drawn from gravity models. D) This is because these neighboring countries have exceptionally large GDPs. E) This relates to Belgium's trade record with the U.S. - CORRECT ANSWERS โโB) This is consistent with predictions from gravity models. Trade between two countries can benefit both countries if A) each country exports that good in which it has a comparative advantage. B) each country enjoys superior terms of trade. C) each country has a more elastic demand for the imported goods. D) each country has a more elastic supply for the exported goods. E) each country produces a wide range of goods for export. - CORRECT ANSWERS โโA) each country exports that good in which it has a comparative advantage In a two-country, two-product world, the statement "Germany enjoys a comparative advantage over France in autos relative to ships" is equivalent to
(a) Does either country have an absolute advantage in the production of wheat or beef? A) The U.S. has an absolute advantage in the production of both wheat and beef. B) Argentina has an absolute advantage in the production of wheat but not beef. C) The U.S does not have an absolute advantage in wheat nor beef. D) Argentina has an absolute advantage in the production of beef - CORRECT ANSWERS โโA) The U.S. has an absolute advantage in the production of both wheat and beef. B) In the U.S., the opportunity cost of wheat is 100/300 or 0.33 units of beef. In Argentina, the opportunity cost of wheat is 20/20 or 1.0 unit of beef. D) In the U.S., the opportunity cost of beef is 300/100 or 3.0 units of wheat. In Argentina, the opportunity cost of beef is 20/20 or 1.0 unit of wheat. cloth widgets Home 10 20 foreign 60 30
A) neither country has a comparative advantage in cloth. B) Home has a comparative advantage in cloth. C) Foreign has a comparative advantage in cloth. D) Home has a comparative advantage in both cloth and widgets. E) neither country has a comparative advantage in widgets. - CORRECT ANSWERS โโB) Home has a comparative advantage in cloth, opportunity cost is. A nation engaging in trade according to the Ricardian model will find its consumption bundle A) inside its production possibilities frontier. B) on its production possibilities frontier. C) outside its production possibilities frontier. D) inside its trade-partner's production possibilities frontier. E) on its trade-partner's production possibilities frontier. - CORRECT ANSWERS โโC) outside its production possibilities frontier. Which of the following statements is TRUE? A) Free trade is beneficial only if your country is strong enough to stand up to foreign competition. B) Free trade is beneficial only if your competitor does not pay unreasonably low wages.
E) the comparative and absolute advantage that Bangladesh has in the production of clothing for export. - CORRECT ANSWERS โโA) the comparative advantage that Bangladesh has in the production of clothing for export. When a country's labor market is in equilibrium in the specific factors model, the wage rate A) will be higher in the sector where product price is lower. B) will be the same in both sectors. C) will be higher in the sector where product price is higher. D) will be higher in the export-competing sector. E) will be higher in the import-competing sector. - CORRECT ANSWERS โโB) will be the same in both sectors In the specific factors model, a country's production possibility frontier is ________ because of ________. A) a straight line; diminishing marginal returns B) a curved line; diminishing marginal returns C) a straight line; constant marginal returns D) a curved line; constant marginal returns E) a curved line; a limited supply of labor - CORRECT ANSWERS โโB) a curved line; diminishing marginal returns In the specific factors model, which of the following will increase the quantity of labor used in cloth production?
A) a decrease in the price of labor B) an increase in the price of cloth relative to that of food C) an equal percentage decrease in the price of food and cloth D) an equal percentage increase in the price of food and cloth E) an increase in the price of food relative to that of cloth - CORRECT ANSWERS โโB) an increase in the price of cloth relative to that of food The slope of a country's production possibility frontier is equal to ________ and the optimal production point is located where the slope is equal to ________. Assume that output of good Y is measured on the vertical axis, output of good X is measured on the horizontal axis, MPL is the marginal product of labor with a subscript indicating which good, P is the price of a good, and w is the wage rate. A) -PX/PY; -MPLY/MPLX; B) -MPLY/MPLX; -PX/PY C) -MPLX/MPLY; -PX/PY D) -MPLY/w; -MPLF/w E) -PX/w; -PY/w - CORRECT ANSWERS โโB) -MPLY/MPLX; -PX/PY In the specific factors model, a 5% increase in the price of food accompanied by a 5% increase in the price of cloth will cause wages to ________, the production of cloth to ________, and the production of food to ________. A) increase by more than 5%; increase; remain unchanged B) increase by 5%; remain unchanged; remain unchanged
E) a country will engage in trade only if the value of exports exceeds the value of imports. - CORRECT ANSWERS โโB) the value of exports must be equal to the value of imports Economists consider the effects of free trade on income distribution to be ________ important than the effects on overall welfare because ________. A) more; the effects on income distribution are major and consequential B) less; the effects on income distribution are minor and inconsequential C) more; those who are harmed are not compensated by those who gain D) less; the wealthy benefit and only the poor lose E) less; those who are harmed can be compensated by those who gain - CORRECT ANSWERS โโE) less; those who are harmed can be compensated by those who gain In the 2-factor, 2-good Heckscher-Ohlin model, the two countries differ in A) tastes and preferences. B) military capabilities. C) the size of their economies. D) relative abundance of factors of production. E) labor productivities. - CORRECT ANSWERS โโD) relative abundance of factors of production In the 2-factor, 2-good Heckscher-Ohlin model, an influx of workers from across the border would A) move the point of production along the production possibility curve.
B) shift the production possibility curve outward, and increase the production of both goods. C) shift the production possibility curve outward and decrease the production of the labor-intensive product. D) shift the production possibility curve outward and decrease the production of the capital-intensive product. E) shift the possibility curve outward and displace preexisting labor. - CORRECT ANSWERS โโD) shift the production possibility curve outward and decrease the production of the capital-intensive product. The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former A) has only two countries. B) has only two products. C) has two factors of production. D) has two production possibility frontiers (one for each country). E) has varying wage rates. - CORRECT ANSWERS โโC) has two factors of production According to the Heckscher-Ohlin model, the source of comparative advantage is a country's A) factor endowments. B) technology. C) advertising. D) human capital. E) political system. - CORRECT ANSWERS โโA) factor endowments.
B) reducing the relative price of the exported good. C) increasing the wage rate. D) increasing the real income of all resource owners. E) reducing the need for specialization in production. - CORRECT ANSWERS โโA) increasing available consumption choices The Heckscher-Ohlin model predicts all of the following EXCEPT A) that relative wages will tend to become equal in both trading countries. B) which factor of production within each country will gain from trade. C) which country will export which product. D) that trade increases a country's overall welfare. E) the volume of trade. - CORRECT ANSWERS โโE) the volume of trade If the ratio of price of cloth (PC) divided by the price of food (PF) increases in the international marketplace, then A) the terms of trade of food exporters will improve. B) the terms of trade of all countries will improve. C) the terms of trade of cloth exporters will worsen. D) all countries would be better off. E) the terms of trade of cloth exporters will improve. - CORRECT ANSWERS โโE) the terms of trade of cloth exporters will improve
When the production possibility frontier shifts out relatively more in one direction, we have A) immiserizing growth. B) unbiased growth. C) imbalanced growth. D) biased growth. E) balanced growth - CORRECT ANSWERS โโD) biased growth Suppose that a country experiences growth strongly biased toward its export, cloth, A) this will tend to leave the country's terms of trade unchanged. B) this will tend to improve the country's terms of trade. C) this will increase the price of cloth relative to the imported good. D) this will tend to worsen the terms of trade for the country's trading partner. E) this will tend to worsen the country's terms of trade. - CORRECT ANSWERS โโE) this will tend to worsen the country's terms of trade. If Slovenia is a large country in world trade, then if it imposes a large set of tariffs on many of its imports, this would A) increase its exports.
) If one observes that Japan was traditionally a net foreign lender, one could conclude that relative to its international trade and financial partners A) Japan's intertemporal production possibilities are biased toward present consumption. B) Japan's intertemporal production possibilities are not biased. C) Japan preferred to consume beyond its production in the present. D) Japan's intertemporal production possibilities are larger than that of the other countries. E) Japan's intertemporal production possibilities are biased toward future consumption. - CORRECT ANSWERS โโA) Japan's intertemporal production possibilities are biased toward present consumption. The price of ________ consumption in terms of ________ consumption is ________. A) future; current; r B) present; future; r C) future; current; 1 + r D) future; current; 1/(1 + r) E) present; future; 1/(1 + r) - CORRECT ANSWERS โโD) future; current; 1/(1 + r) Terms of trade refers to A) what goods are exported. B) the volume of trade.
C) the relative price at which trade occurs. D) the tariffs applied to trade. E) what goods are imported. - CORRECT ANSWERS โโC) the relative price at which trade occurs. If a firm's output more than doubles when all inputs are doubled, production is said to occur under conditions of A) intra-industry equilibrium. B) decreasing returns to scale. C) imperfect competition. D) increasing returns to scale. E) constant returns to scale - CORRECT ANSWERS โโD) increasing returns to scale. When there are external economies of scale, an increase in the size of the market will A) not affect the number of firms, but will lower the price per unit. B) decrease the number of firms and lower the price per unit. C) decrease the number of firms and raise the price per unit. D) increase the number of firms and raise the price per unit. E) increase the number of firms and lower the price per unit. - CORRECT ANSWERS โโE) increase the number of firms and lower the price per unit.
