Question 1

Given the information in the table above. What is the opportunity cost of cloth in terms of Widgets in Foreign?

Accepted Answer

2 widgets.

Question 2

An examination of the Ricardian model of comparative advantage yields the clear result that trade is (potentially) beneficial for each of the two trading partners since it allows for an expanded consumption choice for each. However, for the world as a whole the expansion of production of one product must involve a decrease in the availability of the other, so that it is not clear that trade is better for the world as a whole as compared to an initial situation of non-trade (but efficient production in each country). Are there in fact gains from trade for the world as a whole?
 Explain.

Accepted Answer

If we were to combine the production possibility frontiers of the two countries to create a single world production possibility frontier, then it is true that any change in production points (from autarky to specialization with trade) would involve a tradeoff of one good for another from the world's perspective. In other words, the new solution cannot possibly involve the production of more of both goods. However, since we know that each country is better off at the new solution, it must be true that the original points were not on the trade contract curve between the two countries, and it was in fact possible to make some people better off without making others worse off, so that the new solution does indeed represent a welfare improvement from the world's perspective.

Question 3

A country engaging in trade according to the principles of comparative advantage gains from trade because it

Accepted Answer

A)  is producing exports indirectly more efficiently than it could alternatively. 
B)  is producing imports indirectly more efficiently than it could domestically. 
C)  is producing exports using fewer labor units. 
D)  is producing imports indirectly using fewer labor units. 
E)  is producing exports while outsourcing services. 
A)  is producing exports indirectly more efficiently than it could alternatively. 
B)  is producing imports indirectly more efficiently than it could domestically. 
C)  is producing exports using fewer labor units. 
D)  is producing imports indirectly using fewer labor units. 
E)  is producing exports while outsourcing services. B

Question 4

Given the information in the table above

Accepted Answer

A)  neither country has a comparative advantage in cloth. 
B)  Home has a comparative advantage in widgets. 
C)  Foreign has a comparative advantage in widgets. 
D)  Home has a comparative advantage in both cloth and widgets. 
E)  neither country has a comparative advantage in widgets. 
A)  neither country has a comparative advantage in cloth. 
B)  Home has a comparative advantage in widgets. 
C)  Foreign has a comparative advantage in widgets. 
D)  Home has a comparative advantage in both cloth and widgets. 
E)  neither country has a comparative advantage in widgets.

Question 5

Given the information in the table above, if the world equilibrium price of widgets were 4 cloth, then

Accepted Answer

A)  both countries could benefit from trade with each other. 
B)  neither country could benefit from trade with each other. 
C)  each country will want to export the good in which it enjoys comparative advantage. 
D)  neither country will want to export the good in which it enjoys comparative advantage. 
E)  both countries will want to specialize in cloth. 
A)  both countries could benefit from trade with each other. 
B)  neither country could benefit from trade with each other. 
C)  each country will want to export the good in which it enjoys comparative advantage. 
D)  neither country will want to export the good in which it enjoys comparative advantage. 
E)  both countries will want to specialize in cloth.

Question 6

We know that in antiquity, China exported silk because no one in any other country knew how to produce this product. From this information we know that

Accepted Answer

A)  China had a comparative advantage in silk. 
B)  China had an absolute advantage, but not a comparative advantage in silk. 
C)  no comparative advantage could exist because the technology was not diffused. 
D)  China exported silk for political reasons even though it had no comparative advantage. 
E)  China was unable to profit by exporting silk because it was unknown in the rest of the world. 
A)  China had a comparative advantage in silk. 
B)  China had an absolute advantage, but not a comparative advantage in silk. 
C)  no comparative advantage could exist because the technology was not diffused. 
D)  China exported silk for political reasons even though it had no comparative advantage. 
E)  China was unable to profit by exporting silk because it was unknown in the rest of the world.

Question 7

Given the information in the table above, if the Home economy suffered a meltdown, and the Unit Labor Requirements doubled to 20 for cloth and 40 for widgets then home should

Accepted Answer

A)  export cloth. 
B)  export widgets. 
C)  export both and import nothing. 
D)  export and import nothing. 
E)  export widgets and import cloth. 
A)  export cloth. 
B)  export widgets. 
C)  export both and import nothing. 
D)  export and import nothing. 
E)  export widgets and import cloth.

Question 8

In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ________ unit labor requirements.

Accepted Answer

A)  one 
B)  two 
C)  three 
D)  four 
E)  five 
A)  one 
B)  two 
C)  three 
D)  four 
E)  five

Question 9

Use the information in the table below to answer the following questions.
   
