Question 1

Which specific factor loses from trade?

Accepted Answer

A)  one that is specific to the importing industry 
B)  one that is specific to the exporting industry 
C)  one that is mobile between sectors 
D)  None of these loses from trade. 
A)  one that is specific to the importing industry 
B)  one that is specific to the exporting industry 
C)  one that is mobile between sectors 
D)  None of these loses from trade.

Question 2

The specific-factors model concludes that if there is an increase in the relative price (and an expansion) of one industry, the factor specific to that industry:

Accepted Answer

A)  will experience an increase in its marginal product. 
B)  will experience a decrease in its marginal product. 
C)  will be transferred to other industries. 
D)  will have competition as additional units of that specific factor are hired from other industries. 
A)  will experience an increase in its marginal product. 
B)  will experience a decrease in its marginal product. 
C)  will be transferred to other industries. 
D)  will have competition as additional units of that specific factor are hired from other industries.

Question 3

In the two-sector (manufacturing and agriculture) specific-factors model, suppose that the home country has a comparative advantage in agricultural output. What will happen to the amount of capital used in manufacturing production when trade occurs?

Accepted Answer

A)  It will fall. 
B)  It will rise. 
C)  It will not change. 
D)  It will first fall, then rise. 
A)  It will fall. 
B)  It will rise. 
C)  It will not change. 
D)  It will first fall, then rise.

Question 4

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufacturing output. What will happen to the amount of land used in producing agricultural output when trade occurs?

Accepted Answer

A)  It will fall. 
B)  It will rise. 
C)  It will not change. 
D)  It will first fall, then rise. 
A)  It will fall. 
B)  It will rise. 
C)  It will not change. 
D)  It will first fall, then rise.

Question 5

As a general rule, when there are specific factors, owners of factors specific to the importing industry are ______________, whereas the mobile factor owners (such as labor) in that industry are ______________.

Accepted Answer

A)  harmed; benefited 
B)  benefited; harmed 
C)  harmed; either benefited or harmed, depending on consumption patterns 
D)  not affected; harmed 
A)  harmed; benefited 
B)  benefited; harmed 
C)  harmed; either benefited or harmed, depending on consumption patterns 
D)  not affected; harmed

Question 6

Why must we know the composition of consumption in an economy in order to judge the effects of international trade on real income of the mobile factor?

Accepted Answer

Understanding the composition of consump

Question 7

In equilibrium, with diminishing marginal products, the slope of the PPF is equal to:

Accepted Answer

A)  the ratio of prices for the products. 
B)  the marginal product of labor. 
C)  the marginal product of capital. 
D)  the ratio of prices to the marginal product of labor. 
A)  the ratio of prices for the products. 
B)  the marginal product of labor. 
C)  the marginal product of capital. 
D)  the ratio of prices to the marginal product of labor.

Question 8

Some economists believe that an extended safety net for workers affected by trade:

Accepted Answer

A)  would be extremely expensive and unnecessary. 
B)  would create a more favorable attitude toward trade by workers. 
C)  would create jealousy among those who lose jobs for other reasons. 
D)  would lead to political maneuvering and corruption. 
A)  would be extremely expensive and unnecessary. 
B)  would create a more favorable attitude toward trade by workers. 
C)  would create jealousy among those who lose jobs for other reasons. 
D)  would lead to political maneuvering and corruption.

Question 9

If a nation begins to trade, it will be able to sell (export) the product for which its own relative price is:

Accepted Answer

A)  lower than other nations. 
B)  higher than other nations. 
C)  the same as other nations. 
D)  less than 10% of the value of other nations. 
A)  lower than other nations. 
B)  higher than other nations. 
C)  the same as other nations. 
D)  less than 10% of the value of other nations.

Question 10

A "specific" factor of production is:

Accepted Answer

A)  critical to the production of the good or service. 
B)  not transferable to other types of production and can only be used for the product in question. 
C)  a set quantity for each unit produced. 
D)  the opposite of a general factor, meaning it must fit within certain narrow quality parameters. 
A)  critical to the production of the good or service. 
B)  not transferable to other types of production and can only be used for the product in question. 
C)  a set quantity for each unit produced. 
D)  the opposite of a general factor, meaning it must fit within certain narrow quality parameters.

Question 11

In general, the gains to some resources from free trade exceed losses suffered by other resources. This means that, in principle:

Accepted Answer

A)  the government should be able to tax resources that gain and compensate resources that lose, so all resources are better off with trade. 
B)  the government should tax imports in order to reduce the losses suffered by some resources. 
C)  the government ought to tax exports in order to collect revenue to compensate resources that lose from free trade. 
D)  the government ought to tax returns on land because these always increase with free trade. 
A)  the government should be able to tax resources that gain and compensate resources that lose, so all resources are better off with trade. 
B)  the government should tax imports in order to reduce the losses suffered by some resources. 
C)  the government ought to tax exports in order to collect revenue to compensate resources that lose from free trade. 
D)  the government ought to tax returns on land because these always increase with free trade.

Question 12

If the relative price of one product rises and labor is mobile, then:

Accepted Answer

A)  the percentage increase in the equilibrium real wage will be exactly the same as the percentage increase in the relative price. 
B)  the percentage increase in the equilibrium real wage will be lower than the percentage increase in the relative price. 
C)  the percentage increase in the equilibrium real wage will be higher than the percentage increase in the relative price. 
D)  the equilibrium real wage will not change. 
A)  the percentage increase in the equilibrium real wage will be exactly the same as the percentage increase in the relative price. 
B)  the percentage increase in the equilibrium real wage will be lower than the percentage increase in the relative price. 
C)  the percentage increase in the equilibrium real wage will be higher than the percentage increase in the relative price. 
D)  the equilibrium real wage will not change.

