Question 1

When compared with China,the growth of clothing exports originating in Bangladesh clearly illustrates the difference between absolute and comparative advantage.Discuss and explain.

Accepted Answer

The answer of When compared with China,the growth of clothing...

Question 2

If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios)then it is probable that

Accepted Answer

A)  free trade will not improve either both countries welfare. 
B)  free trade will result in no trade taking place. 
C)  free trade will result in each country exporting the good in which it enjoys comparative advantage. 
D)  free trade will result in each country exporting the good in which it suffers the greatest comparative disadvantage. 
E)  free trade will not affect the economic welfare of either country.

Question 3

Let us define the real wage as the purchasing power of one hour of labor.In the Ricardian 2X2 model,if two countries under autarky engage in trade then

Accepted Answer

A)  the real wage will not be affected since this is a financial variable. 
B)  the real wage will increase only if a country attains full specialization. 
C)  the real wage will increase in one country only if it decreases in the other. 
D)  the real wage will rise in both countries. 
E)  the real wage will fall under pressure of international competition.

Question 4

If a production possibilities frontier is bowed out (concave to the origin),then production occurs under conditions of

Accepted Answer

A)  constant opportunity costs. 
B)  increasing opportunity costs. 
C)  decreasing opportunity costs. 
D)  infinite opportunity costs. 
E)  uncertain opportunity costs.

Question 5

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. 
E)  labor is outsourced to neighboring countries.

Question 6

If labor productivities were exactly proportional to wage levels internationally,this would

Accepted Answer

A)  not negate the logical basis for trade in the Ricardian model. 
B)  render the Ricardian model theoretically correct but practically useless. 
C)  negate the logical basis for trade in the Ricardian model. 
D)  negate the applicability of the Ricardian model if the number of products were greater than the number of trading partners. 
E)  demonstrate the validity of the Ricardian model.

Question 7

Trade in a One-Factor World
 
-Given the information in the table above,Home's opportunity cost of widgets is

Accepted Answer

A)  0.5. 
B)  2.0. 
C)  6.0. 
D)  1.5. 
E)  3.0.

Question 8

-Given the information in the table above.What is the opportunity cost of cloth in terms of Widgets in Foreign?

Accepted Answer

The answer of 
-Given the information in the table above.What...

Question 9

Trade in a One-Factor World
 
-Given the information in the table above,Foreign's opportunity cost of widgets is

Accepted Answer

A)  0.5. 
B)  2.0. 
C)  6.0. 
D)  1.5. 
E)  3.0.

Question 10

In the Ricardian model,comparative advantage is likely to be due to

Accepted Answer

A)  scale economies. 
B)  home product taste bias. 
C)  greater capital availability per worker. 
D)  labor productivity differences. 
E)  political pressure.

Question 11

How does the two-good,two-country version of the Ricardian model differ from the two-country,many-good model in terms of the determination which goods are produced and exported by each country?

Accepted Answer

The answer of How does the two-good,two-country version of the...

Question 12

-Given the information in the table above.If these two countries trade these two goods in the context of the Ricardian model of comparative advantage,then what is the lower limit of the world equilibrium price of widgets?

Accepted Answer

The answer of 
-Given the information in the table above.If...

Question 13

If two countries engage in Free Trade following the principles of comparative advantage,then

Accepted Answer

A)  neither relative prices nor relative marginal costs (marginal rates of transformation-MRTs) in one country will equal those in the other country. 
B)  both relative prices and MRTs will become equal in both countries. 
C)  relative prices but not MRTs will become equal in both countries. 
D)  MRTs but not relative prices will become equal in both countries. 
E)  trade will be unrestricted, regardless of relative costs and MRTs.

Question 14

In 1975,wage levels in South Korea were roughly 5% of those in the United States.It is obvious that if the United States had allowed Korean goods to be freely imported into the United States at that time,this would have caused devastation to the standard of living in the United States,because no producer in this country could possibly compete with such low wages.Discuss this assertion in the context of the Ricardian model of comparative advantage.

Accepted Answer

The answer of In 1975,wage levels in South Korea were...

Question 15

Trade in a One-Factor World
 
-Given the information in the table above,if the world equilibrium price of widgets were 40 cloths,then

Accepted Answer

A)  both countries could benefit from trade with each other. 
B)  neither country could benefit from trade with each other. 
C)  each country will want to export the good in which it enjoys comparative advantage. 
D)  neither country will want to export the good in which it enjoys comparative advantage. 
E)  both countries will want to specialize in cloth.

Question 16

-Given the information in the table above,if it is ascertained that Foreign uses prison-slave labor to produce its exports,then home should

Accepted Answer

A)  export cloth. 
B)  export widgets. 
C)  export both and import nothing. 
D)  export and import nothing. 
E)  export widgets and import cloth.

Question 17

Trade in a One-Factor World
 
-Given the information in the table above,if wages were to double in Home,then Home should

Accepted Answer

A)  export cloth. 
B)  export widgets. 
C)  export both and import nothing. 
D)  export and import nothing. 
E)  export widgets and import cloth.

Question 18

If the world terms of trade for a country are somewhere between the domestic cost ratio of H and that of F,then

Accepted Answer

A)  country H but not country F will gain from trade. 
B)  country H and country F will both gain from trade. 
C)  neither country H nor F will gain from trade. 
D)  only the country whose government subsidizes its exports will gain. 
E)  country F but not country H will gain from trade.

Question 19

Which of the following statements is TRUE?

Accepted Answer

A)  Free trade is beneficial only if your country is strong enough to stand up to foreign competition. 
B)  Free trade is beneficial only if your competitor does not pay unreasonably low wages. 
C)  Free trade is beneficial only if both countries have access to the same technology. 
D)  Free trade is never beneficial for developing countries. 
E)  Free trade can be beneficial to economic welfare of all countries involved.

Question 20

Suppose the United States' production possibility frontier was flatter to the widget axis,whereas Germany's was flatter to the butter axis.We now learn that the German mark sharply depreciates against the U.S.dollar.We now know that

Accepted Answer

A)  the United States has no comparative advantage 
B)  Germany has a comparative advantage in butter. 
C)  the United States has a comparative advantage in butter. 
D)  Germany has a comparative advantage in widgets. 
E)  Germany has lost its comparative advantage.

Exam 3: Labor Productivity and Comparative Advantage: The Ricardian Model

When compared with China,the growth of clothing exports originating in Bangladesh clearly illustrates the difference between absolute and comparative advantage.Discuss and explain.

If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios) then it is probable that