Question 1

According to the law of comparative advantage,the less efficient of the two trading countries should specialize in and export the commodity in which it manages to have an absolute advantage.

Accepted Answer

A) True 
 B)False

Question 2

If wage in country A is $6/hour and in country B is £2/hour,and the exchange rate between a $ and a £ is 1£=2$,then given the information in the table,which of the following is true? $\begin{array}{|l|c|c|}
\hline & \text {Country A} &\text { Country B} \
\hline\text { Apple (bushels/hr) }& 8 & 1 \
\hline\text { Orange (bushels/hr)} & 2 & 3 \
\hline
\end{array}$

Accepted Answer

A) Country A has comparative advantage in apples 
B) Country A has comparative advantage in oranges 
C) Country B has comparative advantage in apples 
D) Country A and B both have comparative advantage in oranges

Question 3

An important exception to the Laissez-faire policy mentioned by the author is in:

Accepted Answer

A) the agricultural industries 
B) the steel industry 
C) national defense related industries 
D) None of the above

Question 4

In the table below both countries produce at the bold levels of output without trade.Assume the US and UK initiate trade and begin to completely specialize in the commodity in which they have a comparative advantage.Identify the gains from trade if the US trades 50 units of rice to the UK for 50 units of pudding. 
Production Possibility Schedule for Rice and Pudding in the United States and the United Kingdom
$\begin{array}{|cc|cc|}
\hline \text { United States } &&\text {United Kingdom } \
\hline \text {Rice} & \text {Pudding} &\text { Rice }& \text {Pudding} \
\hline 140 & 0 & 35 & 0 \
\hline 120 & 10 & 30 & 10 \
\hline 100 & 20 & 25 & 20 \
\hline 80 & 30 & 20 & 60 \
\hline 60 & 40 & 15 & 80 \
\hline 40 & 50 & 10 & 100 \
\hline 20 & 60 & 5 & 120 \
\hline 0 & 70 & 0 & 140 \
\hline
\end{array}$

Accepted Answer

A) US: 10 units of pudding,20 units of rice 
B) US: 30 units of pudding,30 units of rice 
C) UK: 10 units of pudding,20 units of rice 
D) UK: 30 units of pudding,30 units of rice

Question 5

The Wealth of Nations was published in 1776 by:

Accepted Answer

A) David Ricardo 
B) Adam Smith 
C) The Mercantilists 
D) Alfred Marshall

Question 6

Which of these economists considered absolute advantage in production to be the basis for trade between nations?

Accepted Answer

A) Adam Smith 
B) Alfred Marshall 
C) David Ricardo 
D) David Hume

Question 7

Commodities exported and imported by each nation constitute the:

Accepted Answer

A) basis for trade 
B) losses from trade 
C) gains from trade 
D) pattern of trade

Question 8

Merchants,bankers,and government officials from Spain,France,and Portugal outline the principles and ideas of mercantilism in the publication The Wealth of Nations.

Accepted Answer

A) True 
 B)False

Question 9

The ratio of one commodity price to the price of another commodity is called (the):

Accepted Answer

A) absolute advantage 
B) relative commodity price 
C) constant opportunity costs 
D) increasing opportunity costs.

Question 10

According to the following table,if the US trades 9 bushels of wheat to the UK for 8 yards of cloth,the UK gains from trade equal: 
$\begin{array}{|l|c|c|}
\hline &\text { U.S. }&\text { U.K.} \
\hline \text {Wheat (bushels/hr) }& 9 & 3 \
\hline\text { Cloth (yards/hr) }& 5 & 4 \
\hline
\end{array}$

Accepted Answer

A) 4 bushels of wheat 
B) 3 yards of cloth 
C) 4 yards of cloth 
D) 3 bushels of wheat

Question 11

According to opportunity cost theory,the cost or price of a commodity is determined by,or can be inferred exclusively from,its labor content.

Accepted Answer

A) True 
 B)False

Question 12

From 1815 to1914,the United States was the only Western nation that was completely free of mercantilist ideas.

Accepted Answer

A) True 
 B)False

Question 13

The mercantilists measure the wealth of a nation by its stock of:

Accepted Answer

A) Gold and rubies 
B) Gold and silver 
C) Human and man-made capital 
D) Natural resources available for producing goods and services

Question 14

______________ states that the cost or price of a commodity is determined by,or can be inferred exclusively from,its labor content.

Accepted Answer

A) Mercantilism 
B) The law of comparative advantage 
C) The labor theory of value 
D) The opportunity cost theory

Question 15

Adam Smith strongly advocated a policy of laissez-faire.

Accepted Answer

A) True 
 B)False

Question 16

Among the following 4,which one do you think is the most powerful trade theories?

Accepted Answer

A) Theory of Absolute Advantage 
B) Theory of Comparative Advantage 
C) Mercantilism 
D) Neo-mercantilism

Question 17

According to mercantilism,the flow of _____________ would settle the export surplus that results from trade.

Accepted Answer

A) Gold and diamonds 
B) Diamonds and rubies 
C) Silver and copper 
D) Gold and silver

Question 18

When the amount of a commodity that must be given up to produce each additional unit of another commodity,regardless of the amount of the commodity foregone,is the same at every level of production,which of the following exists?

Accepted Answer

A) absolute advantage 
B) comparative advantage 
C) constant opportunity costs 
D) increasing opportunity costs.

Question 19

According to the table below,the opportunity cost of one unit of rice for the UK is equal to:

Production Possibility Schedule for Rice and Pudding in the United States and the United Kingdom
$\begin{array}{|cc|cc|}
\hline \text { United States } &&\text {United Kingdom } \
\hline \text {Rice} & \text {Pudding} &\text { Rice }& \text {Pudding} \
\hline 140 & 0 & 35 & 0 \
\hline 120 & 10 & 30 & 10 \
\hline 100 & 20 & 25 & 20 \
\hline 80 & 30 & 20 & 30 \
\hline 60 & 40 & 15 & 40 \
\hline 40 & 50 & 10 & 50 \
\hline 20 & 60 & 5 & 60 \
\hline 0 & 70 & 0 & 70 \
\hline
\end{array}$

Accepted Answer

A) 1/2 units of pudding 
B) 5 units of pudding 
C) 10 units of pudding 
D) 2 units of pudding

Question 20

The theory of absolute advantage was how Adam Smith explained basis for trade between nations.

Accepted Answer

A) True 
 B)False

Exam 2: Comparative Advantage

According to the law of comparative advantage,the less efficient of the two trading countries should specialize in and export the commodity in which it manages to have an absolute advantage.

An important exception to the Laissez-faire policy mentioned by the author is in:

The Wealth of Nations was published in 1776 by:

Which of these economists considered absolute advantage in production to be the basis for trade between nations?

Commodities exported and imported by each nation constitute the:

Merchants,bankers,and government officials from Spain,France,and Portugal outline the principles and ideas of mercantilism in the publication The Wealth of Nations.

The ratio of one commodity price to the price of another commodity is called (the) :

According to the following table,if the US trades 9 bushels of wheat to the UK for 8 yards of cloth,the UK gains from trade equal: $\begin{array}{|l|c|c|}\hline &\text { U.S. }&\text { U.K.} \\\hline \text {Wheat (bushels/hr) }& 9 & 3 \\\hline\text { Cloth (yards/hr) }& 5 & 4 \\\hline\end{array}$

According to opportunity cost theory,the cost or price of a commodity is determined by,or can be inferred exclusively from,its labor content.

From 1815 to1914,the United States was the only Western nation that was completely free of mercantilist ideas.

The mercantilists measure the wealth of a nation by its stock of:

______________ states that the cost or price of a commodity is determined by,or can be inferred exclusively from,its labor content.

Adam Smith strongly advocated a policy of laissez-faire.

Among the following 4,which one do you think is the most powerful trade theories?

According to mercantilism,the flow of _____________ would settle the export surplus that results from trade.

When the amount of a commodity that must be given up to produce each additional unit of another commodity,regardless of the amount of the commodity foregone,is the same at every level of production,which of the following exists?

The theory of absolute advantage was how Adam Smith explained basis for trade between nations.