Question 1

The mercantilists maintained that a free-trade policy best enhances a nation's welfare.

Accepted Answer

A) True 
 B)False  False

Question 2

Constant opportunity costs suggest that the relative cost of producing one product in terms of the other will remain the same no matter where a nation chooses to locate on its production-possibilities frontier.

Accepted Answer

A) True 
 B)False  True

Question 3

If Spain's weather is better for growing wine grapes than Denmark's, it can be said that Spain has a(n)

Accepted Answer

A)   absolute advantage in the production of wine.
B)   comparative advantage in the production of wine.
C)   lower marginal rate of transformation for wine.
D)   lower opportunity cost of producing wine. A

Question 4

The terms of trade is given by

Accepted Answer

A)   (Price of exports/price of imports)  ? 100.
B)   (Price of exports/price of imports)  + 100.
C)   (Price of exports/price of imports)  ÷ 100.
D)   (Price of exports/price of imports)  × 100.

Question 5

According to J.S.Mill, if we know the domestic demand expressed by both trading partners for both products, the equilibrium terms of trade can be defined.

Accepted Answer

A) True 
 B)False

Question 6

If the international terms of trade settles at a level that is between each country's opportunity cost,

Accepted Answer

A)   there is no basis for gainful trade for either country.
B)   both countries gain from trade.
C)   only one country gains from trade.
D)   one country gains and the other country loses from trade.

Question 7

Assume that the United States is more efficient than the United Kingdom in the production of all goods.Mutually beneficial trade is possible according to the principle of absolute advantage, but is impossible according to the principle of comparative advantage.

Accepted Answer

A) True 
 B)False

Question 8

If Canada experiences constant opportunity costs, its supply schedule of steel will be

Accepted Answer

A)   downward-sloping.
B)   upward-sloping.
C)   horizontal.
D)   vertical.

Question 9

Critics maintain that outsourcing by American businesses results in jobs moving to low-wage countries, to the disadvantage of American workers.

Accepted Answer

A) True 
 B)False

Question 10

The Ricardian model of comparative advantage includes all of the following assumptions EXCEPT

Accepted Answer

A)   it is only based on two nations and two products.
B)   product quality varies among nations.
C)   labor is the only factor of production.
D)   labor can move freely within a nation.

Question 11

Is it possible to add up the preferences of all consumers in an entire nation?

Accepted Answer

The answer of Is it possible to add up the...

Question 12

International trade leads to increased welfare if a nation can achieve a post-trade consumption point lying inside of its production-possibilities frontier.

Accepted Answer

A) True 
 B)False

Question 13

The earliest theorist to discuss the principle of comparative advantage was

Accepted Answer

A)   Adam Smith.
B)   David Ricardo.
C)   Eli Heckscher.
D)   Bertil Ohlin.

Question 14

In Adam Smith's trade theory, ______ is the only factor of production and is of one quality (homogeneous).

Accepted Answer

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

Question 15

If a country's terms of trade worsens, it must exchange fewer exports for a given amount of imports.

Accepted Answer

A) True 
 B)False

Question 16

Because the Ricardian theory of comparative advantage was based only on a nation's supply conditions, it could only determine the outer limits within which the equilibrium terms of trade would lie.

Accepted Answer

A) True 
 B)False

Question 17

Figure 2.1. Production Possibilities Frontier  
-Refer to Figure 2.1.If the relative cost of steel were to rise, then the production possibilities frontier would

Accepted Answer

A)   become steeper.
B)   become flatter.
C)   shift inward in a parallel manner.
D)   shift outward in a parallel manner.

Question 18

The example of Rubbermaid in Wooster, Ohio shows us that

Accepted Answer

A)   international trade is always favorable for the U.S. economy.
B)   tariffs can reduce firm mobility, thus keeping jobs in the U.S.
C)   although international trade generally benefits all, the movement of firms can have a temporary negative impact on workers in a region.
D)   prices always rise to account for price increases in raw materials.

Question 19

David Ricardo's simplified trade model is based on all of these assumptions EXCEPT

Accepted Answer

A)   costs do not vary with the level of production.
B)   the level of technology is fixed for all nations.
C)   capital is the only factor of production.
D)   perfect competition prevails in all markets.

Question 20

With increasing opportunity costs, comparative advantage depends on a nation's supply conditions and demand conditions; with constant opportunity costs, comparative advantage depends only on demand conditions.

Accepted Answer

A) True 
 B)False

Exam 2: Foundations of Modern Trade Theory Comparative Advantage

The mercantilists maintained that a free-trade policy best enhances a nation's welfare.

Constant opportunity costs suggest that the relative cost of producing one product in terms of the other will remain the same no matter where a nation chooses to locate on its production-possibilities frontier.

If Spain's weather is better for growing wine grapes than Denmark's, it can be said that Spain has a(n)

The terms of trade is given by

According to J.S.Mill, if we know the domestic demand expressed by both trading partners for both products, the equilibrium terms of trade can be defined.

If the international terms of trade settles at a level that is between each country's opportunity cost,

Assume that the United States is more efficient than the United Kingdom in the production of all goods.Mutually beneficial trade is possible according to the principle of absolute advantage, but is impossible according to the principle of comparative advantage.

If Canada experiences constant opportunity costs, its supply schedule of steel will be

Critics maintain that outsourcing by American businesses results in jobs moving to low-wage countries, to the disadvantage of American workers.

The Ricardian model of comparative advantage includes all of the following assumptions EXCEPT

Is it possible to add up the preferences of all consumers in an entire nation?

International trade leads to increased welfare if a nation can achieve a post-trade consumption point lying inside of its production-possibilities frontier.

The earliest theorist to discuss the principle of comparative advantage was

In Adam Smith's trade theory, ______ is the only factor of production and is of one quality (homogeneous) .

If a country's terms of trade worsens, it must exchange fewer exports for a given amount of imports.

Because the Ricardian theory of comparative advantage was based only on a nation's supply conditions, it could only determine the outer limits within which the equilibrium terms of trade would lie.

Figure 2.1. Production Possibilities Frontier -Refer to Figure 2.1.If the relative cost of steel were to rise, then the production possibilities frontier would

The example of Rubbermaid in Wooster, Ohio shows us that

David Ricardo's simplified trade model is based on all of these assumptions EXCEPT

With increasing opportunity costs, comparative advantage depends on a nation's supply conditions and demand conditions; with constant opportunity costs, comparative advantage depends only on demand conditions.