Question 1

If a very small country trades with a very large country according to the Ricardian model, then

Accepted Answer

A)  the small country will suffer a decrease in economic welfare. 
B)  the large country will suffer a decrease in economic welfare. 
C)  the small country only will enjoy gains from trade. 
D)  the large country will enjoy gains from trade. 
E)  both countries will enjoy equal gains from trade. 
A)  the small country will suffer a decrease in economic welfare. 
B)  the large country will suffer a decrease in economic welfare. 
C)  the small country only will enjoy gains from trade. 
D)  the large country will enjoy gains from trade. 
E)  both countries will enjoy equal gains from trade. C

Question 2

Trade in a One-Factor World  
-Given the information in the table above, Foreign'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 B

Question 3

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) Argentina has an absolute advantage in the production of both wheat and beef because labor productivity in Argentina exceeds labor productivity in the U.S. for both products.
(b) In the U.S., the opportunity cost of wheat is 200/100 or 2.0 units of beef. In Argentina, the opportunity cost of wheat is 400/200 or 2.0 units of beef.
(c) In the U.S., the opportunity cost of beef is 100/200 or 0.5 units of wheat. In Argentina, the opportunity cost of beef is 400/200 or 0.5 units of wheat.
(d) Neither country has a comparative advantage and there is, therefore, no opportunity for beneficial trade.

Question 4

Trade in a One-Factor World  
-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 5

Dynamics of the Global Economy  
-Given the information in the table above. If these two countries trade these two goods in the context of the Ricardian model of comparative advantage, then what is the lower limit of the world equilibrium price of widgets?

Accepted Answer

The answer of Dynamics of the Global Economy  
-Given...

Question 6

If the production possibilities frontier of one trade partner ("Country A") is bowed out (concave to the origin), then increased specialization in production by that country will

Accepted Answer

A)  increase the economic welfare of both countries. 
B)  increase the economic welfare of only Country A. 
C)  decrease the economic welfare of Country A. 
D)  decrease the economic welfare of Country B. 
E)  not affect the economic welfare of either country. 
A)  increase the economic welfare of both countries. 
B)  increase the economic welfare of only Country A. 
C)  decrease the economic welfare of Country A. 
D)  decrease the economic welfare of Country B. 
E)  not affect the economic welfare of either country.

Question 7

Dynamics of the Global Economy  
-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

Trade in a One-Factor World  
-Given the information in the table above, if wages were to double in Home, 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 9

If two countries engage in Free Trade following the principles of comparative advantage, then

Accepted Answer

A)  neither relative prices nor relative marginal costs (marginal rates of transformation-MRTs) in one country will equal those in the other country. 
B)  both relative prices and MRTs will become equal in both countries. 
C)  relative prices but not MRTs will become equal in both countries. 
D)  MRTs but not relative prices will become equal in both countries. 
E)  trade will be unrestricted, regardless of relative costs and MRTs. 
A)  neither relative prices nor relative marginal costs (marginal rates of transformation-MRTs) in one country will equal those in the other country. 
B)  both relative prices and MRTs will become equal in both countries. 
C)  relative prices but not MRTs will become equal in both countries. 
D)  MRTs but not relative prices will become equal in both countries. 
E)  trade will be unrestricted, regardless of relative costs and MRTs.

Question 10

As a result of trade between two countries which are of completely different economic sizes, specialization in the Ricardian 2X2 model tends to

Accepted Answer

A)  be incomplete in both countries 
B)  be complete in both countries 
C)  be complete in the small country but incomplete in the large country 
D)  be complete in the large country but incomplete in the small country 
E)  sustain one countries economy in in direct proportion to the other. 
A)  be incomplete in both countries 
B)  be complete in both countries 
C)  be complete in the small country but incomplete in the large country 
D)  be complete in the large country but incomplete in the small country 
E)  sustain one countries economy in in direct proportion to the other.

Question 11

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.

Question 12

Suppose the United States' production possibility frontier was flatter to the widget axis, whereas Germany's was flatter to the butter axis. We now learn that the German mark sharply depreciates against the U.S. dollar. We now know that

Accepted Answer

A)  the United States has no comparative advantage 
B)  Germany has a comparative advantage in butter. 
C)  the United States has a comparative advantage in butter. 
D)  Germany has a comparative advantage in widgets. 
E)  Germany has lost its comparative advantage. 
A)  the United States has no comparative advantage 
B)  Germany has a comparative advantage in butter. 
C)  the United States has a comparative advantage in butter. 
D)  Germany has a comparative advantage in widgets. 
E)  Germany has lost its comparative advantage.

