Question 1

According to Adam Smith,international trade was a "win-win" situation since all nations could enjoy gains from trade.

Accepted Answer

A) True 
 B)False

Question 2

The earliest statement of the principle of comparative advantage is associated with:

Accepted Answer

A)  Adam Smith 
B)  David Ricardo 
C)  Eli Heckscher 
D)  Bertil Ohlin 
A)  Adam Smith 
B)  David Ricardo 
C)  Eli Heckscher 
D)  Bertil Ohlin

Question 3

According to the principle of comparative advantage,an open trading system results in resources being channeled from uses of low productivity to those of high productivity.

Accepted Answer

A) True 
 B)False

Question 4

The theory of reciprocal demand asserts that as the U.S.demand for Canadian wheat rises,the equilibrium terms of trade improve for the United States.

Accepted Answer

A) True 
 B)False

Question 5

As a result of international trade,specialization in production tends to be:

Accepted Answer

A)  Complete with constant costs--complete with increasing costs 
B)  Complete with constant costs--incomplete with increasing costs 
C)  Incomplete with constant costs--complete with increasing costs 
D)  Incomplete with constant costs--incomplete with increasing costs 
A)  Complete with constant costs--complete with increasing costs 
B)  Complete with constant costs--incomplete with increasing costs 
C)  Incomplete with constant costs--complete with increasing costs 
D)  Incomplete with constant costs--incomplete with increasing costs

Question 6

Incomplete specialization may be caused by

Accepted Answer

A)  Increasing opportunity cost 
B)  Unrestricted trade 
C)  Constant opportunity cost 
D)  Decreasing opportunity cost 
A)  Increasing opportunity cost 
B)  Unrestricted trade 
C)  Constant opportunity cost 
D)  Decreasing opportunity cost

Question 7

Figure 2.2.Canadian Trade Possibilities  
-Consider Figure 2.2.In the absence of trade,Canada would produce and consume:

Accepted Answer

A)  8 televisions and 16 refrigerators 
B)  12 televisions and 16 refrigerators 
C)  8 televisions and 12 refrigerators 
D)  12 televisions and 8 refrigerators 
A)  8 televisions and 16 refrigerators 
B)  12 televisions and 16 refrigerators 
C)  8 televisions and 12 refrigerators 
D)  12 televisions and 8 refrigerators

Question 8

Because the Ricardian theory of comparative advantage was based only on a nation's supply conditions,it could only determine the outer limits within which the equilibrium terms of trade would lie.

Accepted Answer

A) True 
 B)False

Question 9

The terms of trade represents the rate of exchange between a country's exports and imports.

Accepted Answer

A) True 
 B)False

Question 10

Mutually beneficial trade for two countries occurs if the equilibrium terms of trade lies between the two countries' domestic cost ratios.

Accepted Answer

A) True 
 B)False

Question 11

The price-specie-flow mechanism illustrated why nations could not maintain trade surpluses or trade deficits over the long run.

Accepted Answer

A) True 
 B)False

Question 12

A nation's trade triangle denotes its exports,imports,and terms of trade.

Accepted Answer

A) True 
 B)False

Question 13

If Canada has a higher wage level and higher labor productivity than Mexico,Canada will necessarily produce a good at a higher labor cost than Mexico.

Accepted Answer

A) True 
 B)False

Question 14

If Argentina has a comparative advantage over Brazil in beef relative to coffee,Argentina will specialize in beef production.

Accepted Answer

A) True 
 B)False

Question 15

Assuming increasing cost conditions,trade between two countries would not be likely if they have:

Accepted Answer

A)  Identical demand conditions but different supply conditions 
B)  Identical supply conditions but different demand conditions 
C)  Different supply conditions and different demand conditions 
D)  Identical demand conditions and identical supply conditions 
A)  Identical demand conditions but different supply conditions 
B)  Identical supply conditions but different demand conditions 
C)  Different supply conditions and different demand conditions 
D)  Identical demand conditions and identical supply conditions

Question 16

Table 2.2.Output possibilities for South Korea and Japan
  
-Refer to Table 2.2.With international trade,what would be the maximum amount of steel that South Korea would be willing to export to Japan in exchange for each VCR?

Accepted Answer

A)  1/2 ton of steel 
B)  1 ton of steel 
C)  1-1/2 tons of steel 
D)  2 tons of steel 
A)  1/2 ton of steel 
B)  1 ton of steel 
C)  1-1/2 tons of steel 
D)  2 tons of steel

Question 17

Concerning possible determinants of international trade,which are sources of comparative advantage? Differences in:

Accepted Answer

A)  Methods of production 
B)  Tastes and preferences 
C)  Technological know-how 
D)  All of the above 
A)  Methods of production 
B)  Tastes and preferences 
C)  Technological know-how 
D)  All of the above

Question 18

Ricardo's theory of comparative advantage was of limited relevance to the real world since it assumed that labor was only one of several factors of production.

Accepted Answer

A) True 
 B)False

Question 19

The existence of exit barriers tends to delay the closing of inefficient firms that face international competitive disadvantages.

