Deck 2: Trade and Technology: The Ricardian Model

Question 1

According to the Ricardian principle of comparative advantage, international trade increases a nation's total output because:

A) the nation's resources are used where they are most productive.
B) the output of the nation's trading partner declines.
C) the nation can produce outside of its production possibilities frontier.
D) the nation is able to increase its consumption.

Answer 1

A

Question 2

In trade, if a nation has the technology to produce a good with fewest resources (such as Germany's production of snowboards), it is known as a(n):

A) absolute advantage.
B) technology advantage.
C) comparative advantage.
D) resource advantage.

Answer 2

A

Question 3

David Ricardo's model explains trade based on:

A) labor supply.
B) technology.
C) population.
D) government control.

Answer 3

B

Question 4

A country's factors of production includes:

A) its labor, capital, natural resources, and markets.
B) only its labor and capital.
C) only its capital and natural resources.
D) its labor, capital, and natural resources.

Question 5

The Ricardian model focuses on how:

A) countries' resource bases explain international trade.
B) countries' different technologies explain international trade.
C) transportation costs explain international trade.
D) different languages and cultures explain international trade.

Question 6

The Ricardian model focuses on how differences in _________ influence international trade patterns.

A) demand
B) comparative costs
C) absolute costs
D) transportation costs

Question 7

Ricardo's theory made a number of assumptions, including which of the following?

A) Nations had balanced trade with their partners.
B) There were barriers to trade.
C) There was no transfer of gold or silver.
D) Nations' factors of production consisted of labor and capital.

Question 8

Which of the following is NOT considered to be a factor of production?

A) labor
B) capital
C) natural resources
D) government

Question 9

When a firm in one nation purchases unfinished products internationally and adds further processing to sell in the domestic market, this is known as:

A) barter.
B) offshoring.
C) factor movement.
D) marketing arrangements.

Question 10

Which of the following is the MOST likely explanation for a Detroit construction company's imports of concrete blocks made in Windsor, Ontario?

A) the Ricardian model
B) offshoring
C) technology
D) proximity

Question 11

Which of the following is NOT a reason why countries trade goods with one another?

A) differences in technology used in different countries
B) differences in countries' total amount of resources
C) the proximity of countries to one another
D) differences in countries' languages and cultures

Question 12

When a country requires more resources to produce a product than other countries, it is said to have a(n):

A) absolute disadvantage in the production of the product.
B) comparative disadvantage in the production of the product.
C) lower opportunity cost of producing the product.
D) higher opportunity cost of producing the product.

Question 13

According to Ricardo:

A) all countries can gain from trade if they export goods for which they have an absolute advantage.
B) one country can gain from trade only at the expense of another country.
C) all countries can gain from trade if they export goods for which they have a comparative advantage.
D) all countries lose from international trade.

Question 14

The primary explanation of trade among nations is Ricardo's theory of:

A) offshoring.
B) resource abundance.
C) absolute advantage.
D) comparative advantage.

Question 15

David Ricardo believed that:

A) trade is a zero-sum game; that is, a country benefits at the expense of other countries.
B) trade will benefit countries when it generates gold and silver for the national treasury.
C) all nations can gain from free international trade.
D) trade cannot increase the world's output of goods.

Question 16

Ricardo's theory of trade discredited the school of economic thought that believed inflows of gold or silver as a result of exporting helped a nation, while outflows of gold or silver as a result of importing hurt a nation. This school of economic thought was known as:

A) export preference.
B) mercantilism.
C) monetary economics.
D) price-specie-flow mechanism.

Question 17

What is the MOST likely reason why neighboring nations engage in trade?

A) labor availability
B) similar tastes and preferences
C) proximity
D) shared membership in a free-trade area

Question 18

When a country requires fewer resources to produce a product than other countries, it is said to have a(n):

A) absolute advantage in the production of the product.
B) comparative advantage in the production of the product.
C) higher opportunity cost of producing the product.
D) lower opportunity cost of producing the product.

Question 19

In some cases, a country can export a good without having any advantage in the natural resources needed to produce it. Which of the following is an example of this type of export?

A) United Arab Emirates's exports of high-quality snowboards
B) U. S. exports of Caterpillar bulldozers
C) French exports of wine
D) Canadian exports of lumber

Question 20

In some cases, a country can export a good without having any advantage in the natural resources needed to produce it. Which of the following is an example of this type of export?

A) Austrian exports of snowboards
B) U. S. exports of "icewine"
C) Japanese exports of Toyotas
D) Canadian exports of lumber

Question 21

In the Ricardian model, the marginal product of labor:

A) first rises, then falls, as more labor is employed to produce a good.
B) first falls, then rises, as more labor is employed to produce a good.
C) continuously falls as more labor is employed to produce a good.
D) does not change as more labor is employed to produce a good.

Question 22

To complete the model of international trade using the PPF, we must also use the idea of indifference curves. One of these curves represent:

A) a set of alternate quantities of both goods (sloped negatively), whereby consumers are equally satisfied in their level of utility gained.
B) consumers who are indifferent to everything.
C) producers who do not care which production method is chosen.
D) a fixed quantity of one good (such as wheat) and a varying amount of the other good.

Question 23

If the maximum number of units of cloth produced is 300 and the maximum number of units of corn produced is 600, then with an MPL_cloth = 2, what is the number of workers in the economy?

A) 100
B) 200
C) 150
D) 600

Question 24

The Ricardian model employs the concept of alternate uses of economic resources in production. We refer to this technique as:

A) the production possibilities frontier.
B) the labor theory of value technique.
C) the least-cost option.
D) the labor productivity model.

Question 25

Mercantilists believed that:

A) exporting goods will leave fewer goods for the local economy.
B) importing goods is beneficial for the economy.
C) exports and imports are both bad for the economy.
D) exports are good and imports are bad for the economy.

Question 26

If a consumer moves to a higher indifference curve, her satisfaction:

A) falls.
B) rises.
C) remains unchanged.
D) first falls, then levels out.

Question 27

International trade allows countries to:

A) produce outside their PPF.
B) produce inside their PPF.
C) consume inside their PPF.
D) consume outside their PPF.

Question 28

The Ricardian model assumes that the marginal product of labor is:

A) increasing.
B) decreasing.
C) constant.
D) zero.

Question 29

Assume the MPL_t = 5 tennis rackets and MPL_b = 4 baseball bats. If the economy has 100 workers, then the economy can produce:

A) a maximum of 500 tennis rackets.
B) a maximum of 350 baseball bats.
C) 500 tennis rackets and 400 baseball bats.
D) either 100 tennis rackets only or 100 baseball bats only.

Question 30

Production possibilities frontiers in the Ricardian model:

A) are linear (i.e., straight lines), with end points showing a country's production when it produces only one or the other good.
B) are bowed out from the origin, with end points showing a country's production when it produces only one or the other good.
C) are linear and begin from the origin.
D) are curvilinear and increase at a decreasing rate.

Question 31

(Figure: Home Production and Consumption) The figure gives Home's international trading pattern. Point P is production with trade, and point C is consumption with trade. Which product does Home export?

A) clothing
B) chemicals
C) It exports neither chemicals nor clothing.
D) It exports both chemicals and clothing.

Question 32

Ricardo's theory showed that if nations are allowed to trade freely, the result will be that:

A) all trading nations benefit by trade.
B) the manufacturing sector benefits but the consumers lose out.
C) workers benefit but the government loses tax revenue.
D) the gains from trade offset the losses from trade exactly.

Question 33

With the assumption that the marginal product of labor is constant and that labor is the only variable resource, the slope of the PPF is:

A) positive and increasing.
B) negative and decreasing.
C) negative and constant.
D) unrelated to the issue at hand.

Question 34

What is the marginal product of labor?

A) the average output of a unit of labor
B) the extra output obtained by using one more unit of labor
C) the average output obtained by using one more unit of labor
D) the total output obtained by using one more unit of labor

Question 35

Assume the MPL_c = 2 cars and the MPL_b = 5 boats. There are 150 workers in this hypothetical economy. What is the maximum number of boats that can be produced?

A) 30
B) 300
C) 750
D) 150

Question 36

As a consumer moves down one of her indifference curves, her satisfaction:

A) falls.
B) rises.
C) remains unchanged.
D) first falls, then levels out.

Question 37

When the production possibilities frontier is a straight line, then production occurs under conditions of:

A) increasing costs.
B) decreasing costs.
C) constant costs.
D) increasing, then decreasing, then constant costs.

Question 38

The Ricardian model can be simplified and made more explanatory by assuming that there is only one resource used in producing goods. What did Ricardo assume the resource was?

A) capital
B) technology
C) labor
D) loanable funds

Question 39

The slope of the PPF can be expressed as:

A) the ratio of abundance of capital to labor.
B) the preferences of consumers in terms of marginal utility.
C) the ratio of the quantities of good 1 and good 2.
D) the negative of the ratio of the marginal products of labor in producing each good.

Question 40

If the maximum number of units of cloth produced is 300 and the maximum number of units of corn produced is 600, then with an MPL_cloth = 2, what is the MPL_corn?

A) 4
B) 5
C) 6
D) 7

Question 41

Assume a hypothetical economy where cloth and wheat can be produced. What is the opportunity cost of producing wheat in this economy?

A) the amount of cloth that must be given up to produce one more unit of wheat
B) the amount of money received by selling wheat
C) the number of workers it takes to produce all the wheat
D) More information is needed to answer the question.

Question 42

Among the indifference curves for an economy, to achieve higher utility:

A) you must move to the indifference curve farthest away from the origin.
B) you must move to the indifference curve closest to the origin.
C) it is necessary to always close the borders.
D) it does not matter which indifference curve you select; your utility is the same along every curve.

Question 43

The slope of the PPF can also be expressed as:

A) the ratio of abundance of labor to capital.
B) consumer utility.
C) the opportunity cost of the good measured on the vertical axis.
D) the ratio of the marginal products of labor to the marginal product of capital.

Question 44

If the opportunity cost is constant (the PPF is a straight line), then a country will:

A) partially specialize in the production of its exported product.
B) completely specialize in the production of its exported product.
C) not benefit from importing goods from another country.
D) benefit by raising trade barriers.

Question 45

(Figure: Indifference Curves) What is the opportunity cost of cloth in terms of wheat in this example?

A) A unit of cloth may be obtained by foregoing a unit of wheat.
B) A unit of cloth "costs" 2 units of wheat.
C) A unit of cloth "costs" 1/2 unit of wheat.
D) Not enough information is given to answer.

Question 46

(Figure: Home Production and Consumption) The figure gives Home's international trading pattern. Point P is production with trade, and point C is consumption with trade. What is the international price of chemicals according to the figure?

A) 1/2 unit of clothing per unit of chemicals
B) one unit of clothing per unit of chemicals
C) two units of clothing per unit of chemicals
D) three units of clothing per unit of chemicals

Question 47

A country's indifference curve describes combinations of goods that:

A) a country can purchase.
B) yield equal satisfaction to a country.
C) yield satisfaction to a country.
D) a country can produce.

Question 48

(Figure: Home Production and Consumption) The figure gives Home's international trading pattern. Point P is production with trade, and point C is consumption with trade. Which product does Home import?

A) clothing
B) chemicals
C) It imports neither chemicals nor clothing.
D) It imports both chemicals and clothing.

Question 49

Where will a nation that gains from trade find its consumption point located?

A) inside its production possibilities frontier
B) along its production possibilities frontier
C) outside its production possibilities frontier
D) at the center of its production possibilities frontier

Question 50

Assume the MPL_c = 2 cars and the MPL_b = 5 boats. There are 150 workers in this hypothetical economy. If cars are measured on the vertical axis and boats are measured on the horizontal axis, the slope of the PPF for this economy is:

A) -5.
B) -5/2.
C) -2/5.
D) -1/5.

Question 51

When a nation is in autarky (a no-trade state) and maximizes its living standard, its consumption and production points are:

A) along its production possibilities frontier.
B) above its production possibilities frontier.
C) beneath production possibilities frontier.
D) along, above, or beneath its production possibilities frontier.

Question 52

(Figure: Home Equilibrium with No Trade) Under the condition of no trade, which combinations are NOT attainable?

A) A and D
B) A and B
C) B and D
D) B and C

Question 53

Moving to a lower indifference curve means that a country is:

A) better off.
B) worse off.
C) indifferent.
D) lowering production.

Question 54

(Figure: Home Equilibrium with No Trade) Suppose that trade occurs and Home finds its comparative advantage in the production of wheat. How many bushels of wheat will it produce?

A) 0 bushels
B) 50 bushels
C) 100 bushels
D) between 50 and 100 bushels

Question 55

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

A) lies above its production possibilities frontier.
B) is tangent to its production possibilities frontier.
C) intersects its production possibilities frontier.
D) lies below its production possibilities frontier.

Question 56

(Figure: Indifference Curves) Of the following points of consumption, which is MOST desirable for consumers?

A) A
B) B
C) C
D) D

Question 57

(Figure: Home Equilibrium with No Trade) Under the condition of no trade, which attainable combination gives the nation the MOST utility?

A) A
B) B
C) C
D) D

Question 58

(Figure: Indifference Curves) If this economy produces no cloth, how many units of wheat are possible?

A) 50
B) 200
C) 300
D) 400

Question 59

In order for the production possibilities frontier to be a straight line, production must exhibit:

A) increasing costs.
B) decreasing costs.
C) constant costs.
D) increasing, then decreasing, then constant costs.

Question 60

(Figure: Home Production and Consumption) The figure gives Home's international trading pattern. Point P is production with trade and point C is consumption with trade. How many units of which product does Home export and how many units of which product does it import?

A) Home exports 60 units of chemicals and imports 20 units of clothing.
B) Home exports 40 units of chemicals and imports 60 units of clothing.
C) Home exports 40 units of clothing and imports 20 units of chemicals.
D) Home exports 20 units of chemicals and imports 40 units of clothing.

Question 61

Poland requires 4 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The Czech Republic requires 6 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. What is the opportunity cost of coal in Poland?

A) 0.25 hours of labor per ton of coal
B) 0.25 bushels of wheat per ton of coal
C) 4 hours of labor per ton of coal
D) 4 bushels of wheat per ton of coal

Question 62

Poland requires 4 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The Czech Republic requires 6 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. Which country has an absolute advantage in the production of wheat?

A) Poland
B) the Czech Republic
C) Neither country has an absolute advantage.
D) Both countries have an absolute advantage.

Question 63

The United States requires 20 hours of labor to produce 1 ton of steel and 30 hours of labor to produce 1,000 board feet of lumber. In Canada, 20 hours of labor are required to produce 1 ton of steel and 25 hours of labor to produce 1,000 board feet of lumber. Which country has a comparative advantage in the production of lumber?

A) the United States
B) Canada
C) Neither the United States nor Canada has a comparative advantage.
D) Both the United States and Canada have a comparative advantage.

Question 64

Poland requires 4 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The Czech Republic requires 6 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The international price of wheat must fall between which of the following two prices?

A) between 1/6 ton and 1/4 ton of coal per bushel of wheat
B) between 1/4 ton and 1/3 ton of coal per bushel of wheat
C) between 1/3 ton and 1.5 tons of coal per bushel of wheat
D) between 4 tons and 6 tons of coal per bushel of wheat

Question 65

A nation will gain from trade if it:

A) produces and consumes along its PPF.
B) produces outside its PPF and consumes along its PPF.
C) consumes outside its PPF and produces along its PPF.
D) produces and consumes outside its PPF.

Question 66

(Figure: Indifference Curves) Which combination of wheat and cloth is represented by point A in the diagram?

A) 200 units of cloth and 400 units of wheat
B) 100 units of cloth and 200 units of wheat
C) 200 units of cloth and 100 units of wheat
D) 300 units of cloth and 150 units of wheat

Question 67

The United States requires 20 hours of labor to produce 1 ton of steel and 30 hours of labor to produce 1,000 board feet of lumber. In Canada, 20 hours of labor are required to produce 1 ton of steel and 25 hours of labor to produce 1,000 board feet of lumber. Which country has a comparative advantage in the production of steel?

A) the United States
B) Canada
C) Neither the United States nor Canada has a comparative advantage.
D) Both the United States and Canada have a comparative advantage.

Question 68

Poland requires 4 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The Czech Republic requires 6 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. Suppose that the international price of coal is 4 1/4 bushels of wheat per ton of coal. Which country is likely to have the larger gain from trade?

A) Poland
B) the Czech Republic
C) Neither country has the larger gain.
D) Both countries have the larger gain.

Question 69

In competitive labor markets, the wage equals:

A) the marginal product of labor times the price of output.
B) the marginal product of labor plus the price of output.
C) the marginal product of labor.
D) the price of output.

Question 70

Poland requires 4 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The Czech Republic requires 6 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. Which country has an absolute advantage in the production of coal?

A) Poland
B) the Czech Republic
C) Neither country has an absolute advantage.
D) Both countries have an absolute advantage.

Question 71

Which of the following statements describes the way the pre-trade home equilibrium reflects the concepts of competitive markets?

A) The opportunity cost of good 1 is the ratio of labor productivity of good 1 to good 2
B) Prices of each good reflect their opportunity cost.
C) Wages are not equal for each good
D) The value of the marginal product of labor (MPL × P) differs for each good.

Question 72

In the home equilibrium situation, the relative price of wheat (when wheat is on the horizontal axis) is the same as:

A) the relative price of cloth.
B) the slope of the PPF.
C) the marginal product of wheat.
D) the cost of labor to produce wheat.

Question 73

Poland requires 4 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The Czech Republic requires 6 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. Which country has a comparative advantage in the production of wheat?

A) Poland
B) the Czech Republic
C) Neither country has a comparative advantage.
D) Both countries have a comparative advantage.

Question 74

The pre-trade Home equilibrium will provide the highest level of consumer satisfaction from domestic resources whenever:

A) the marginal products of labor are equal.
B) capital and technology are not factors in the decision of what to produce.
C) perfect competition exists in product and labor markets.
D) Adam Smith's "invisible hand" is not an interfering factor.

Question 75

Poland requires 4 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The Czech Republic requires 6 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. Which country has a comparative advantage in the production of coal?

A) Poland
B) the Czech Republic
C) Neither country has a comparative advantage.
D) Both countries have a comparative advantage.

Question 76

The United States requires 20 hours of labor to produce 1 ton of steel and 30 hours of labor to produce 1,000 board feet of lumber. In Canada, 20 hours of labor are required to produce 1 ton of steel and 25 hours of labor to produce 1,000 board feet of lumber. Which country has an absolute advantage in the production of steel?

A) the United States
B) Canada
C) Neither the United States nor Canada has an absolute advantage.
D) Both the United States and Canada have an absolute advantage.

Question 77

The United States requires 20 hours of labor to produce 1 ton of steel and 30 hours of labor to produce 1,000 board feet of lumber. In Canada, 20 hours of labor are required to produce 1 ton of steel and 25 hours of labor to produce 1,000 board feet of lumber. Which country has an absolute advantage in the production of lumber?

A) the United States
B) Canada
C) Neither the United States nor Canada has an absolute advantage.
D) Both the United States and Canada have an absolute advantage.

Question 78

(Figure: Indifference Curves) Which point on the diagram represents Home's equilibrium in the absence of international trade?

A) A
B) B
C) C
D) D

Question 79

Poland requires 4 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The Czech Republic requires 6 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. Suppose that Poland has 1,000 hours of labor and that it completely specializes according to its comparative advantage. How many units of which product will it produce?

A) 250 tons of coal
B) 1,000 bushels of wheat
C) 100 bushels of wheat
D) 4,000 tons of coal

Question 80

(Figure: Indifference Curves) Of the following points of consumption, which is LEAST desirable for consumers?

A) A
B) B
C) C
D) D