Exam 3: Gains and Losses From Trade in the Specific-Factors Model

As a nation begins to export, its own relative price of exported goods will , and as it imports other goods, the relative price of those will , thus _______ its standard of living.

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(Multiple Choice)

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Question 1

Correct Answer:

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In the two-sector (manufacturing and agriculture) specific-factors model, an increase in the price of the manufactured good will cause:

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Question 2

Correct Answer:

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As a nation opens up to free trade:

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Question 3

Correct Answer:

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A microeconomic analysis shows that in a competitive economy in which labor is homogenous and mobile, the ratio of the prices of the products in equilibrium is inversely proportional to:

(Multiple Choice)

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Question 4

As a nation opens trade, the relative prices of products it imports will and the relative prices of products it exports will _.

(Multiple Choice)

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Question 5

Suppose that due to a drought, the price of agricultural goods rises by 10%. If land is specific to agriculture, capital is specific to manufacturing, and labor is mobile between sectors, which of the following is true?

(Multiple Choice)

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Question 6

(Table: An Economy Before and After Trade) According to the table, what is the return to capital after trade occurs? The top part of the table gives manufacturing and agricultural prices, production, resource utilization, and resource payments in autarky (a no-trade situation). The bottom part of the table provides (some of) the same information after trade occurs.

(Multiple Choice)

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Question 7

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in agricultural output. Will workers be better or worse off following the opening of trade with other countries?

(Multiple Choice)

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Question 8

Why do returns to specific factors change by more than returns to mobile factors when international trade changes relative prices?

(Short Answer)

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Question 9

As a nation increases its production of exports, demand for specific or fixed factors (such as capital and land) used in the exporting sector will:

(Multiple Choice)

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Question 10

Suppose that wages in the agricultural and manufacturing sectors are $10 and $20 per hour, respectively, and that the prices of both the agricultural and manufactured good are both $50 per unit. What are the marginal productivities of labor in the agricultural and manufacturing sectors?

(Short Answer)

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Question 11

(Table: Production and Prices in Two Industries) According to the information provided in the table, the wage rate in the manufacturing sector is:

(Multiple Choice)

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Question 12

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. What is the effect on the return of capital after trade occurs?

(Multiple Choice)

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Question 13

The argument that trade generates gains for all workers may NOT be true because:

(Multiple Choice)

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Question 14

The two-sector (manufacturing and agriculture) specific-factors model is termed a "short-run" model because:

(Multiple Choice)

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Question 15

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. Which statement below best describes changes in returns on capital and land after trade occurs?

(Multiple Choice)

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Question 16

Bolivia's government attempted to solve some of its problems with inequality of outcomes due to foreign investment in its natural gas resources by:

(Multiple Choice)

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Question 17

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. Which specific factor will gain after trade occurs?

(Multiple Choice)

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Question 18

As relative prices in various industries change due to trade, the marginal product of the mobile resources used in the expanding industry , and the marginal product of the mobile resources used in the contracting industry .

(Multiple Choice)

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Question 19

If we assume only one factor (labor), we can demonstrate on the PPF the opportunity cost of producing less of one good and more of the other good by:

(Multiple Choice)

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Question 20

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Exam 3: Gains and Losses From Trade in the Specific-Factors Model

As a nation begins to export, its own relative price of exported goods will ______, and as it imports other goods, the relative price of those will ______ , thus ___________ its standard of living.

In the two-sector (manufacturing and agriculture) specific-factors model, an increase in the price of the manufactured good will cause:

As a nation opens up to free trade:

A microeconomic analysis shows that in a competitive economy in which labor is homogenous and mobile, the ratio of the prices of the products in equilibrium is inversely proportional to:

As a nation opens trade, the relative prices of products it imports will __________ and the relative prices of products it exports will ___________.

Suppose that due to a drought, the price of agricultural goods rises by 10%. If land is specific to agriculture, capital is specific to manufacturing, and labor is mobile between sectors, which of the following is true?

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in agricultural output. Will workers be better or worse off following the opening of trade with other countries?

Why do returns to specific factors change by more than returns to mobile factors when international trade changes relative prices?

As a nation increases its production of exports, demand for specific or fixed factors (such as capital and land) used in the exporting sector will:

Suppose that wages in the agricultural and manufacturing sectors are $10 and $20 per hour, respectively, and that the prices of both the agricultural and manufactured good are both $50 per unit. What are the marginal productivities of labor in the agricultural and manufacturing sectors?

(Table: Production and Prices in Two Industries) According to the information provided in the table, the wage rate in the manufacturing sector is:

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. What is the effect on the return of capital after trade occurs?

The argument that trade generates gains for all workers may NOT be true because:

The two-sector (manufacturing and agriculture) specific-factors model is termed a "short-run" model because:

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. Which statement below best describes changes in returns on capital and land after trade occurs?

Bolivia's government attempted to solve some of its problems with inequality of outcomes due to foreign investment in its natural gas resources by:

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. Which specific factor will gain after trade occurs?

As relative prices in various industries change due to trade, the marginal product of the mobile resources used in the expanding industry __________, and the marginal product of the mobile resources used in the contracting industry __________.

If we assume only one factor (labor), we can demonstrate on the PPF the opportunity cost of producing less of one good and more of the other good by:

Trade in the Global Economy

Trade and Technology: The Ricardian Model

Trade and Resources: the Heckscher-Ohlin Model

Movement of Labor and Capital Between Countries

Increasing Returns to Scale and Monopolistic Competition

Offshoring of Goods and Services

Import Tariffs and Quotas Under Perfect Competition

Import Tariffs and Quotas Under Imperfect Competition

Export Subsidies in Agriculture and High-Technology Industries

International Agreements: Trade, Labor, and the Environment

The Global Macroeconomy

Introduction to Exchange Rates and the Foreign Exchange Market

Exchange Rates I: the Monetary Approach in the Long Run

Exchange Rates II: the Asset Approach in the Short Run

National and International Accounts: Income, Wealth, and the Balance of Payments

Balance of Payments I: the Gains From Financial Globalization

Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run

Fixed Versus Floating: International Monetary Experience

Exchange Rate Crises: How Pegs Work and How They Break

The Euro

Topics in International Macroeconomics

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As a nation begins to export, its own relative price of exported goods will , and as it imports other goods, the relative price of those will , thus _______ its standard of living.

As a nation opens trade, the relative prices of products it imports will and the relative prices of products it exports will _.

As relative prices in various industries change due to trade, the marginal product of the mobile resources used in the expanding industry , and the marginal product of the mobile resources used in the contracting industry .