Question 13

The Ricardian proposition that international trade will benefit any country ("gains from trade") as long as the world terms of trade do not equal its autarkic relative prices is a straightforward and powerful concept. Nevertheless, it is impossible to demonstrate empirically. Why?

Accepted Answer

This is because there is no way of knowi

Question 14

If labor productivities were exactly proportional to wage levels internationally, this would

Accepted Answer

A)  not negate the logical basis for trade in the Ricardian model. 
B)  render the Ricardian model theoretically correct but practically useless. 
C)  negate the logical basis for trade in the Ricardian model. 
D)  negate the applicability of the Ricardian model if the number of products were greater than the number of trading partners. 
E)  demonstrate the validity of the Ricardian model. 
A)  not negate the logical basis for trade in the Ricardian model. 
B)  render the Ricardian model theoretically correct but practically useless. 
C)  negate the logical basis for trade in the Ricardian model. 
D)  negate the applicability of the Ricardian model if the number of products were greater than the number of trading partners. 
E)  demonstrate the validity of the Ricardian model.

Question 15

As a result of trade, specialization in the Ricardian model tends to be

Accepted Answer

A)  complete with constant costs and with increasing costs. 
B)  complete with constant costs and incomplete with increasing costs. 
C)  incomplete with constant costs and complete with increasing costs. 
D)  incomplete with constant costs and incomplete with increasing costs. 
E)  dependent on the specific opportunity costs involved in production. 
A)  complete with constant costs and with increasing costs. 
B)  complete with constant costs and incomplete with increasing costs. 
C)  incomplete with constant costs and complete with increasing costs. 
D)  incomplete with constant costs and incomplete with increasing costs. 
E)  dependent on the specific opportunity costs involved in production.

Question 16

Dynamics of the Global Economy  
-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 Dynamics of the Global Economy  
-Given...

Question 17

Trade in a One-Factor World  
-Given the information in the table above, Home's opportunity cost of widgets 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 18

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 19

Trade in a One-Factor World  
-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 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. 
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.

Question 20

If a production possibilities frontier is bowed out (concave to the origin), then production occurs under conditions of

Accepted Answer

A)  constant opportunity costs. 
B)  increasing opportunity costs. 
C)  decreasing opportunity costs. 
D)  infinite opportunity costs. 
E)  uncertain opportunity costs. 
A)  constant opportunity costs. 
B)  increasing opportunity costs. 
C)  decreasing opportunity costs. 
D)  infinite opportunity costs. 
E)  uncertain opportunity costs.

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

If a very small country trades with a very large country according to the Ricardian model, then

Trade in a One-Factor World -Given the information in the table above, Foreign's opportunity cost of cloth is:

Trade in a One-Factor World -Given the information in the table above, if the world equilibrium price of widgets were 4 cloth, then

Dynamics of the Global Economy -Given the information in the table above. If these two countries trade these two goods in the context of the Ricardian model of comparative advantage, then what is the lower limit of the world equilibrium price of widgets?

If the production possibilities frontier of one trade partner ("Country A") is bowed out (concave to the origin), then increased specialization in production by that country will

Dynamics of the Global Economy -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

Trade in a One-Factor World -Given the information in the table above, if wages were to double in Home, then Home should

If two countries engage in Free Trade following the principles of comparative advantage, then

As a result of trade between two countries which are of completely different economic sizes, specialization in the Ricardian 2X2 model tends to

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

Suppose the United States' production possibility frontier was flatter to the widget axis, whereas Germany's was flatter to the butter axis. We now learn that the German mark sharply depreciates against the U.S. dollar. We now know that

The Ricardian proposition that international trade will benefit any country ("gains from trade") as long as the world terms of trade do not equal its autarkic relative prices is a straightforward and powerful concept. Nevertheless, it is impossible to demonstrate empirically. Why?

If labor productivities were exactly proportional to wage levels internationally, this would

As a result of trade, specialization in the Ricardian model tends to be

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

Trade in a One-Factor World -Given the information in the table above, Home's opportunity cost of widgets is:

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

Trade in a One-Factor World -Given the information in the table above

If a production possibilities frontier is bowed out (concave to the origin), then production occurs under conditions of

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

Optimum Currency Areas and the European Experience

Financial Globalization: Opportunity and Crisis

Developing Countries: Growth, Crisis, and Reform

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