Deck 4: Specific Factors and Income Distribution

Question 1

In the specific factors model, a country's production function is ________ because of ________.

A) a straight line; diminishing marginal returns
B) a curved line; diminishing marginal returns
C) a straight line; constant marginal returns
D) a curved line; constant marginal returns
E) a curved line; a limited supply of labor

Answer 1

A

Question 2

A factor of production that cannot be used outside of a particular sector of an economy is a(an)

A) specific factor.
B) mobile factor.
C) variable factor.
D) import-competing factor.
E) export-competing factor.

Answer 2

A

Question 3

International trade can have important effects on the distribution of income because

A) different industries employ different factors of production.
B) of government corruption.
C) the more powerful country dictates the terms of trade.
D) rich countries take advantage of poor countries.
E) different countries use different currencies.

Answer 3

A

Question 4

In the specific factors model, labor is defined as a(an)

A) mobile factor.
B) specific factor.
C) fixed factor.
D) variable factor.
E) intensive factor.

Question 5

In the four-quadrant diagram of the specific factors model, the graph in the lower right quadrant is a country's

A) production function for cloth.
B) production possibility frontier.
C) labor allocation constraint.
D) production function for food.
E) labor supply curve.

Question 6

In the specific factors model, which of the following is treated as a specific factor?

A) Land
B) Labor
C) Cloth
D) Food
E) Technology

Question 7

The Ricardian two-country two-good model predicts that there are potential benefits from trade, but not

A) the effect of trade on income distribution.
B) the mechanism that determines which country will specialize in which good.
C) when one country has an absolute advantage in the production of both goods.
D) when one country has significantly lower wages than the other country.
E) when both countries have the same types of technology available.

Question 8

In the specific factors model, which of the following is treated as a specific factor?

A) capital
B) labor
C) cloth
D) food
E) technology

Question 9

A worker who has invested in ________ skills will be ________ mobile than would otherwise be the case.

A) occupation-specific; less
B) occupation-specific; more
C) ethical; less
D) ethical; more
E) occupation-nominal; less

Question 10

The specific factors model assumes that there are ________ goods and ________ factor(s) of production.

A) two; three
B) two; two
C) two; one
D) three; two
E) four; three

Question 11

The degree of a factor's specificity is directly related to

A) the amount of time required to redeploy the factor to a different industry.
B) the cost of the factor as a proportion of the long-run total cost of production.
C) the mobility of the factor, with more mobile factors having more specificity.
D) technology differences between two countries, with a more advanced technology resulting in more factor specificity.
E) factor quality, with higher quality factors having a higher level of specificity.

Question 12

In the four-quadrant diagram of the specific factors model, the graph in the upper right quadrant is a country's

A) production possibility frontier.
B) labor allocation constraint.
C) production function for food.
D) production function for cloth.
E) labor supply curve.

Question 13

The Ricardian model of international trade demonstrates that trade can be mutually beneficial. Why, then, do governments restrict imports of some goods?

A) Trade can have substantial effects on a country's distribution of income.
B) The Ricardian model is often incorrect in its prediction that trade can be mutually beneficial.
C) Import restrictions are the result of trade wars between hostile countries.
D) Imports are only restricted when foreign-made goods do not meet domestic standards of quality.
E) Restrictions on imports are intended to benefit domestic consumers.

Question 14

In the specific factors model, a country's production possibility frontier is ________ because of ________.

A) a straight line; diminishing marginal returns
B) a curved line; diminishing marginal returns
C) a straight line; constant marginal returns
D) a curved line; constant marginal returns
E) a curved line; a limited supply of labor

Question 15

Japan's trade policies with regard to rice reflect the fact that

A) japanese rice farmers have significant political power.
B) Japan has a comparative advantage in rice production and therefore exports most of its rice crop.
C) there would be no gains from trade available to Japan if it engaged in free trade in rice.
D) there are gains from trade that Japan captures by engaging in free trade in rice.
E) Japan imports most of the rice consumed in the country.

Question 16

A factor of production that can be used in any sector of an economy is a(an)

A) mobile factor.
B) specific factor.
C) variable factor.
D) import-competing factor.
E) export-competing factor.

Question 17

The Ricardian model of international trade demonstrates that trade can be mutually beneficial. Why, then, do governments restrict imports of some goods?