Question 13

Which of the following is NOT a possible explanation for wage differences across sectors?

Accepted Answer

A)  Demand for products affects demand for resources. 
B)  Changes in technology affect demand for resources. 
C)  The government mandates a $15 per hour minimum wage for service workers. 
D)  Import competition in a sector leads to lower wages. 
A)  Demand for products affects demand for resources. 
B)  Changes in technology affect demand for resources. 
C)  The government mandates a $15 per hour minimum wage for service workers. 
D)  Import competition in a sector leads to lower wages.

Question 14

(Table: Sales and Payments) Suppose that the price of the agricultural good increases with no change in the price of the manufactured good. Which of the following resources will show the most gain?

Accepted Answer

A)  capital 
B)  labor 
C)  land 
D)  capital and labor 
A)  capital 
B)  labor 
C)  land 
D)  capital and labor

Question 15

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

Accepted Answer

A)  Workers will be better off because the nominal wage increases. 
B)  Workers will be better off because both nominal and real wages increase. 
C)  Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls. 
D)  Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises. 
A)  Workers will be better off because the nominal wage increases. 
B)  Workers will be better off because both nominal and real wages increase. 
C)  Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls. 
D)  Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.

Question 16

If we consider the two-sector (manufacturing and agriculture) specific-factors model, the effect of an increase in exports on the real wages of workers:

Accepted Answer

A)  is inconclusive because some goods' prices will be higher compared with the wage, and some will be lower. 
B)  absolutely increases the buying power of the real wage. 
C)  absolutely decreases the buying power of the real wage. 
D)  will encourage foreign workers to emigrate to the United States. 
A)  is inconclusive because some goods' prices will be higher compared with the wage, and some will be lower. 
B)  absolutely increases the buying power of the real wage. 
C)  absolutely decreases the buying power of the real wage. 
D)  will encourage foreign workers to emigrate to the United States.

Question 17

If trade causes shifts in production so that some workers are laid off, most economists conclude:

Accepted Answer

A)  that the nation should extend unemployment benefits for a longer period. 
B)  that the situation is usually temporary because there are jobs created in export industries. 
C)  that we should expect wages to fall and therefore should not allow imports to take U.S. jobs. 
D)  that all workers will be better off because overall the equilibrium wage will rise. 
A)  that the nation should extend unemployment benefits for a longer period. 
B)  that the situation is usually temporary because there are jobs created in export industries. 
C)  that we should expect wages to fall and therefore should not allow imports to take U.S. jobs. 
D)  that all workers will be better off because overall the equilibrium wage will rise.

Question 18

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufacturing output. What will happen to the return (rental) on land when trade occurs?

Accepted Answer

A)  It will fall. 
B)  It will rise. 
C)  It will not change. 
D)  It will first fall, then rise. 
A)  It will fall. 
B)  It will rise. 
C)  It will not change. 
D)  It will first fall, then rise.

Question 19

As a general rule, when there are specific factors, owners of factors specific to the importing industry are ______________, whereas owners of factors specific to export industries are ______________.

Accepted Answer

A)  harmed; benefited 
B)  benefited; harmed 
C)  unemployed; hired 
D)  not affected; harmed 
A)  harmed; benefited 
B)  benefited; harmed 
C)  unemployed; hired 
D)  not affected; harmed

Question 20

Suppose that the wage is $20 per hour in a two-sector (manufacturing and agriculture) specific-factors model. Currently, the prices of manufactured and agricultural outputs are $5 and $1, respectively; the marginal product of labor in the manufactured sector is six units per hour; and the marginal product of labor in the agricultural sector is 10 units per hour. What will happen to the distribution of labor between the two sectors?

Accepted Answer

In the specific-factors model, labor is

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

Which specific factor loses from trade?

The specific-factors model concludes that if there is an increase in the relative price (and an expansion) of one industry, the factor specific to that industry:

In the two-sector (manufacturing and agriculture) specific-factors model, suppose that the home country has a comparative advantage in agricultural output. What will happen to the amount of capital used in manufacturing production when trade occurs?

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufacturing output. What will happen to the amount of land used in producing agricultural output when trade occurs?

As a general rule, when there are specific factors, owners of factors specific to the importing industry are ______________, whereas the mobile factor owners (such as labor) in that industry are ______________.

Why must we know the composition of consumption in an economy in order to judge the effects of international trade on real income of the mobile factor?

In equilibrium, with diminishing marginal products, the slope of the PPF is equal to:

Some economists believe that an extended safety net for workers affected by trade:

If a nation begins to trade, it will be able to sell (export) the product for which its own relative price is:

A "specific" factor of production is:

In general, the gains to some resources from free trade exceed losses suffered by other resources. This means that, in principle:

If the relative price of one product rises and labor is mobile, then:

Which of the following is NOT a possible explanation for wage differences across sectors?

(Table: Sales and Payments) Suppose that the price of the agricultural good increases with no change in the price of the manufactured good. Which of the following resources will show the most gain?

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

If we consider the two-sector (manufacturing and agriculture) specific-factors model, the effect of an increase in exports on the real wages of workers:

If trade causes shifts in production so that some workers are laid off, most economists conclude:

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufacturing output. What will happen to the return (rental) on land when trade occurs?

As a general rule, when there are specific factors, owners of factors specific to the importing industry are ______________, whereas owners of factors specific to export industries are ______________.

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

Filters

As a general rule, when there are specific factors, owners of factors specific to the importing industry are , whereas the mobile factor owners (such as labor) in that industry are .

As a general rule, when there are specific factors, owners of factors specific to the importing industry are , whereas owners of factors specific to export industries are .