Question 1

If the world terms of trade for a country are somewhere between the domestic cost ratio of H and that of F, then

Accepted Answer

A)  country H but not country F will gain from trade. 
B)  country H and country F will both gain from trade. 
C)  neither country H nor F will gain from trade. 
D)  only the country whose government subsidizes its exports will gain. 
E)  country F but not country H will gain from trade. 
A)  country H but not country F will gain from trade. 
B)  country H and country F will both gain from trade. 
C)  neither country H nor F will gain from trade. 
D)  only the country whose government subsidizes its exports will gain. 
E)  country F but not country H will gain from trade.

Question 2

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 3

Let us define the real wage as the purchasing power of one hour of labor. In the Ricardian 2X2 model, if two countries under autarky engage in trade then

Accepted Answer

A)  the real wage will not be affected since this is a financial variable. 
B)  the real wage will increase only if a country attains full specialization. 
C)  the real wage will increase in one country only if it decreases in the other. 
D)  the real wage will rise in both countries. 
E)  the real wage will fall under pressure of international competition. 
A)  the real wage will not be affected since this is a financial variable. 
B)  the real wage will increase only if a country attains full specialization. 
C)  the real wage will increase in one country only if it decreases in the other. 
D)  the real wage will rise in both countries. 
E)  the real wage will fall under pressure of international competition.

Question 4

It is generally claimed that a movement from autarky to free trade consistent with Ricardian comparative advantage increases the economic welfare of each of the trade partners. However, it may be demonstrated that under certain circumstances, not everyone in each country is made better off. Illustrate such a case.

Accepted Answer

(a) If inter-generational, or economic g

Question 5

If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios), then if they both use the same currency

Accepted Answer

A)  neither country has a comparative advantage. 
B)  only the low wage country has a comparative advantage. 
C)  only the high wage country has a comparative advantage. 
D)  consumers will still find trade worth while from their perspective. 
E)  it is possible that both will enjoy the conventional gains from trade. 
A)  neither country has a comparative advantage. 
B)  only the low wage country has a comparative advantage. 
C)  only the high wage country has a comparative advantage. 
D)  consumers will still find trade worth while from their perspective. 
E)  it is possible that both will enjoy the conventional gains from trade.

Question 6

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 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 7

How does the two-good, two-country version of the Ricardian model differ from the two-country, many-good model in terms of the determination which goods are produced and exported by each country?

Accepted Answer

In the two-good-two-country version of t

Question 8

The evidence cited in the chapter using the examples of the East Asia New Industrializing Countries suggests that as international productivities converge, so do international wage levels. Why do you suppose this happened for the East Asian NICs? In light of your answer, what do you think is likely to happen to the relative wages (relative to those in the United States) of China in the coming decade? Explain your reasoning.

Accepted Answer

Following the logic of the Ricardian mod

Question 9

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 10

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 pos

Question 11

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 12

A nation engaging in trade according to the Ricardian model will find its consumption bundle

Accepted Answer

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. 
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.

Question 13

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 14

Trade in a One-Factor World  
-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 15

If the United States' production possibility frontier was flatter to the widget axis, whereas Germany's was flatter to the butter axis, we know that

Accepted Answer

A)  the United States has no comparative advantage 
B)  Germany has a comparative advantage in butter. 
C)  the U.S. has a comparative advantage in butter. 
D)  Germany has comparative advantages in both products. 
E)  the U.S. has a comparative disadvantage in widgets. 
A)  the United States has no comparative advantage 
B)  Germany has a comparative advantage in butter. 
C)  the U.S. has a comparative advantage in butter. 
D)  Germany has comparative advantages in both products. 
E)  the U.S. has a comparative disadvantage in widgets.

Question 16

It is generally claimed that state trading, or centrally controlled trading will tend to reach a lower economic welfare than would be reached by allowing market forces to determine trade flow directions and terms of trade. Illustrate a counter-example to this proposition.

Accepted Answer

In general, if we begin with any subopti

Question 17

In the Ricardian model, comparative advantage is likely to be due to

Accepted Answer

A)  scale economies. 
B)  home product taste bias. 
C)  greater capital availability per worker. 
D)  labor productivity differences. 
E)  political pressure. 
A)  scale economies. 
B)  home product taste bias. 
C)  greater capital availability per worker. 
D)  labor productivity differences. 
E)  political pressure.

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 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 economic welfare of all countries involved.

Question 19

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.

Question 20

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

If the world terms of trade for a country are somewhere between the domestic cost ratio of H and that of F, then

Let us define the real wage as the purchasing power of one hour of labor. In the Ricardian 2X2 model, if two countries under autarky engage in trade then

If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios), then if they both use the same currency

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

How does the two-good, two-country version of the Ricardian model differ from the two-country, many-good model in terms of the determination which goods are produced and exported by each country?

Trade between two countries can benefit both countries if

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

A nation engaging in trade according to the Ricardian model will find its consumption bundle

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

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

If the United States' production possibility frontier was flatter to the widget axis, whereas Germany's was flatter to the butter axis, we know that

It is generally claimed that state trading, or centrally controlled trading will tend to reach a lower economic welfare than would be reached by allowing market forces to determine trade flow directions and terms of trade. Illustrate a counter-example to this proposition.

In the Ricardian model, comparative advantage is likely to be due to

Which of the following statements is true?

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

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

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

Filters

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

If the world terms of trade for a country are somewhere between the domestic cost ratio of H and that of F, then

Let us define the real wage as the purchasing power of one hour of labor. In the Ricardian 2X2 model, if two countries under autarky engage in trade then

If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios), then if they both use the same currency

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

How does the two-good, two-country version of the Ricardian model differ from the two-country, many-good model in terms of the determination which goods are produced and exported by each country?

Trade between two countries can benefit both countries if

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

A nation engaging in trade according to the Ricardian model will find its consumption bundle

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

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

If the United States' production possibility frontier was flatter to the widget axis, whereas Germany's was flatter to the butter axis, we know that

It is generally claimed that state trading, or centrally controlled trading will tend to reach a lower economic welfare than would be reached by allowing market forces to determine trade flow directions and terms of trade. Illustrate a counter-example to this proposition.

In the Ricardian model, comparative advantage is likely to be due to

Which of the following statements is true?

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

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

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

Filters