Deck 3: Sources of Comparative Advantage

Question 1

Which of the following would least likely apply to the product life cycle theory?

A) Calculators and computers
B) Coal and crude oil
C) Home movie cameras
D) Office machinery

Answer 1

B

Question 2

A product will be internationally traded as long as the pretrade price differential between the trading partners is:

A) Greater than the cost of transporting it between them
B) Equal to the cost of transporting it between them
C) Less than the cost of transporting it between them
D) None of the above

Answer 2

A

Question 3

Concerning the influence that transportation costs have on the location of industry,which of the following industries has generally attempted to locate production facilities close to resource supplies?

A) Autos
B) Steel
C) Soft drinks
D) Valuable electronics goods

Answer 3

B

Question 4

The Leontief paradox:

A) Was applied to the product life cycle theory
B) Suggested that the U.S.exports labor-intensive goods
C) Found that national income differences underlie world trade patterns
D) Implied that diseconomies of scale occur at low output levels

Question 5

Assume the cost of transporting autos from Japan to Canada exceeds the pretrade price difference for autos between Japan and Canada.Trade in autos is:

A) Impossible
B) Possible
C) Highly profitable
D) Moderately profitable

Question 6

If Japanese workers receive lower wages in the production of autos than do American workers:

A) Japan will have a comparative advantage in the production of autos
B) Japan will have an absolute advantage in the production of autos
C) Production costs will be lower in Japan than in the U.S.
D) Production costs could be lower in the U.S.if American labor productivity is higher than the Japanese

Question 7

Which trade theory suggests that a newly produced good,once exported,could ultimately end up being imported as the technology is transferred to lower- cost nations?

A) Factor endowment theory
B) Product life cycle theory
C) Overlapping demand theory
D) Comparative advantage theory

Question 8

Which of the following best applies to the theory of overlapping demands?

A) Manufactured goods
B) Services
C) Primary products
D) None of the above

Question 9

When considering the effects of transportation costs,the conclusions of our trade model must be modified.This is because transportation costs result in:

A) Lower trade volume,higher import prices,smaller gains from trade
B) Lower trade volume,lower import prices,smaller gains from trade
C) Higher trade volume,higher import prices,smaller gains from trade
D) Higher trade volume,lower import prices,greater gains from trade

Question 10

Chinese manufacturers face rising wages because of:

A) China's one-child policy
B) land policies
C) bureaucratic delay in being declared an urban dweller
D) all of these

Question 11

Which of the following suggests that by widening the market's size,international trade can permit longer production runs for manufacturers,which leads to increasing efficiency?

A) Economies of scale
B) Diseconomies of scale
C) Comparative cost theory
D) Absolute cost theory

Question 12

Hong Kong is relatively abundant in labor,while Canada is relatively abundant in capital.In both countries the production of shirts is relatively more labor intensive than the production of computers.According to the factor endowment theory,Hong Kong will have a(n):

A) Absolute advantage in the production of shirts and computers
B) Absolute advantage in the production of computers
C) Comparative advantage in the production of shirts
D) Comparative advantage in the production of computers

Question 13

Eli Heckscher and Bertil Ohlin are associated with the theory of comparative advantage that stresses differences in:

A) Income levels among countries
B) Tastes and preferences among countries
C) Resource endowments among countries
D) Labor productivities among countries

Question 14

According to Staffan Linder,trade between two countries tends to be most pronounced when the countries:

A) Find their tastes and preferences to be quite harmonious
B) Experience economies of large-scale production over large output levels
C) Face dissimilar relative abundances of the factors of production
D) Find their per capita income levels to be approximately the same

Question 15

Assume that Country A,in the absence of trade,finds itself relatively abundant in labor and relatively scarce in land.The factor endowment theory reasons that with free trade,the internal distribution of national income in Country A will change in favor of:

A) Labor
B) Land
C) Both labor and land
D) Neither labor nor land

Question 16

Classical trade theory emphasized which of the following as an underlying explanation of the basis for trade?

A) Productivities of labor inputs
B) Tastes and preferences among nations
C) Changes in technologies over time
D) Quantities of economic resources

Question 17

A firm is said to enjoy economies of scale over the range of output for which the long-run average cost is:

A) Increasing
B) Constant
C) Decreasing
D) None of the above

Question 18

The Leontief paradox questioned the validity of the theory of:

A) Comparative advantage
B) Factor endowments
C) Overlapping demands
D) Absolute advantage

Question 19

Which of the following suggests that a nation will export the commodity in the production of which a great deal of its relatively abundant and cheap factor is used?

A) The Linder theory
B) The product life cycle theory
C) The MacDougall theory
D) The Heckscher-Ohlin theory

Question 20

Which of the following is a long-run theory,emphasizing changes in the trading position of a nation over a number of years?

A) Theory of factor endowments
B) Comparative advantage theory
C) Theory of the product cycle
D) Overlapping demand theory

Question 21

Proponents of ____ maintain that government should enact policies that encourage the development of emerging,"sunrise" industries.

A) Product life cycle policy
B) Static comparative advantage policy
C) Intra-industry trade policy
D) Industrial policy

Question 22

With economies of scale and decreasing unit costs,a country has the incentive to:

A) Specialize completely in the product of its comparative advantage
B) Specialize partially in the product of its comparative advantage
C) Specialize completely in the product of its comparative disadvantage
D) Specialize partially in the product of its comparative disadvantage

Question 23

The theory of overlapping demands predicts that trade in manufactured goods is unimportant for countries with very different:

A) Tastes and preferences
B) Expectations of future interest rate levels
C) Per-capita income levels
D) Labor productivities

Question 24

Intra-industry trade can be explained in part by:

A) Adam Smith's principle of absolute advantage
B) Perfect competition in product markets
C) Diseconomies of large scale production
D) Transportation costs between and within nations

Question 25

Legislation requiring domestic manufacturers to install pollution abatement equipment tends to promote:

A) Higher production costs and an increase in output
B) Higher production costs and a decrease in output
C) Lower production costs and an increase in output
D) Lower production costs and a decrease in output

Question 26

That the division of labor is limited by the size of the market best applies to which explanation of trade?

A) Factor endowment theory
B) Product life cycle theory
C) Economies of scale theory
D) Overlapping demand theory

Question 27

Which trade theory contends that a country that initially develops and exports a new product may eventually become an importer of it and may no longer manufacture the product?

A) Theory of factor endowments
B) Theory of overlapping demands
C) Economies of scale theory
D) Product life cycle theory

Question 28

The simultaneous import and export of computers by Germany is an example of:

A) Intra-industry trade
B) Inter-industry trade
C) Perfect competition
D) Imperfect competition

Question 29

Stringent governmental regulations (e.g.,air quality standards) imposed on domestic steel manufacturers tend to:

A) Enhance their competitiveness in the international market
B) Detract from their competitiveness in the international market
C) Increase the profitability and productivity of domestic manufacturers
D) Reduce the market share of foreign firms selling steel in the domestic market

Question 30

Linder's theory of overlapping demand provides an explanation of:

A) Product life cycle theory
B) Factor endowment model
C) Economies of large-scale production
D) Intra-industry trade

Question 31

Among the determinants underlying a country's international competitiveness in business services (e.g.,construction) are:

A) The potential scale economies afforded by a market's size
B) Abundance of equipment including data processing facilities and computers
C) Skills and capabilities of employees and their wage rates
D) All of the above

Question 32

The trade model of the Swedish economists Heckscher and Ohlin maintains that:

A) Absolute advantage determines the distribution of the gains from trade
B) Comparative advantage determines the distribution of the gains from trade
C) The division of labor is limited by the size of the world market
D) A country exports goods for which its resource endowments are most suited

Question 33

Boeing aircraft company was able to cover its production costs of the first "jumbo jet" in the 1970s because Boeing could market it to several foreign airlines in addition to domestic airlines.This illustrates:

A) How economies of scale make possible a larger variety of products in international trade
B) A transfer of wealth from domestic consumers to domestic producers as the result of trade
C) How a natural monopoly is forced to behave more competitively with international trade
D) How a natural monopoly is forced to behave less competitively with international trade

Question 34

The Leontief paradox provided:

A) Support for the principle of absolute advantage
B) Support for the factor endowment model
C) Evidence against the factor endowment model
D) Evidence against the principle of absolute advantage

Question 35

The Heckscher-Ohlin theory explains comparative advantage as the result of differences in countries':

A) Economies of large-scale production
B) Relative abundance of various resources
C) Relative costs of labor
D) Research and development

Question 36

Should international transportation costs decrease,the effect on international trade would include:

A) An increase in the volume of trade
B) A smaller gain from trade
C) A decline in the income of home producers
D) A decrease in the level of specialization in production.

Question 37

Which trade theory suggests that comparative advantage tends to shift from one nation to another as a product matures?

A) Interindustry trade theory
B) Intraindustry trade theory
C) Product life cycle theory
D) Overlapping demand theory

Question 38

For the United States,empirical studies indicate that over the past two decades the cost of international transportation relative to the value of U.S.imports has:

A) Increased
B) Decreased
C) Not changed
D) None of the above

Question 39

According to the factor endowment model,countries heavily endowed with land will:

A) Devote excessive amounts of resources to agricultural production
B) Devote insufficient amounts of resources to agricultural production
C) Export products that are land-intensive
D) Import products that are land-intensive

Question 40

A larger variety of products results from international trade especially if:

A) International trade affords producers monopoly power
B) National governments levy import tariffs and quotas
C) Producing goods entails increasing costs
D) Economies of scale exist for producers

Question 41

Economists agree that wages of unskilled workers are being held down by

A) International trade
B) Technology improvements
C) Lack of education
D) A combination of a,b,and c

Question 42

The factor-endowment theory highlights the relative abundance of a nation's resources as the key factor underlying comparative advantage.

Question 43

Boeing Inc.has criticized The Airbus Company's competitiveness on the grounds that Airbus benefits from:

A) Import tariffs protecting Airbus in the European market
B) Import quotas protecting Airbus in the European market
C) Lenient environmental standards of European governments
D) Production subsidies supplied by European governments

Question 44

Which trade theory is tantamount to a short-run version of the factor price equalization theory?

A) Specific factors theory
B) Product life cycle theory
C) Economies of scale theory
D) Overlapping demand theory

Question 45

The Heckscher-Ohlin theory asserts that relative differences in labor productivity underlie comparative advantage.

Question 46

Expanding trade or technological improvements

A) Increases the demand for skilled workers in the U.S.
B) Decreases the demand for unskilled workers in the U.S.
C) Increases the demand for unskilled workers in the U.S.
D) Both a and b

Question 47

The factor endowment theory assumes

A) Same tastes and preferences
B) Factor inputs of uniform quality
C) Same technology
D) All of the above

Question 48

The Heckscher-Ohlin theory suggests that land-abundant nations will export land-intensive goods while labor-abundant nations will export labor-intensive goods.

Question 49

Figure 3.1China - US Trade Possibilities

Considering Figure 3.1 prior to trade both China's and the US production of textiles and aircraft is 19 and 9.Which of the following represents the pre-trade situation?

A) China has a comparative advantage in the production of textiles and the US has a comparative advantage in the production of aircraft.
B) China has a comparative advantage in the production of aircraft and the US has a comparative advantage in the production of textiles.
C) China has an absolute advantage in the production of both textiles and aircraft.
D) The US has an absolute advantage in the production of both textiles and aircraft.

Question 50

Figure 3.1China - US Trade Possibilities

Considering Figure 3.1 which of the following would be true?

A) China has more of both labor and capital than the US.
B) The US has more of both labor and capital than China.
C) The US is relatively capital abundant and China is relatively labor abundant.
D) The US is relatively labor abundant and China id relatively capital abundant.

Question 51

Figure 3.1China - US Trade Possibilities

Considering Figure 3.1,what are the terms of trade represented?

A) The terms of trade are 1½ aircraft per textile.
B) The terms of trade are 1½ textiles per aircraft.
C) The terms of trade are 1 textile per aircraft.
D) The terms of trade are 2/3 textile per aircraft.

Question 52

From 2000-2010,which nation lost thousands of jobs to China,whose average wages were half of those of this country?

A) Japan
B) Canada
C) Germany
D) Mexico

Question 53

Figure 3.1China - US Trade Possibilities

According to Ricardian theory,comparative advantage depends on relative differences in labor productivity.

Question 54

To justify the subsidies it has received from European governments,The Airbus Company has used all of the following arguments except:

A) Its subsidies have prevented U.S.aircraft firms from holding a world-wide monopoly
B) U.S.aircraft firms have benefited from military-sponsored programs of the U.S.government
C) Airbus' subsidies were totally repaid as the firm realized profits on its aircraft sales
D) Without subsidies to Airbus,Europe would be dependent on the United States as a supplier of aircraft

Question 55

In explaining international trade,the product life cycle theory focuses on

A) Tastes and preferences
B) The role of technological innovation
C) Per-capita income levels of nations
D) Both b and c

Question 56

The factor endowment theory states that comparative advantage is explained

A) Exclusively by differences in relative supply conditions
B) Exclusively by differences in relative national demand conditions
C) Both supply and demand conditions
D) None of the above

Question 57

According to the factor-endowment theory,a nation will export that good for which a large amount of the relatively scarce resource is used.

Question 58

The Heckscher-Ohlin theory contends that over a period of years a country that initially is an exporter of a product will become an importer of that product.

Question 59

According to the specific factors trade theory:

A) Owners of factors specific to export industries suffer from trade,while owners of factors specific to import-competing industries gain
B) Owners of factors specific to export industries gain from trade,while owners of factors specific to import-competing industries suffer
C) Both owners of factors specific to export industries and owners of factors specific to import-competing industries gain from trade
D) Both owners of factors specific to export industries and owners of factors specific to import-competing industries suffer from trade

Question 60

According to the factor-endowment theory,a nation will import that good for which a large amount of the relatively abundant resource is used.

Question 61

Decreasing cost conditions lead to complete specialization in the production of the commodity of comparative advantage.

Question 62

With decreasing costs,a country has an incentive to partially specialize in the product of its comparative advantage.

Question 63

According to the factor-endowment theory,international specialization and trade cause a nation's cheap resource to become cheaper and a nation's expensive resource to become more expensive.

Question 64

The Leontief Paradox suggested that,in contrast to the predictions of the factor-endowment theory,U.S.exports were less capital-intensive than U.S.import-competing goods.

Question 65

The factor-endowment theory asserts that with specialization and trade there tends to occur an equalization in the relative resource prices of trading partners.

Question 66

The Leontief Paradox was the first major challenge to the product-life-cycle theory of trade.

Question 67

According to Staffan Linder,the factor endowment theory is useful in explaining trade patterns in manufactured goods,but not primary products.

Question 68

The theory of overlapping demands contends that international trade in manufactured products is strongest among nations with similar income levels.

Question 69

The theory of overlapping demands asserts that trade in manufactured goods is stronger the less similar the demand structures of two countries.

Question 70

According to the theory of overlapping demands,trade in manufactured goods would be greater among two wealthy countries than among a wealthy country and a poor country.

Question 71

The Heckscher-Ohlin theory emphasizes the role that demand plays in the creation of comparative advantage.

Question 72

The specific-factors theory analyzes the income distribution effects of trade in the short run when resources are immobile among industries.

Question 73

With economies of scale,specialization in a few products allows a manufacturer to benefit from longer production runs which lead to decreasing average cost.

Question 74

Owners of resources specific to export industries tend to lose from international trade,while owners of factors specific to import-competing industries tend to gain.

Question 75

Fears about the downward pressure that cheap foreign workers place on U.S.wages have led U.S.labor unions to lobby for import restrictions such as tariffs and quotas.

Question 76

The theory of overlapping demands applies best to trade in manufactured goods.

Question 77

According to the factor-price-equalization theory,international trade results in the relative differences in resource prices between nations being eliminated.

Question 78

Empirical testing by Wassily Leontief gave support to the Heckscher-Ohlin theory of trade.

Question 79

By widening the size of the domestic market,international trade permits companies to take advantage of longer production runs and increasing efficiencies such as mass production.

Question 80

The factor-price-equalization theory is a short-run version of the specific-factors theory.