Question 1

Dynamic comparative advantage involves

Accepted Answer

A)  industrial policy to create comparative advantage. 
B)  less governmental involvement in the economy. 
C)  reduced rules and regulations imposed by foreign governments. 
D)  accepting and working with existing resources.

Question 2

Most developing countries have pollution-control laws and enforcement policies that are more stringent than those of the major industrial countries.

Accepted Answer

A) True 
 B)False

Question 3

According to the specific-factors theory, resources that are specific to import-competing industries tend to lose as a result of trade, while resources specific to export industries tend to gain as a result of trade.

Accepted Answer

A) True 
 B)False

Question 4

Which concept explains why countries specialize in products that have a high domestic demand?

Accepted Answer

A)  demand conditions 
B)  external economies of scale 
C)  home market effect 
D)  overlapping demand

Question 5

The product life cycle theory predicts that patterns of comparative advantage change over time.A country that initially exports a product to other countries tends to become a net importer of the product.

Accepted Answer

A) True 
 B)False

Question 6

Intra-industry trade can be explained by product differentiation, economies of scale, seasons of the year, and transportation costs.

Accepted Answer

A) True 
 B)False

Question 7

When transportation costs are added to our trade model, the low-cost exporting country produces less, consumes more, and exports less than that which occurs in the absence of transportation costs.

Accepted Answer

A) True 
 B)False

Question 8

Empirical studies conclude that U.S.environmental policies are a more important determinant of trade performance than capital, raw materials, labor skills, and wages.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  local resources. 
B)  the role of technological innovation. 
C)  per-capita income levels of nations. 
D)  the availability of unskilled labor.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

According to the product life cycle theory, comparative advantage shifts from cheap-labor countries to high-technology countries after a manufactured good becomes standardized.

Accepted Answer

A) True 
 B)False

Question 12

The Leontief paradox

Accepted Answer

A)  supported the factor-endowment theory. 
B)  concluded that exports were less capital intensive than import-competing goods. 
C)  found that national income differences underlie world trade patterns. 
D)  implied that diseconomies of scale occur at low output levels.

Question 13

A product will be traded only if the cost of transporting it between nations is less than the pretrade difference between their relative product prices.

Accepted Answer

A) True 
 B)False

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Japan's fading success in the electronics industry can be explained by all of the following EXCEPT

Accepted Answer

A)  the appreciation of the yen's exchange value. 
B)  lack of product innovation. 
C)  failure to use economies of large-scale production. 
D)  failure to recognize changing patterns of comparative advantage.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

If tastes and preferences are identical for two trading nations, then comparative advantage is the result of

Accepted Answer

A)  technological conditions of the two nations. 
B)  income levels of the two nations. 
C)  demand conditions of the two nations. 
D)  supply conditions of the two nations.

Question 19

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

Accepted Answer

A)  factor-endowment theory 
B)  product life cycle theory 
C)  theory of overlapping demands 
D)  specific-factors theory

Question 20

The product-life-cycle theory applies best to trade in primary products in the short run.

Accepted Answer

A) True 
 B)False

Exam 3: Sources of Comparative Advantage

Dynamic comparative advantage involves

Most developing countries have pollution-control laws and enforcement policies that are more stringent than those of the major industrial countries.

According to the specific-factors theory, resources that are specific to import-competing industries tend to lose as a result of trade, while resources specific to export industries tend to gain as a result of trade.

Which concept explains why countries specialize in products that have a high domestic demand?

The product life cycle theory predicts that patterns of comparative advantage change over time.A country that initially exports a product to other countries tends to become a net importer of the product.

Intra-industry trade can be explained by product differentiation, economies of scale, seasons of the year, and transportation costs.

When transportation costs are added to our trade model, the low-cost exporting country produces less, consumes more, and exports less than that which occurs in the absence of transportation costs.

Empirical studies conclude that U.S.environmental policies are a more important determinant of trade performance than capital, raw materials, labor skills, and wages.

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

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

According to the product life cycle theory, comparative advantage shifts from cheap-labor countries to high-technology countries after a manufactured good becomes standardized.

The Leontief paradox

A product will be traded only if the cost of transporting it between nations is less than the pretrade difference between their relative product prices.

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.

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

Japan's fading success in the electronics industry can be explained by all of the following EXCEPT

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

If tastes and preferences are identical for two trading nations, then comparative advantage is the result of

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

The product-life-cycle theory applies best to trade in primary products in the short run.