Question 1

With increasing opportunity costs, a nation totally specializes in the production of the commodity of its comparative advantage; with constant opportunity costs, a nation partially specializes in the production of the commodity of its comparative advantage.

Accepted Answer

A) True 
 B)False

Question 2

Ricardo's theory of comparative advantage was of limited relevance to the real world since it assumed that labor was only one of several factors of production.

Accepted Answer

A) True 
 B)False

Question 3

For the United States, outsourcing tends to result from

Accepted Answer

A)  a change in the pattern of comparative advantage. 
B)  the desire of domestic firms to keep domestic labor unions happy. 
C)  poor educational systems that result in domestic workers becoming less productive. 
D)  highly restrictive import tariffs and import quotas.

Question 4

Figure 2.2. Canadian Trade Possibilities
​  ​
-Consider Figure 2.2.With trade, Canada consumes

Accepted Answer

A)  12 televisions and 8 refrigerators. 
B)  12 televisions and 16 refrigerators. 
C)  8 televisions and 16 refrigerators. 
D)  24 refrigerators.

Question 5

Concerning possible determinants of international trade, which are sources of comparative advantage?

Accepted Answer

A)  differences in role of production 
B)  differences in tastes and preferences 
C)  differences in technological know-how 
D)  differences in terms of trade

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

The marginal rate of transformation equals the absolute slope of a country's production possibilities frontier.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 15.1

At the Plaza Accord of 1985, the Group-of-Five nations agreed to drive the value of the dollar downward (i.e., depreciation) so as to help reduce the U.S. trade deficit. Answer the following question(s) on the basis of this information.
-In Figure 2.3, one ton of wheat can be produced at a cost of

Accepted Answer

A)  one and two-thirds cars. 
B)  two and one-third cars. 
C)  three fifths of a car. 
D)  three sevenths of a car.

Question 9

"The equilibrium relative commodity price at which trade takes place is determined by the conditions of demand and supply for each commodity in both nations.Other things being equal, the nation with the more intense demand for the other nation's exported good will gain less from trade than the nation with the less intense demand." This statement was first proposed by

Accepted Answer

A)  Alfred Marshall with offer curve analysis. 
B)  John Stuart Mill with the theory of reciprocal demand. 
C)  Adam Smith with the theory of absolute advantage. 
D)  David Ricardo with the theory of comparative advantage.

Question 10

Exhibit 15.1

At the Plaza Accord of 1985, the Group-of-Five nations agreed to drive the value of the dollar downward (i.e., depreciation) so as to help reduce the U.S. trade deficit. Answer the following question(s) on the basis of this information.
-In Figure 2.3, the marginal rate of transformation of wheat into autos is

Accepted Answer

A)  one and two-thirds. 
B)  two and one-third. 
C)  three fifths. 
D)  three sevenths.

Question 11

International economists use the production possibilities frontier to help explain

Accepted Answer

A)  a favorable trade balance. 
B)  a trade surplus. 
C)  levels of consumption. 
D)  a nation's gain from trade.

Question 12

According to the trade model of David Ricardo, the direction of trade is determined by absolute advantage.

Accepted Answer

A) True 
 B)False

Question 13

The efficiency gains that _______ provide(s) for economies are not a one-time occurrence but an ongoing process that fosters long-run economic growth.

Accepted Answer

A)  consumers 
B)  computers 
C)  information exchange 
D)  digital trade

Question 14

Assume that the United States and Canada engage in trade.If the international terms of trade coincides with the Canadian cost ratio, the United States realizes all of the gains from trade with Canada.

Accepted Answer

A) True 
 B)False

Question 15

The introduction of community indifference curves into our trading example focuses attention on the nation's

Accepted Answer

A)  income level. 
B)  resource prices. 
C)  tastes and preferences. 
D)  productivity level.

Question 16

The principle of comparative advantage contends that a nation should specialize in and export the good in which its absolute advantage is smallest or its absolute disadvantage is greatest.

Accepted Answer

A) True 
 B)False

Question 17

The terms of trade is given by the prices

Accepted Answer

A)  paid for all goods imported by the home country. 
B)  received for all goods exported by the home country. 
C)  received for exports and paid for imports. 
D)  of primary products as opposed to manufactured products.

Question 18

Ricardo's model of comparative advantage assumed all of the following EXCEPT

Accepted Answer

A)  trade is balanced, thus ruling out flows of money between nations. 
B)  firms make production decisions in an attempt to maximize profits. 
C)  free trade occurs between nations. 
D)  labor is immobile within a country, but is incapable of moving between countries.

Question 19

MacDougall's empirical study of comparative advantage was based on the notion that a product's labor cost is underlaid by labor productivity and the wage rate.

Accepted Answer

A) True 
 B)False

Question 20

According to the principle of comparative advantage, specialization and trade increase a nation's total output since

Accepted Answer

A)  resources are directed to their highest productivity. 
B)  the output of the nation's trading partner declines. 
C)  the nation can produce outside of its production possibilities frontier. 
D)  the problem of unemployment is eliminated.

Exam 2: Foundations of Modern Trade Theory Comparative Advantage

With increasing opportunity costs, a nation totally specializes in the production of the commodity of its comparative advantage; with constant opportunity costs, a nation partially specializes in the production of the commodity of its comparative advantage.

Ricardo's theory of comparative advantage was of limited relevance to the real world since it assumed that labor was only one of several factors of production.

For the United States, outsourcing tends to result from

Figure 2.2. Canadian Trade Possibilities -Consider Figure 2.2.With trade, Canada consumes

Concerning possible determinants of international trade, which are sources of comparative advantage?

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

The marginal rate of transformation equals the absolute slope of a country's production possibilities frontier.

International economists use the production possibilities frontier to help explain

According to the trade model of David Ricardo, the direction of trade is determined by absolute advantage.

The efficiency gains that _______ provide(s) for economies are not a one-time occurrence but an ongoing process that fosters long-run economic growth.

Assume that the United States and Canada engage in trade.If the international terms of trade coincides with the Canadian cost ratio, the United States realizes all of the gains from trade with Canada.

The introduction of community indifference curves into our trading example focuses attention on the nation's

The principle of comparative advantage contends that a nation should specialize in and export the good in which its absolute advantage is smallest or its absolute disadvantage is greatest.

The terms of trade is given by the prices

Ricardo's model of comparative advantage assumed all of the following EXCEPT

MacDougall's empirical study of comparative advantage was based on the notion that a product's labor cost is underlaid by labor productivity and the wage rate.

According to the principle of comparative advantage, specialization and trade increase a nation's total output since

Exam 2: Foundations of Modern Trade Theory Comparative Advantage

With increasing opportunity costs, a nation totally specializes in the production of the commodity of its comparative advantage; with constant opportunity costs, a nation partially specializes in the production of the commodity of its comparative advantage.

Ricardo's theory of comparative advantage was of limited relevance to the real world since it assumed that labor was only one of several factors of production.

For the United States, outsourcing tends to result from

Figure 2.2. Canadian Trade Possibilities ​ ​ -Consider Figure 2.2.With trade, Canada consumes

Concerning possible determinants of international trade, which are sources of comparative advantage?

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

The marginal rate of transformation equals the absolute slope of a country's production possibilities frontier.

International economists use the production possibilities frontier to help explain

According to the trade model of David Ricardo, the direction of trade is determined by absolute advantage.

The efficiency gains that _______ provide(s) for economies are not a one-time occurrence but an ongoing process that fosters long-run economic growth.

Assume that the United States and Canada engage in trade.If the international terms of trade coincides with the Canadian cost ratio, the United States realizes all of the gains from trade with Canada.

The introduction of community indifference curves into our trading example focuses attention on the nation's

The principle of comparative advantage contends that a nation should specialize in and export the good in which its absolute advantage is smallest or its absolute disadvantage is greatest.

The terms of trade is given by the prices

Ricardo's model of comparative advantage assumed all of the following EXCEPT

MacDougall's empirical study of comparative advantage was based on the notion that a product's labor cost is underlaid by labor productivity and the wage rate.

According to the principle of comparative advantage, specialization and trade increase a nation's total output since

Figure 2.2. Canadian Trade Possibilities -Consider Figure 2.2.With trade, Canada consumes