Question 1

With trade, a country will $\underline {  \text { maximize }  }$ its satisfaction when it:

Accepted Answer

A)  Moves to the highest possible indifference curve 
B)  Forces the marginal rate of substitution to its lowest possible value 
C)  Consumes more of both goods than it does in autarky 
D)  Finds its marginal rate of substitution exceeding its marginal rate of transformation

Question 2

Figure 2.2 illustrates trade data for Canada. The figure assumes that Canada attains international trade equilibrium at point $\underline {   C . }$
Figure 2.2. Canadian Trade Possibilities
 
-Consider Figure 2.2. In the absence of trade, Canada would produce and consume:

Accepted Answer

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

Question 3

Assume that labor is the only factor of production and that wages in the United States equal $20 per hour while wages in the United Kingdom equal $10 per hour. Production costs would be lower in the United States than the United Kingdom if:

Accepted Answer

A)  U.S. labor productivity equaled 40 units per hour while U.K. labor productivity equaled 15 units per hour 
B)  U.S. labor productivity equaled 30 units per hour while U.K. labor productivity equaled 20 units per hour 
C)  U.S. labor productivity equaled 20 units per hour while U.K. labor productivity equaled 30 units per hour 
D)  U.S. labor productivity equaled 15 units per hour while U.K. labor productivity equaled 25 units per hour

Question 4

Table 2.3. Terms of Trade
 $\begin{array}{lcccc}
& \text { Export Price Index }& & \text { Import Price Index }\
\text { Country } & 1990& 2004& 1990& 2004 \
\hline \text { Mexico } &100&220&100&200\
\text { Sweden } & 100 & 160 & 100 & 150 \
\text { Spain } & 100 & 155 & 100 & 155 \
\text { France } & 100 & 170 & 100 & 230 \
\text { Denmark } & 100 & 120 & 100 & 125 \
\hline
\end{array}$
-Referring to Table 2.3, which countries' terms of trade $\underline {   \text { worsened } }$ between 1990 and 2004?

Accepted Answer

A)  Spain and Mexico 
B)  Mexico and France 
C)  France and Denmark 
D)  Denmark and Sweden

Question 5

A nation benefits from international trade if it can achieve a higher indifference curve than it can in autarky.

Accepted Answer

A) True 
 B)False

Question 6

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 7

For the commodity terms of trade to improve, a country's import price index must rise relative to its export price index over a given time period.

Accepted Answer

A) True 
 B)False

Question 8

Introducing indifference curves into our trade model permits us to determine:

Accepted Answer

A)  Where a nation chooses to locate along its production possibilities curve in autarky 
B)  The precise location of a nation's production possibilities curve 
C)  Whether absolute cost or comparative cost conditions exist 
D)  The currency price of one product in terms of another product

Question 9

Table 2.1. Output Possibilities of the U.S. and the U.K.
 $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Output per Worker per day }$
$\begin{array} { l c c } 
\text { Caunty } & \text { Tons of Steel} &\text { Televisians } \
\hline \text { United States }&5&45\
\text { United Kingdom } & 5 & 20
\end{array}$
-Referring to Table 2.1, the United Kingdom gains most from trade if:

Accepted Answer

A)  1 ton of steel trades for 2 televisions 
B)  1 ton of steel trades for 3 televisions 
C)  2 tons of steel trade for 4 televisions 
D)  2 tons of steel trade for 5 televisions

Question 10

Table 2.2. Output possibilities for South Korea and Japan
 $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Output per Worker per day }$
$\begin{array} { l c c } 
\text { Caunty } & \text { Tons of Steel} &\text { VCR.s  } \
\hline \text { South Korea }&80&40\
\text { Japan } & 20 & 20
\end{array}$
-Referring to Table 2.2, the opportunity cost of one VCR in South Korea is:

Accepted Answer

A)  1/2 ton of steel 
B)  1 ton of steel 
C)  1 1/2 tons of steel 
D)  2 tons of steel

Question 11

Ricardo's theory of comparative advantage was of limited real-world validity because it was founded on the:

Accepted Answer

A)  Labor theory of value 
B)  Capital theory of value 
C)  Land theory of value 
D)  Entrepreneur theory of value

Question 12

Table 2.1. Output Possibilities of the U.S. and the U.K.
 $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Output per Worker per day }$
$\begin{array} { l c c } 
\text { Caunty } & \text { Tons of Steel} &\text { Televisians } \
\hline \text { United States }&5&45\
\text { United Kingdom } & 5 & 20
\end{array}$
-Referring to Table 2.1, the United Kingdom has a comparative advantage in the production of:

Accepted Answer

A)  Steel 
B)  Televisions 
C)  Both steel and televisions 
D)  Neither steel nor televisions

Question 13

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 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 16

Which of the following terms-of-trade concepts is calculated by dividing the change in a country's export price index by the change in its import price index between two points in time, multiplied by 100 to express the terms of trade in percentages?

Accepted Answer

A)  Commodity terms of trade 
B)  Marginal rate of transformation 
C)  Marginal rate of substitution 
D)  Autarky price ratio

Question 17

Is it possible for comparative advantage to change, thus changing the direction of trade?

Accepted Answer

The answer of Is it possible for comparative advantage to...

Question 18

Figure 2.4 Production Possibilities Frontier
 
-In Figure 2.4 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 19

Table 2.1. Output Possibilities of the U.S. and the U.K.
 $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Output per Worker per day }$
$\begin{array} { l c c } 
\text { Caunty } & \text { Tons of Steel} &\text { Televisians } \
\hline \text { United States }&5&45\
\text { United Kingdom } & 5 & 20
\end{array}$
-Referring to Table 2.1, the opportunity cost of producing one ton of steel in the United States is:

Accepted Answer

A)  3 televisions 
B)  10 televisions 
C)  20 televisions 
D)  45 televisions

Question 20

The theory of reciprocal demand asserts that as the U.S. demand for Canadian wheat rises, the equilibrium terms of trade improve for the United States.

Accepted Answer

A) True 
 B)False

Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

With trade, a country will maximize ‾\underline { \text { maximize } } maximize ​ its satisfaction when it:

Figure 2.2 illustrates trade data for Canada. The figure assumes that Canada attains international trade equilibrium at point C.‾\underline { C . }C.​ Figure 2.2. Canadian Trade Possibilities -Consider Figure 2.2. In the absence of trade, Canada would produce and consume:

Assume that labor is the only factor of production and that wages in the United States equal $20 per hour while wages in the United Kingdom equal $10 per hour. Production costs would be lower in the United States than the United Kingdom if:

A nation benefits from international trade if it can achieve a higher indifference curve than it can in autarky.

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.

For the commodity terms of trade to improve, a country's import price index must rise relative to its export price index over a given time period.

Introducing indifference curves into our trade model permits us to determine:

Ricardo's theory of comparative advantage was of limited real-world validity because it was founded on the:

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

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

Improvements in productivity may lead to decreasing comparative costs if

Which of the following terms-of-trade concepts is calculated by dividing the change in a country's export price index by the change in its import price index between two points in time, multiplied by 100 to express the terms of trade in percentages?

Is it possible for comparative advantage to change, thus changing the direction of trade?

Figure 2.4 Production Possibilities Frontier -In Figure 2.4 one ton of wheat can be produced at a cost of

The theory of reciprocal demand asserts that as the U.S. demand for Canadian wheat rises, the equilibrium terms of trade improve for the United States.

With trade, a country will $\underline { \text { maximize } }$ its satisfaction when it: