Deck 8: International Trade

Question 1

Suppose there are three nations (North,South,and East) and three goods (A,B,and C). Given resources and technology,North can produce 5 units of A,or 2 units of B,
Or 10 units of C,or any linear combination thereof. South can produce 5 units of A,
Or 2 units of B,or 5 units of C,or any linear combination thereof. East can produce
Either 1 unit of A,or 5 units of B,or 10 units of C,or any linear combination thereof.
The most efficient pattern of specialization is to have

A) North produce A, South produce B, and East produce C
B) North produce A, South produce C, and East produce B
C) South produce A, North produce B, and East produce C
D) South produce A, North produce C, and East produce B
E) East produce A, South produce B, and North produce C

Answer 1

South produce A, North produce C, and East produce B

Question 2

Which of the following would not be predicted by the Hecksher-Ohlin theorem?

A) the US should export capital-intensive and technology-intensive goods
B) India should export labor-intensive goods
C) Canada should have a comparative advantage in forestry
D) Kuwait should specialize in the production of oil
E) Central African Republic should have a comparative advantage in fisheries

Answer 2

Central African Republic should have a comparative advantage in fisheries

Question 3

The next questions refer to the following.
Suppose Canada can produce either 120 units of goods, 80 units of services, or any linear combination thereof. Mexico can produce 90 units of goods, 50 units of services, or any linear combination thereof.
International trade under these conditions

A) cannot benefit either country
B) can only benefit Mexico
C) can only benefit Canada
D) can benefit both countries if Canada exports goods and imports services
E) can benefit both countries if Canada exports services and imports goods

Answer 3

can benefit both countries if Canada exports services and imports goods

Question 4

On average,over the last 50 years or so world trade has

A) increased faster than world output
B) been primarily concentrated in agriculture
C) been dominated by Middle East oil exports
D) declined as nations closed their borders to imports
E) been conducted almost exclusively over the internet

Question 5

If a country exports $1 billion worth of fish each year and imports $4 billion worth of fish,then the measure of intra-industry trade among its fisheries is

A) .6
B) .4
C) 2/3
D) 1/3
E) .25

Question 6

According to the Hotelling Rule,the price of an exhaustible natural resource will

A) be very volatile
B) rise at the rate of interest
C) be too low and result in to being exploited too quickly
D) rise to ensure that the resource never runs out.
E) Always be at the backstop price where rival sources are economic

Question 7

The idea that efficient producers can benefit from trading with inefficient producers is known as

A) the theory of competitive advantage
B) the Hecksher-Ohlin theorem
C) the Stolper-Samuelson theorem
D) New Trade Theory
E) comparative advantage

Question 8

Which of the following is not an example of intra-industry trade?

A) England exports beef to Ireland, and imports Irish potatoes
B) the Dutch export elm trees and import lumber products
C) Canadians touring the US side of Niagara Falls stay in US motels while Americans touring the Canadian side stay in Canadian hotels
D) Russia exports oil and imports capital equipment
E) Norwegians deposit funds in Swiss banks while the Swiss buy insurance from Norway

Question 9

Applied to trade in two goods between two countries,the principle of comparative advantage does not suggest that

A) a nation with an absolute disadvantage in producing both goods will have a comparative advantage in producing one of them
B) the two nations will specialize in the production of different goods
C) both nations will equally benefit from trade
D) consumption possibilities will exceed production possibilities after trade
E) each nation will import the good whose opportunity cost of production is higher at home than abroad

Question 10

The largest exporter of goods and services in the world is

A) China
B) European Union
C) Japan
D) Mexico
E) Saudi Arabia

Question 11

As a general rule,

A) large economies tend to be more open than small economies
B) small economies tend to be more open than large economies
C) small economies tend to export more services than goods
D) small economies tend to have greater diversity of exports than large economies
E) small economies tend only to trade with each other, and large economies tend to do the same

Question 12

The next questions refer to the following.
Suppose Canada can produce either 120 units of goods, 80 units of services, or any linear combination thereof. Mexico can produce 90 units of goods, 50 units of services, or any linear combination thereof.
If by international treaty the ratio of the price of services to the price of goods was held at 1.5,then

A) neither country would benefit from trade
B) both countries will benefit from trade
C) only Canada would benefit from trade; Mexico would lose
D) only Mexico would benefit from trade; Canada would lose
E) Mexico would benefit from trade; Canada would neither gain nor lose

Question 13

Which of the following does not help to explain why the US imports capital-intensive goods?

A) preference differences between nations
B) the imposition of tariffs
C) differences in technology across countries
D) the relatively recent development of the US capital-goods industry
E) imperfect competition

Question 14

The central prediction of the Hecksher-Ohlin theorem is that

A) international goods prices equalize under foreign trade
B) comparative advantages depend on the abundance of factor inputs
C) international trade disperses technology, speeding convergence
D) all nations move beyond their production possibilities sets with free trade
E) exchange rates adjust to ensure purchasing power parity

Question 15

The price of a country's exports relative to the price of its imports is called

A) the export price ratio
B) the comparative advantage
C) the tariff barrier
D) the terms of trade
E) the mercantile factor

Question 16

Which of the following industries accounts for the largest share of world trade?

A) agriculture
B) mining
C) manufacturing
D) construction
E) services

Question 17

The next questions refer to the following.
Suppose Canada can produce either 120 units of goods, 80 units of services, or any linear combination thereof. Mexico can produce 90 units of goods, 50 units of services, or any linear combination thereof.
Under these conditions,the ratio of the international price of services relative to the price of goods should fall into what range?

A) less than 9/8
B) 9/8 to 2.4
C) 4/3 to 1.6
D) 1.5 to 1.8
E) more than 2.4

Question 18

In the Hotelling Rule,which of the following will not cause the price of an exhaustable natural resource to rise

A) An unanticipated fall in interest rates
B) An unanticipated rise in demand
C) An unanticipated fall in supply
D) An unanticipated rise in the backstop price
E) An unanticipated rise in interest rates

Question 19

The next questions refer to the following.
Suppose Canada can produce either 120 units of goods, 80 units of services, or any linear combination thereof. Mexico can produce 90 units of goods, 50 units of services, or any linear combination thereof.
Then in terms of production,

A) Mexico has an absolute advantage in producing goods
B) Canada should produce both goods and services, but mostly goods
C) neither country should produce services
D) the opportunity cost of producing goods is higher in Canada than in Mexico
E) Mexico is relatively more efficient at producing services than goods

Question 20

An increase in a country's terms of trade means that

A) export-import contracts are of longer duration
B) imports have become relatively more expensive
C) the exchange rate is rising
D) the benefits from trade are increasing
E) the country is becoming less open to foreign trade

Question 21

Which of the following assumptions is common to both New Trade Theory and the model of intra-industry trade?

A) trade is a zero-sum game
B) production exhibits increasing returns to scale
C) firms behave cooperatively rather than competitively
D) exchange rates adjust to offset the effects of tariffs
E) in the long run, exports equal imports

Question 22

Differences between trade partners in real hourly wage rates for unskilled labor illustrate

A) the fallacy of the factor-price equalization theorem
B) the importance of different capital endowments
C) discrepancies between nations in accounting procedures
D) the principle of comparative advantage
E) the disequilibria created by international trade

Question 23

Industries which receive government protection from trade pressures are likely to exhibit all of the following except

A) high levels of employment
B) low levels of productivity
C) a high proportion of unskilled workers
D) monopoly power
E) comparative advantage

Question 24

A government subsidy to an industry having increasing returns to scale in order to capture international market share is an example of

A) an embargo
B) a boycott
C) strategic trade policy
D) the Prebisch-Singer hypothesis
E) import substitution

Question 25

Governments are most likely to adopt trade restrictions because

A) of nationalistic motives and prejudice against other countries
B) protectionist policies benefit society as a whole
C) tariffs are the primary source of government revenue
D) those whom trade hurts are more cohesive and vocal than those whom trade benefits
E) trade weakens the government's ability to conduct stabilization policy

Question 26

Country A has a large pool of skilled workers earning $50 per hour and a small pool of unskilled workers earning $18 per hour. Country B has a small pool of skilled workers earning $60 per hour and a large pool of unskilled workers earning $8 per hour. Trade theory predicts that if A and B engage in international trade with each other,

A) real wages paid to skilled workers will fall in A
B) unskilled wages will become more unequal between A and B
C) real incomes will become more equal within B
D) the wages of unskilled workers in B will fall
E) wages to all workers in both countries will rise

Question 27

According to New Trade Theory,

A) international trade is not a zero-sum game, but a win-win proposition
B) a nation can create new comparative advantages by subsidizing key industries
C) protectionism is justified in order to allow "infant industries" to mature
D) competitiveness is an inappropriate model for countries to follow in foreign trade
E) trade wars benefit society by raising the level of competitiveness

Question 28

The Stopler-Samuelson Theory suggests that

A) Owners of capital tend to gain from trade
B) Countries will have a comparative advantage in goods produced using factors in which the country is abundant
C) Trade increase the real incomes of owners of the abundant factor of production relative to those of the owners of the scarce factor
D) Commodity prices tend to fall relative to the price of manufactured goods
E) Tariff protection can benefit a country which is large enough to influence the world price of traded goods
F) Mexico

Question 29

Advocates of competitiveness as a argument for trade protection

A) apply an adversarial business model to international trade
B) confuse economic growth with comparative advantage
C) favor protection of capital-intensive industries
D) fail to appreciate the role of industrial restructuring
E) all of the above

Question 30

If country A is well-endowed with natural resources but a small population while B is endowed with much labor but little land and few natural resources,then trade theory predicts that

A) A and B will not trade with each other, as neither can produce enough goods to export
B) A will gain more from trade than B
C) The price of labor-intensive goods will fall in country B after trade
D) Trade will occur, but wages will fall in country A
E) Wages and land values will rise in both countries if they trade

Question 31

Given the following sectoral trade data,in which case is the level of intra-industry trade in country A different from that in country B?

A) In A, X = 10, M = 5; in B, X = 20, M = 10
B) In A, X = 7, M = 3; in B, X = 3, M = 7
C) In A, X = 3, M = 2; in B, X = 6, M = 9
D) In A, X = 6, M = 8; in B, X = 4, M = 3
E) In A, X = 12, M = 9; in B, X = 12, M = 15

Question 32

If production is characterized by increasing returns to scale,then

A) the economy is self-sufficient and will not engage in foreign trade
B) intra-industry trade is likely to occur
C) the nation is more likely to be a net importer than a net exporter
D) the production possibilities set is limitless
E) smaller production runs are more economical than large ones