A) Trade can have significant harmful effects on some segments of a country's economy.
B) The Ricardian model is often incorrect in its prediction that trade can be mutually beneficial.
C) Import restrictions are the result of trade wars between hostile countries.
D) Imports are only restricted when foreign-made goods do not meet domestic standards of quality.
E) Restrictions on imports can have significant beneficial effects on domestic consumers.

Question 18

The degree of a factor's specificity is inversely related to

A) the mobility of the factor, with more mobile factors having less specificity.
B) the amount of time required to redeploy the factor to a different industry.
C) the cost of the factor as a proportion of the long-run total cost of production.
D) technology differences between two countries, with a less advanced technology resulting in less factor specificity.
E) factor quality, with lower quality factors having a lower level of specificity.

Question 19

International trade can have important effects on the distribution of income because

A) some resources are immobile in the short run.
B) of government corruption.
C) the more powerful country dictates the terms of trade.
D) rich countries take advantage of poor countries.
E) different countries use different currencies.

Question 20

The specific factors model was developed by

A) Paul Samuelson and Ronald Jones.
B) Adam Smith and David Ricardo.
C) Richard Nixon and Robert Kennedy.
D) C.B. deMill and Gordon Willis.
E) Bill Clinton and Monica Lewinsky.

Question 21

In the specific factors model, a 5% increase in the price of food accompanied by a 10% increase in the price of cloth will cause ________ in the welfare of labor, ________ in the welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed factor in the production of cloth.

A) an ambiguous change; a decrease; an increase
B) an ambiguous change; an ambiguous change; an ambiguous change
C) a decrease; an ambiguous change; an ambiguous change
D) an increase; a decrease; an increase
E) an ambiguous change; an increase; a decrease

Question 22

In the specific factors model, a 0% increase in the price of food accompanied by a 5% increase in the price of cloth will cause wages to ________, the production of cloth to ________, and the production of food to ________.

A) increase by less then 5%; increase; decrease
B) increase by 5%; remain unchanged; remain unchanged
C) increase by more then 5%; increase; remain unchanged
D) remain constant; increase; increase
E) remain constant; decrease; decrease

Question 23

When a country's labor market is in equilibrium in the specific factors model, the wage rate

A) will be the same in both sectors.
B) will be higher in the export-competing sector.
C) will be higher in the import-competing sector.
D) will be higher in the sector where product price is higher.
E) will be higher in the sector where product price is lower.

Question 24

In the specific factors model, which of the following will increase the quantity of labor used in cloth production?

A) an increase in the price of cloth relative to that of food
B) an increase in the price of food relative to that of cloth
C) a decrease in the price of labor
D) an equal percentage decrease in the price of food and cloth
E) an equal percentage increase in the price of food and cloth

Question 25

In the specific factors model, a 5% increase in the price of food accompanied by a 1% increase in the price of cloth will cause ________ in the welfare of labor, ________ in the welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed factor in the production of cloth.

A) an ambiguous change; an increase; a decrease
B) an ambiguous change; a decrease; an increase
C) an ambiguous change; an ambiguous change; an ambiguous change
D) a decrease; an ambiguous change; an ambiguous change
E) an increase; a decrease; an increase

Question 26

In the specific factors model, a 5% increase in the price of food accompanied by a 5% increase in the price of cloth will cause wages to ________, the production of cloth to ________, and the production of food to ________.

A) increase by 5%; remain unchanged; remain unchanged
B) increase by less then 5%; decrease; increase
C) increase by more then 5%; increase; remain unchanged
D) remain constant; increase; increase
E) remain constant; decrease; decrease

Question 27

The slope of a country's production possibility frontier with cloth measured on the horizontal and food measured on the vertical axis in the Ricardian model is equal to ________ and it ________ as more cloth is produced.

Question 28

In the specific factor model, the effect of an increase in the productivity of labor in the production of food will cause a(an) ________ in the quantity of labor used to produce cloth, a(an) ________ in the quantity of labor used to produce food and a(an) ________ in the wage rate.

A) decrease; increase; increase
B) increase; decrease; increase
C) increase; decrease; decrease
D) decrease; increase; no change
E) increase; increase; no change

Question 29

The slope of a country's production possibility frontier with cloth measured on the horizontal and food measured on the vertical axis in the specific factors model is equal to ________ and it ________ as more cloth is produced.

Question 30

In the four-quadrant diagram of the specific factors model, the graph in the upper left quadrant is a country's

A) production function for food.
B) production possibility frontier.
C) labor allocation constraint.
D) production function for cloth.
E) labor supply curve.

Question 31

The slope of a country's production possibility frontier is equal to ________ and the optimal production point is located where the slope is equal to ________. Assume that output of good Y is measured on the vertical axis, output of good X is measured on the horizontal axis, MPL is the marginal product of labor with a subscript indicating which good, P is the price of a good, and w is the wage rate.

Question 32

In the specific factors model, a 5% increase in the price of food accompanied by a 5% increase in the price of cloth will cause ________ in the welfare of labor, ________ in the welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed factor in the production of cloth.

A) no change; no change; no change
B) an increase; an increase; an increase
C) a decrease; an increase; an increase
D) an increase; a decrease; a decrease
E) a decrease; a decrease; a decrease

Question 33

In the specific factors model, which of the following will increase the quantity of labor used in food production?

A) an increase in the price of food relative to that of cloth
B) an increase in the price of cloth relative to that of food
C) a decrease in the price of labor
D) an equal percentage decrease in the price of food and cloth
E) an equal percentage increase in the price of food and cloth

Question 34

In the specific factors model, a 5% decrease in the price of food accompanied by a 5% decrease in the price of cloth will cause ________ in the welfare of labor, ________ in the welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed factor in the production of cloth.

A) no change; no change; no change
B) an increase; an increase; an increase
C) a decrease; an increase; an increase
D) an increase; a decrease; a decrease
E) a decrease; a decrease; a decrease

Question 35

Refer to the production possibility graph above. Assume that the economy is in equilibrium at point e. If the price of good A increases, the new equilibrium is most likely to be

A) point d.
B) point e.
C) point f.
D) point h.
E) point b.

Question 36

In the specific factors model, a 5% increase in the price of food accompanied by a 0% increase in the price of cloth will cause wages to ________, the production of cloth to ________, and the production of food to ________.

A) increase by less then 5%; decrease; increase
B) increase by 5%; remain unchanged; remain unchanged
C) increase by more then 5%; increase; remain unchanged
D) remain constant; increase; increase
E) remain constant; decrease; decrease

Question 37

In the specific factor model, the effect of an increase in the productivity of labor in the production of cloth will cause a(an) ________ in the quantity of labor used to produce cloth, a(an) ________ in the quantity of labor used to produce food and a(an) ________ in the wage rate.

A) increase; decrease; increase
B) decrease; increase; increase
C) increase; decrease; decrease
D) decrease; increase; no change
E) increase; increase; no change

Question 38

Refer to the production possibility graph above. Assume that the economy is in equilibrium at point e. If there is an increase in the wage rate, the new equilibrium is most likely to be

A) point e.
B) point d.
C) point f.
D) point h.
E) point b.

Question 39

Under perfect competition, the equilibrium price of labor used to produce cloth will be equal to

A) the marginal product of labor in the production of cloth times the price of cloth.
B) the average product of labor in the production of cloth times the price of cloth.
C) the ratio of the marginal product of labor in the production of cloth to the marginal product of labor in the production of food times the ratio of the price of cloth. to the price of food.
D) the slope of the production possibility frontier.
E) the price of cloth divided by the marginal product of labor in the production of cloth.

Question 40

In the four-quadrant diagram of the specific factors model, the graph in the upper right quadrant is a country's

A) labor allocation constraint.
B) production possibility frontier.
C) production function for food.
D) production function for cloth.
E) labor supply curve.

Question 41

A country's budget constraint states that

A) whether or not a country engages in trade, the value of goods consumed must be equal to the value of goods produced.
B) real income in the exporting country must be equal to real income in the importing country.
C) unless a country engages in trade, the value of goods consumed cannot exceed the value of goods produced.
D) a country will engage in trade only if the value of goods consumed exceeds the value of goods produced.
E) a country will engage in trade only if the value of goods produced exceeds the value of goods consumed.

Question 42

A country that does not engage in trade can benefit from trade only if

A) pre-trade and free-trade relative prices are not identical.
B) it employs a unique technology.
C) it has an absolute advantage in at least one good.
D) its wage rate is below the world average.
E) pre-trade and free-trade relative prices are identical.

Question 43

Refer to the production possibility graph above. Assume that the economy is in equilibrium at point e. If the price of good B increases, the new equilibrium is most likely to be

A) point f.
B) point d.
C) point e.
D) point h.
E) point b.

Question 44

Those who will unambiguously gain from free trade are ________ factors in sectors that produce goods that are ________.

A) immobile; exported
B) immobile; also imported
C) mobile; also imported
D) mobile; exported
E) mobile; untraded

Question 45

A country's budget constraint states that

A) the value of exports must be equal to the value of imports.
B) real income in the exporting country must be equal to real income in the importing country.
C) unless a country engages in trade, the value of exports cannot exceed the value of goods produced.
D) a country will engage in trade only if the value of imports exceed the value of exports.
E) a country will engage in trade only if the value of exports exceeds the value of imports.

Question 46

In the specific factors model, the effects of trade on welfare are ________ for mobile factors, ________ for fixed factors used to produce the exported good, and ________ for fixed factors used to produce the imported good.

A) ambiguous; positive; negative
B) ambiguous; negative; positive
C) positive; ambiguous; ambiguous
D) negative; ambiguous; ambiguous
E) positive; positive; positive

Question 47

Refer to the production possibility graph above. Assume that the economy is in equilibrium at point e. If a war reduces the country's capital stock by 40%, the new equilibrium is most likely to be

A) point b.
B) point h.
C) point f.
D) point d.
E) point e.

Question 48

The relative price of a unit of cloth in the small isolated country of Moribundia is 5 units of food. When then central city, Mudhole, puts in an airstrip, the country is able to engage in trade. If the relative price of cloth in the outside world is 3 units of food, then Moribundia will export ________ and ________ factors used in the production of ________ will benefit.

A) food; immobile; food
B) food; mobile; food
C) cloth; immobile; cloth
D) cloth; mobile; cloth
E) food; immobile; cloth

Question 49

In the specific factors model, the effects of trade on welfare overall are ________ and for fixed factors used to produce the imported good they are ________.

A) positive; negative
B) positive; positive
C) negative; positive
D) ambiguous; positive
E) positive; ambiguous

Question 50

Economists consider the effects of free trade on income distribution to be ________ important than the effects on overall welfare because ________.

A) less; those who are harmed can be compensated by those who gain
B) more; those who are harmed are not compensated by those who gain
C) less; the effects on income distribution are minor and inconsequential
D) more; the effects on income distribution are major and consequential
E) less; the wealthy benefit and only the poor lose

Question 51

Refer to the production possibility graph above. Assume that the economy is in equilibrium at point e. If the labor supply increases due to immigration, the new equilibrium is most likely to be

A) point h.
B) point f.
C) point d.
D) point e.
E) point b.

Question 52

The effect of trade on specialized employees of import-competing industries will be ________ jobs and ________ pay because they are relatively ________.

A) fewer; lower; immobile
B) fewer; lower; mobile
C) more; lower; immobile
D) more; higher; mobile
E) more; higher; immobile

Question 53

The overall welfare effects of trade are ________ if ________.

A) positive; those who gain can compensate those who lose and still be better off
B) positive; more people gain from trade than lose from it
C) negative; some people are made worse off by trade
D) negative; those who lose can compel those who gain to compensate them for their losses
E) positive; the domestic economy grows faster than do foreign economies

Question 54

The effect of trade on specialized employees of exporting industries will be ________ jobs and ________ pay because they are relatively ________.

A) more; higher; immobile
B) fewer; lower; immobile
C) fewer; lower; mobile
D) more; lower; immobile
E) more; higher; mobile

Question 55

Those who will lose from free trade are ________ factors in sectors that produce goods that are ________.

A) immobile; also imported
B) mobile; also imported
C) immobile; exported
D) mobile; exported
E) mobile; untraded

Question 56

Economists consider the effects of free trade on income distribution to be ________ important than the effects on overall welfare because ________.

A) less; many factors besides trade affect income distribution
B) more; those who are harmed are not compensated by those who gain
C) less; the effects on income distribution are minor and inconsequential
D) more; the effects on income distribution are major and consequential
E) less; the wealthy benefit and only the poor lose

Question 57

The relative price of a unit of cloth in the small isolated country of Moribundia is 5 units of food. When then central city, Mudhole, puts in an airstrip, the country is able to engage in trade. If the relative price of cloth in the outside world is 8 units of food, then Moribundia will export ________ and ________ factors used in the production of ________ will benefit.

A) cloth; immobile; cloth
B) food; immobile; food
C) food; mobile; food
D) cloth; mobile; cloth
E) cloth; immobile; food

Question 58

The effect of trade on income distribution

A) can be significant in the sort run.
B) is positive for all segments of an economy.
C) is insignificant in the short run.
D) implies that there are no real gains from trade.
E) refutes the model of comparative advantage.

Question 59

In the specific factors model, the effects of trade on welfare overall are ________ and for fixed factors used to produce the exported good they are ________.

A) positive; positive
B) negative; positive
C) positive; negative
D) ambiguous; positive
E) positive; ambiguous

Question 60

A country will realize no gains from trade if

A) pre-trade and free-trade relative prices are identical.
B) all countries employ the same technology.
C) it does not have an absolute advantage in at least one good.
D) its wage exceeds the world average.
E) pre-trade and free-trade relative prices are not identical.

Question 61

In modern economies,

A) restrictions on international labor mobility are common.
B) labor is far more mobile internationally than capital.
C) restrictions on international labor mobility are rare.
D) labor is far more mobile internationally than it is intra-nationally.
E) outsourcing increases international labor mobility.

Question 62

Refer to the graph above. Points A, B, and C represent ________, ________, and ________, respectively.

A) equilibrium wage rate after migration from home to foreign has occurred; the wage rate in foreign before migration; the wage rate in home before migration
B) equilibrium wage rate after migration from foreign to home has occurred; the wage rate in home before migration; the wage rate in foreign before migration
C) the wage rate in home before migration; the wage rate in home after migration; the wage rate in foreign after migration
D) the global wage rate before migration; the wage rate in foreign after migration; the wage rate in home after migration
E) the global wage rate before migration; the wage rate in home after migration; the wage rate in foreign after migration

Question 63

There is a bias in the political process against free trade because

A) those who lose from free trade are better organized than those who gain.
B) the gains from free trade cannot be measured.
C) those who gain from free trade can't compensate those who lose.
D) foreign governments make large donations to U.S. political campaigns.
E) there is a high correlation between the volume of imports and the unemployment rate.

Question 64

In the two-country model of international labor mobility,

A) migration results in increased global output, although some groups are made worse off.
B) migration results in increased global output, and all groups are made better off.
C) migration has no effect on global output, although some groups are made worse off.
D) migration has no effect on global output, although some groups are made better off.
E) migration may reduce global output, although some groups are made better off.

Question 65

In the two-country model of international labor mobility,

A) the effect of migration is to cause real wages in the two countries to converge.
B) the effect of migration is to cause real wages in the two countries to diverge.
C) labor has only limited international mobility.
D) the long-run equilibrium global real wage is equal to the lesser of the pre-migration wages in the two countries.
E) the long-run equilibrium global real wage is equal to the greater of the pre-migration wages in the two countries.

Question 66

Immigration into the U.S. over the past century has caused the percentage of immigrants in the U.S. population to

A) fall steadily until the 1970s and increase thereafter.
B) remain relatively constant over the time period.
C) fall steadily over the entire century.
D) rise steadily over the entire century.
E) rise steadily until the 1970s and fall thereafter.

Question 67

In the two-country model of international labor mobility,

A) the long-run equilibrium assumes that desired and actual migration are equal.
B) the long-run equilibrium assumes that desired migration exceeds actual migration.
C) the long-run equilibrium assumes that actual migration exceeds desired migration.
D) the long-run equilibrium assumes countries' policies place significant restrictions on migration.
E) the long-run equilibrium is the result of a divergence of the real wages in the two countries.

Question 68

U.S. imports of sugar are limited by an import quota that, in 2006, imposed an average cost of ________ per consumer, which is an average of ________ per American job saved in the sugar industry.

A) $7; $860,000
B) $105; $56,000
C) $2; $1.3 million
D) $2; $22,000
E) $370; $980