(a) Does either country have an absolute advantage in the production of wheat or beef?
 Explain.
(b) What is the opportunity cost of wheat in each country?
(c) What is the opportunity cost of beef in each country?
(d) Analyze comparative advantage and opportunities for trade between the U.S. and Argentina.

Accepted Answer

(a) The U.S. has an absolute advantage i

Question 10

The Country of Rhozundia is blessed with rich copper deposits. The cost of copper produced (relative to the cost of widgets produced) is therefore very low. From this information we know that

Accepted Answer

A)  Rhozundia has a comparative advantage in copper. 
B)  Rhozundia should import copper and export widgets. 
C)  Rhozundia should export both widgets and copper. 
D)  Rhozundia should invest in more widget production. 
E)  Rhozundia may or may not have a comparative advantage in copper. 
A)  Rhozundia has a comparative advantage in copper. 
B)  Rhozundia should import copper and export widgets. 
C)  Rhozundia should export both widgets and copper. 
D)  Rhozundia should invest in more widget production. 
E)  Rhozundia may or may not have a comparative advantage in copper.

Question 11

Assume that labor is the only factor of production and that wages in the United States equal $20 per hour while wages in Japan are $10 per hour. Production costs would be lower in the United States as compared to Japan if

Accepted Answer

A)  U.S. labor productivity equaled 40 units per hour and Japan's 15 units per hour. 
B)  U.S. labor productivity equaled 30 units per hour and Japan's 20 units per hour. 
C)  U.S. labor productivity equaled 20 units per hour and Japan's 30 units per hour. 
D)  U.S. labor productivity equaled 15 units per hour and Japan's 25 units per hour. 
E)  U.S. labor productivity equaled 15 units per hour and Japan's 40 units per hour. 
A)  U.S. labor productivity equaled 40 units per hour and Japan's 15 units per hour. 
B)  U.S. labor productivity equaled 30 units per hour and Japan's 20 units per hour. 
C)  U.S. labor productivity equaled 20 units per hour and Japan's 30 units per hour. 
D)  U.S. labor productivity equaled 15 units per hour and Japan's 25 units per hour. 
E)  U.S. labor productivity equaled 15 units per hour and Japan's 40 units per hour.

Question 12

Given the information in the table above, if the world equilibrium price of widgets were 40 cloths, then

Accepted Answer

A)  both countries could benefit from trade with each other. 
B)  neither country could benefit from trade with each other. 
C)  each country will want to export the good in which it enjoys comparative advantage. 
D)  neither country will want to export the good in which it enjoys comparative advantage. 
E)  both countries will want to specialize in cloth. 
A)  both countries could benefit from trade with each other. 
B)  neither country could benefit from trade with each other. 
C)  each country will want to export the good in which it enjoys comparative advantage. 
D)  neither country will want to export the good in which it enjoys comparative advantage. 
E)  both countries will want to specialize in cloth.

Question 13

Which of the following has been confirmed by empirical tests of the Ricardian model?

Accepted Answer

A)  All predictions of the model for a multi-product, multi-country world are highly unrealistic. 
B)  The existence of nontraded goods results in a high degree of specialization among countries. 
C)  International trade has no impact on income distribution. 
D)  The unimportance of economies of scale as a cause of trade. 
E)  Companies tend to export goods in which they have a relatively high level of productivity. 
A)  All predictions of the model for a multi-product, multi-country world are highly unrealistic. 
B)  The existence of nontraded goods results in a high degree of specialization among countries. 
C)  International trade has no impact on income distribution. 
D)  The unimportance of economies of scale as a cause of trade. 
E)  Companies tend to export goods in which they have a relatively high level of productivity.

Question 14

The growth of clothing exports originating in Bangladesh is the result of the

Accepted Answer

A)  high productivity of workers in Bangladesh. 
B)  low wages in Bangladesh. 
C)  low productivity of workers in other countries. 
D)  low productivity of workers in Bangladesh in industries other than those that produce clothing for export. 
E)  high wages in other countries. 
A)  high productivity of workers in Bangladesh. 
B)  low wages in Bangladesh. 
C)  low productivity of workers in other countries. 
D)  low productivity of workers in Bangladesh in industries other than those that produce clothing for export. 
E)  high wages in other countries.

Question 15

Trade between two countries can benefit both countries if

Accepted Answer

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. 
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.

Question 16

Given the information in the table above. What is the opportunity cost of Cloth in terms of Widgets in Foreign?

Accepted Answer

The answer of Given the information in the table above....

Question 17

When compared with China, the growth of clothing exports originating in Bangladesh clearly illustrates the Ricardian model of comparative advantage. Discuss and explain.

Accepted Answer

While Bangladesh has an absolute disadva

Question 18

Which of the following statements is TRUE?

