Question 1

Which of the following trade theories asserts that within the outer limits of the terms of trade,the actual terms of trade is determined by the relative strength of each country's demand for the other country's product?

Accepted Answer

A)  theory of reciprocal demand 
B)  overlapping demand theory 
C)  theory of income determination 
D)  theory of negative externalities

Question 2

If the U.S.post-trade consumption point lies along its production possibilities schedule,the United States achieves a higher level of welfare with trade than without trade.

Accepted Answer

A) True 
 B)False

Question 3

A country with high wages can export to a country with low wages,given sufficiently high labor productivity in the exporting country.

Accepted Answer

A) True 
 B)False

Question 4

As international trade proceeds,a country will produce more of its import- competing product.

Accepted Answer

A) True 
 B)False

Question 5

Under free trade,Sweden enjoys all of the gains from trade with Holland if Sweden:

Accepted Answer

A)  Trades at Holland's rate of transformation 
B)  Trades at Sweden's rate of transformation 
C)  Specializes completely in the production of its export good 
D)  Specializes partially in the production of its export good

Question 6

If Canada produces computers at a lower relative cost than Germany,Canada is said to have a comparative disadvantage in computers.

Accepted Answer

A) True 
 B)False

Question 7

The theory of reciprocal demand best applies when one country has a "large" economy and the other country has a "small" economy.

Accepted Answer

A) True 
 B)False

Question 8

According to Ricardo,a country will have a comparative advantage in the product in which its:

Accepted Answer

A)  Labor productivity is relatively low 
B)  Labor productivity is relatively high 
C)  Labor mobility is relatively low 
D)  Labor mobility is relatively high

Question 9

The Ricardian model of comparative advantage is based on all of the following assumptions except:

Accepted Answer

A)  Only 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 10

There are two explanations of constant opportunity costs: (1) factors of production are imperfect substitutes for each other; (2) all units of a given factor have different qualities.

Accepted Answer

A) True 
 B)False

Question 11

Ricardo's theory of comparative advantage does not take into account demand conditions when determining relative commodity prices.

Accepted Answer

A) True 
 B)False

Question 12

The equilibrium prices and quantities established after trade are fully determinate if we know:

Accepted Answer

A)  The location of all countries' indifference curves 
B)  The shape of each country's production possibilities curve 
C)  The comparative costs of each trading partner 
D)  The strength of world supply and demand for each good

Question 13

The principle of absolute advantage asserts that mutually beneficial trade can occur even if one nation is absolutely more efficient in the production of all goods.

Accepted Answer

A) True 
 B)False

Question 14

Improvements in productivity may lead to decreasing comparative costs if

Accepted Answer

A)  The assumption of fixed technologies under constant costs is relaxed 
B)  Technologies available to each nation is allowed to differ 
C)  Resource endowments are allowed to vary 
D)  All of the above

Question 15

In the absence of trade,a nation is in equilibrium where a community indifference curve:

Accepted Answer

A)  Lies above its production possibilities curve 
B)  Is tangent to its production possibilities curve 
C)  Intersects its production possibilities curve 
D)  Lies below its production possibilities curve

Question 16

The theory of reciprocal demand does not well apply when one country:

Accepted Answer

A)  Produces under constant cost conditions 
B)  Produces along its production possibilities curve 
C)  Is of minor economic importance in the world marketplace 
D)  Partially specializes the production of its export good

Question 17

Adam Smith

Accepted Answer

A)  Was a leading advocate of free trade 
B)  Developed the concept of absolute advantage 
C)  Maintained that labor costs represent the major determinant of production cost 
D)  All of the above

Question 18

If a production possibilities curve is bowed out (i.e.,concave) in appearance,production occurs under conditions of:

Accepted Answer

A)  Constant opportunity costs 
B)  Increasing opportunity costs 
C)  Decreasing opportunity costs 
D)  Zero opportunity costs

Question 19

Suppose that a country's post-trade consumption point lies outside of its production possibilities curve.As a result,the country

Accepted Answer

A)  gains from trade 
B)  loses from trade 
C)  is not affected by trade 
D)  none of the above

Question 20

The Ricardian theory of comparative advantage assumes only two nations and two products,labor can move freely within a nation,and perfect competition exists in all markets.

Accepted Answer

A) True 
 B)False

Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

Which of the following trade theories asserts that within the outer limits of the terms of trade,the actual terms of trade is determined by the relative strength of each country's demand for the other country's product?

If the U.S.post-trade consumption point lies along its production possibilities schedule,the United States achieves a higher level of welfare with trade than without trade.

A country with high wages can export to a country with low wages,given sufficiently high labor productivity in the exporting country.

As international trade proceeds,a country will produce more of its import- competing product.

Under free trade,Sweden enjoys all of the gains from trade with Holland if Sweden:

If Canada produces computers at a lower relative cost than Germany,Canada is said to have a comparative disadvantage in computers.

The theory of reciprocal demand best applies when one country has a "large" economy and the other country has a "small" economy.

According to Ricardo,a country will have a comparative advantage in the product in which its:

The Ricardian model of comparative advantage is based on all of the following assumptions except:

There are two explanations of constant opportunity costs: (1) factors of production are imperfect substitutes for each other; (2) all units of a given factor have different qualities.

Ricardo's theory of comparative advantage does not take into account demand conditions when determining relative commodity prices.

The equilibrium prices and quantities established after trade are fully determinate if we know:

The principle of absolute advantage asserts that mutually beneficial trade can occur even if one nation is absolutely more efficient in the production of all goods.

Improvements in productivity may lead to decreasing comparative costs if

In the absence of trade,a nation is in equilibrium where a community indifference curve:

The theory of reciprocal demand does not well apply when one country:

Adam Smith

If a production possibilities curve is bowed out (i.e.,concave) in appearance,production occurs under conditions of:

Suppose that a country's post-trade consumption point lies outside of its production possibilities curve.As a result,the country

The Ricardian theory of comparative advantage assumes only two nations and two products,labor can move freely within a nation,and perfect competition exists in all markets.