Accepted Answer

A) True 
 B)False

Question 20

The dynamic gains from trade include all of the following except:

Accepted Answer

A)  Economies of large-scale production resulting in decreasing unit cost 
B)  Increased saving and investment resulting in economic growth 
C)  Increased competition resulting in lower prices and wider range of output 
D)  Increasing comparative advantage leading to specialization 
A)  Economies of large-scale production resulting in decreasing unit cost 
B)  Increased saving and investment resulting in economic growth 
C)  Increased competition resulting in lower prices and wider range of output 
D)  Increasing comparative advantage leading to specialization

According to Adam Smith,international trade was a "win-win" situation since all nations could enjoy gains from trade.

The earliest statement of the principle of comparative advantage is associated with:

According to the principle of comparative advantage,an open trading system results in resources being channeled from uses of low productivity to those of high productivity.

The theory of reciprocal demand asserts that as the U.S.demand for Canadian wheat rises,the equilibrium terms of trade improve for the United States.

As a result of international trade,specialization in production tends to be:

Incomplete specialization may be caused by

Figure 2.2.Canadian Trade Possibilities -Consider Figure 2.2.In the absence of trade,Canada would produce and consume:

Because the Ricardian theory of comparative advantage was based only on a nation's supply conditions,it could only determine the outer limits within which the equilibrium terms of trade would lie.

The terms of trade represents the rate of exchange between a country's exports and imports.

Mutually beneficial trade for two countries occurs if the equilibrium terms of trade lies between the two countries' domestic cost ratios.

The price-specie-flow mechanism illustrated why nations could not maintain trade surpluses or trade deficits over the long run.

A nation's trade triangle denotes its exports,imports,and terms of trade.

If Canada has a higher wage level and higher labor productivity than Mexico,Canada will necessarily produce a good at a higher labor cost than Mexico.

If Argentina has a comparative advantage over Brazil in beef relative to coffee,Argentina will specialize in beef production.

Assuming increasing cost conditions,trade between two countries would not be likely if they have:

Table 2.2.Output possibilities for South Korea and Japan -Refer to Table 2.2.With international trade,what would be the maximum amount of steel that South Korea would be willing to export to Japan in exchange for each VCR?

Concerning possible determinants of international trade,which are sources of comparative advantage? Differences in:

Ricardo's theory of comparative advantage was of limited relevance to the real world since it assumed that labor was only one of several factors of production.

The existence of exit barriers tends to delay the closing of inefficient firms that face international competitive disadvantages.

The dynamic gains from trade include all of the following except:

The International Economy and Globalization

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange-Rate Determination

Mechanisms of International Adjustment

Exchange-Rate Adjustments and the Balance of Payments

Exchange-Rate Systems and Currency Crises

Macroeconomic Policy in an Open Economy

International Banking: Reserves, Debt, and Risk

Filters

Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

According to Adam Smith,international trade was a "win-win" situation since all nations could enjoy gains from trade.

The earliest statement of the principle of comparative advantage is associated with:

According to the principle of comparative advantage,an open trading system results in resources being channeled from uses of low productivity to those of high productivity.

The theory of reciprocal demand asserts that as the U.S.demand for Canadian wheat rises,the equilibrium terms of trade improve for the United States.

As a result of international trade,specialization in production tends to be:

Incomplete specialization may be caused by

Figure 2.2.Canadian Trade Possibilities -Consider Figure 2.2.In the absence of trade,Canada would produce and consume:

Because the Ricardian theory of comparative advantage was based only on a nation's supply conditions,it could only determine the outer limits within which the equilibrium terms of trade would lie.

The terms of trade represents the rate of exchange between a country's exports and imports.

Mutually beneficial trade for two countries occurs if the equilibrium terms of trade lies between the two countries' domestic cost ratios.

The price-specie-flow mechanism illustrated why nations could not maintain trade surpluses or trade deficits over the long run.

A nation's trade triangle denotes its exports,imports,and terms of trade.

If Canada has a higher wage level and higher labor productivity than Mexico,Canada will necessarily produce a good at a higher labor cost than Mexico.

If Argentina has a comparative advantage over Brazil in beef relative to coffee,Argentina will specialize in beef production.

Assuming increasing cost conditions,trade between two countries would not be likely if they have:

Table 2.2.Output possibilities for South Korea and Japan -Refer to Table 2.2.With international trade,what would be the maximum amount of steel that South Korea would be willing to export to Japan in exchange for each VCR?

Concerning possible determinants of international trade,which are sources of comparative advantage? Differences in:

Ricardo's theory of comparative advantage was of limited relevance to the real world since it assumed that labor was only one of several factors of production.

The existence of exit barriers tends to delay the closing of inefficient firms that face international competitive disadvantages.

The dynamic gains from trade include all of the following except:

The International Economy and Globalization

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange-Rate Determination

Mechanisms of International Adjustment

Exchange-Rate Adjustments and the Balance of Payments

Exchange-Rate Systems and Currency Crises

Macroeconomic Policy in an Open Economy

International Banking: Reserves, Debt, and Risk

Filters