Accepted Answer

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. 
C)  Free trade is beneficial only if both countries have access to the same technology. 
D)  Free trade is never beneficial for developing countries. 
E)  Free trade can be beneficial to the economic welfare of all countries involved. 
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. 
C)  Free trade is beneficial only if both countries have access to the same technology. 
D)  Free trade is never beneficial for developing countries. 
E)  Free trade can be beneficial to the economic welfare of all countries involved.

Question 19

Given the information in the table above, Home's opportunity cost of cloth is

Accepted Answer

A)  0.5. 
B)  2.0. 
C)  6.0. 
D)  1.5. 
E)  3.0. 
A)  0.5. 
B)  2.0. 
C)  6.0. 
D)  1.5. 
E)  3.0.

Question 20

Assume that transportation costs are especially high for Widgets in the two-country, two-product Ricardian model, and Country A enjoys a comparative advantage in Widgets, then

Accepted Answer

A)  country B must also enjoy a comparative advantage in Widgets. 
B)  country B may end up exporting Widgets. 
C)  country A may switch to having a comparative advantage in the other good. 
D)  country A will still export Widgets. 
E)  trade may be impossible between the two countries. 
A)  country B must also enjoy a comparative advantage in Widgets. 
B)  country B may end up exporting Widgets. 
C)  country A may switch to having a comparative advantage in the other good. 
D)  country A will still export Widgets. 
E)  trade may be impossible between the two countries.

Given the information in the table above. What is the opportunity cost of cloth in terms of Widgets in Foreign?

A country engaging in trade according to the principles of comparative advantage gains from trade because it

Given the information in the table above

Given the information in the table above, if the world equilibrium price of widgets were 4 cloth, then

We know that in antiquity, China exported silk because no one in any other country knew how to produce this product. From this information we know that

Given the information in the table above, if the Home economy suffered a meltdown, and the Unit Labor Requirements doubled to 20 for cloth and 40 for widgets then home should

In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ________ unit labor requirements.

The Country of Rhozundia is blessed with rich copper deposits. The cost of copper produced (relative to the cost of widgets produced) is therefore very low. From this information we know that

Assume that labor is the only factor of production and that wages in the United States equal $20 per hour while wages in Japan are $10 per hour. Production costs would be lower in the United States as compared to Japan if

Given the information in the table above, if the world equilibrium price of widgets were 40 cloths, then

Which of the following has been confirmed by empirical tests of the Ricardian model?

The growth of clothing exports originating in Bangladesh is the result of the

Trade between two countries can benefit both countries if

Given the information in the table above. What is the opportunity cost of Cloth in terms of Widgets in Foreign?

When compared with China, the growth of clothing exports originating in Bangladesh clearly illustrates the Ricardian model of comparative advantage. Discuss and explain.

Which of the following statements is TRUE?

Given the information in the table above, Home's opportunity cost of cloth is

Assume that transportation costs are especially high for Widgets in the two-country, two-product Ricardian model, and Country A enjoys a comparative advantage in Widgets, then

Introduction

World Trade: an Overview

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

Exam 3: Labor Productivity and Comparative Advantage: the Ricardian Model

Given the information in the table above. What is the opportunity cost of cloth in terms of Widgets in Foreign?

A country engaging in trade according to the principles of comparative advantage gains from trade because it

Given the information in the table above

Given the information in the table above, if the world equilibrium price of widgets were 4 cloth, then

We know that in antiquity, China exported silk because no one in any other country knew how to produce this product. From this information we know that

Given the information in the table above, if the Home economy suffered a meltdown, and the Unit Labor Requirements doubled to 20 for cloth and 40 for widgets then home should

In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ________ unit labor requirements.

The Country of Rhozundia is blessed with rich copper deposits. The cost of copper produced (relative to the cost of widgets produced) is therefore very low. From this information we know that

Assume that labor is the only factor of production and that wages in the United States equal $20 per hour while wages in Japan are $10 per hour. Production costs would be lower in the United States as compared to Japan if

Given the information in the table above, if the world equilibrium price of widgets were 40 cloths, then

Which of the following has been confirmed by empirical tests of the Ricardian model?

The growth of clothing exports originating in Bangladesh is the result of the

Trade between two countries can benefit both countries if

Given the information in the table above. What is the opportunity cost of Cloth in terms of Widgets in Foreign?

When compared with China, the growth of clothing exports originating in Bangladesh clearly illustrates the Ricardian model of comparative advantage. Discuss and explain.

Which of the following statements is TRUE?

Given the information in the table above, Home's opportunity cost of cloth is

Assume that transportation costs are especially high for Widgets in the two-country, two-product Ricardian model, and Country A enjoys a comparative advantage in Widgets, then

Introduction

World Trade: an Overview

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters