Correct : D. Imports cannot exceed exports for an extended period of time.
2. The term "gains from trade" describes:
Correct : A. The fact that when two countries trade, both are better off.
3. Why do some people argue against free international trade?
Correct : A. Trade alters the distribution of income between broad groups of people.
4. Which of the following theories was proposed by David Ricardo?
Correct : A. Theory of differences in labor productivity.
5. What are most trade policies driven by?
Correct : B. Conflicts of interest within nations.
6. Many countries were fixing the price of their currency in terms of gold:
Correct : A. Before World War I.
7. How are international trade policies governed?
Correct : C. By the GATT.
8. Which of the following is NOT true regarding international capital markets?
Correct : B. The volume of trade on capital markets is lower ever since the "debt crisis" of 1982.
9. In his empirical test of comparative advantage, Wassily Leontief found that
Correct : D. None of the above
10. By adjusting the model of comparative advantage to include transportation costs along with production costs, we would expect
Correct : C. the volume of trade to be less than when there are no transportation costs
11. Assume that Country A is relatively abundant in labor and Country B is relatively abundant in land. Note that wages are the returns to labor and rents are the returns to land. According to the factor price equalization theorem, once Country A begins specializing according to comparative advantage and trading with Country B.
Correct : C. Wages should rise and rents should fall in Country A
12. Trade between two countries can benefit both countries if
Correct : A. Each country exports that good in which it has a comparative advantage.
13. The Ricardian theory of comparative advantage states that a country has a comparative advantage in widgets if
Correct : D. The output per worker of widgets as compared to the output of some other product ishigher in that country.
14. In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ____unit labor requirements
Correct : D. Four
15. As a result of trade, specialization in the Ricardian model tends to be
Correct : B. Complete with constant costs and incomplete with increasing costs.
16. A nation engaging in trade according to the Ricardian model will find its consumption bundle
Correct : C. Outside its production possibilities frontier.
17. In the Ricardian model, if a country's trade is restricted, this will cause all except which?
Correct : C. Cause nations to produce inside their production possibilities curves
18. If a very small country trades with a very large country according to the Ricardianmodel, then
Correct : C. The small country will enjoy gains from trade.
19. The following are all assumptions that must be accepted in order to apply the
Heckscher - Ohlin Theory, except for one:
Correct : B. Countries differ in their technologies.
20. In international-trade equilibrium in the Heckscher-Ohlin model,
Correct : B. The capital rich country will charge the same price for the capital intensive good as that paid for it by the capital poor country.
21. The Heckscher-Ohlin model predicts all of the following except:
Correct : C. The volume of trade.
22. The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former
Correct : C. Has two factors of production.
23. In free trade between two countries in an H-O world:
Correct : A. If both countries produce both goods, wages in the two countries will be the
24. The trade model of the Swedish economists Heckscher and Ohlin maintains that:
Correct : D. A country exports goods for which its resource endowments are most suited.
25. According to the factor endowment model of Heckscher and Ohlin, countries heavil y endowed with land will:
Correct : C. Export products that are land-intensive.
26. According to the Heckscher-Ohlin model, the source of comparative advantage
is a country’s:
Correct : C. Factor endowments
27. The Heckscher-Ohlin model rules out the classical model’s basis for trade by assuming that________ is (are) identical between countries.
Correct : C. Technology
28. According to the Heckscher-Ohlin model
Correct : B. The gainers from trade outnumber the losers from trade
29. Countries H and F operate in an H-O world. Each country produces two goods, A and B. Good A is relatively capital intensive and country F is relatively labor abundant. Suppose however, that the production technology is not the same in the two countries. That is, H has a superior technology of production compared to F.
Correct : D. Both b. and c.
30. According to the Heckscher - Ohlin model, if the United States is richly endowed in human capital relative to Mexico, then as NAFTA increasingly leads to more bilateral free trade between the two countries,
Correct : D. The wages of highly skilled Mexican workers will rise to those in the United States.
31. In the 2-factor, 2 good Heckscher-Ohlin model, an influx of workers from across the border would
Correct : D. Shift the production possibility curve outward and decrease the production of the capital-intensive product.
32. In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in
Correct : D. Relative availabilities of factors of production
33. According to the Heckscher-Ohlin model, the source of comparative advantage
is a country's
Correct : C. Factor endowments
34. One way in which the Heckscher-Ohlin model differs from the Ricardo model of comparative advantage is by assuming that __________ is (are) identical in all countries.
Correct : D. Technology
35. The Heckscher-Ohlin model assumes that _____ are identical in all trading countries
Correct : B. Technologies
36. As opposed to the Ricardian model of comparative advantage, the assumption of diminishing returns in the Heckscher-Ohlin model means that the probability is greater that with trade
Correct : A. Countries will not be fully specialized in one product
37. Which of the following is false (for the Heckscher-Ohlin model)?
Correct : A. Differences in technologies could be the source of gains from trade
38. If a commodity is classified as "labor-intensive" at one set of relative factor prices but "capital-intensive" at another set of relative prices, this situation is known as
Correct : B. factor-intensity reversal.
39. If relatively capital-abundant country A opens trade with relatively labor- abundant country B an the trade takes place in accordance with the Heckscher-Ohlin Theorem. What would be the consequence for factor prices (w/r) in the two countries?
Correct : C. (w/r) falls in A and rises in B
40. An implication of the Heckscher-Ohlin Theorem is that
Correct : D. two countries with identical tastes can still have a basis for trade if factor endowments of the countries differ and if the factor intensities of the commodities differ.
41. Theory of comparative advantage was presented by:
Correct : B. Ricardo
42. Which of the following is international trade:
Correct : C. Trade between countries
43. Which is NOT an advantage of international trade:
Correct : C. Dependence on foreign countries
44. Trade between two countries can be useful if cost ratios of goods are:
Correct : B. Different
45. Modern theory of international trade is based n the views of:
Correct : C. Heckcsher and Ohlin
46. Foreign trade creates among countries:
Correct : B. Cooperation
47. Net exports equal:
Correct : C. Exports - Imports
48. If Japan and Pakistan start free trade, difference in wages in two countries will:
Correct : B. Decrease
49. According to Hecksher and Ohlin basic cause of international trade is:
Correct : A. Difference in factor endowments
50. All are advantages of foreign trade EXCEPT:
Correct : A. People get foreign exchange
51. A primary reason why nations conduct international trade is because:
Correct : B. Resources are not equally distributed to all trading nations
52. A main advantage of specialization results from:
Correct : A. Economics of large scale production
53. International trade in goods and services is sometimes used as a substitute for all of the
following except:
Correct : D. Domestic production of different goods and services
54. If a nation has an open economy it means that the nation:
Correct : D. Conducts trade with other countries
55. International trade forces domestic firms to become more competitive in terms of:
Correct : D. All of the above
56. The movement to free international trade is most likely to generate short-term unemployment in which industries:
Correct : B. Import-competing industries.
57. International trade is based on the idea that:
Correct : D. Resources are less mobile internationally than are goods
58. Arguments for free trade are sometimes disregarded by politicians because:
Correct : B. Maximizing consumer welfare may not be a chief priority
59. Increased foreign competition tend to
Correct : C. Place constraints on the wages of domestic workers
60. Free trade is based on the principle of:
Correct : B. Comparative scale
61. In 2003, the US had the largest total amount of imports from and exports to
Correct : C. Canada.
62. Evidence shows that
Correct : D. countries farther apart have less trade between them on average.
63. The North American Free Trade Agreement
Correct : D. has reduced tariffs and other trade restrictions among Canada, Mexico and the US.
64. While technologies have reduced the negative effect that distance has on trade,
Correct : C. political factors have historically been more influential in determining the amount of trade than available technologies.
65. Most international trade today is classified as trade in
Correct : C. Manufactured products
66. Approximately what percent of US imports occur through transactions conducted by a
multinational corporation?
Correct : D. 40%
67. Outsourcing refers to the case in which
Correct : D. a firm moves part of its business operations out of the domestic country.
68. Gross domestic product measures
Correct : D. the total value of all final goods and services produced within an economy.
69. In the Ricardian model:
Correct : C. There is only one factor of production.
70. The Ricardian model exhibits gains from trade:
Correct : B. For both trading countries.
71. Country A has 5000 units of labor. It takes 50 units of labor to produce one computer and 1 unit to create a Web page. What is the opportunity cost of a Web page in terms of computers?
Correct : D. 0.02
72. The opportunity cost of producing computers in terms of Web pages is 50 in Country A and is 10 in Country B. Based on the Ricardian model, what can we conclude about the pattern of trade?
Correct : D. Country A will export Web pages and import computers.
73. Which of the following is NOT an assumption in the Ricardian model?
Correct : B. Labor can freely move across countries.
74. Country A has 100 units of labor and Country B has 200 units of labor. Both countries produce computers and Web pages. The unit labor requirements are given in the table below:
Computers Web pages Country A 50 1 Country B 100 1 Assume free trade exists and that the relative price is such that both countries specialize completely in the industry in which they have a comparative advantage (neither country produces both goods). The supply of computers relative to Web pages will be:
Correct : A. (or 1/100)
75. Country A and Country B produce computers and Web sites. The unit labor requirements are given in the table below: Computers Web pages Country A 50 1 Country B 100 1 At which of the following relative prices (computers in terms of Web sites) will Country B produce both goods under free trade?
Correct : C. 100
76. In the Ricardian model, when two countries trade freely, the relative price of the goods they are trading is determined by:
Correct : B. Relative demand and relative supply on the world market.
77. Which of the following is true?
Correct : B. Countries that open up for trade see their wages rise over time relative to U.S. wages.
78. The welfare effects of a quota depend to a considerable extent upon
Correct : D. All of the above
79. __________ are profits that accrue to whomever has the right to import the good that
is restricted by the quota.
Correct : B. Quota rents
80. The home-country government can confiscate the revenue effect of an import quota
if
Correct : B. Quota licenses are auctioned to the highest-bidding importing company
81. Governments around the world tend to auction quota licenses
Correct : B. Seldom
82. A(n) __________ is an example of a quota where foreigners hold quota licenses.
Correct : D. Tariff quota
83. International dumping may involve
Correct : D. all of the above
84. Nontariff trade barriers could include all of the following except
Correct : D. Antidumping/countervailing duties applied to imports
85. A production subsidy that is granted to a producer of an import-competing good
Correct : D. Has only a protective effect deadweight loss
86. A tariff-rate quota is essentially a
Correct : A. Two-tier tariff applied to a country's imports
87. A tax of 20 cents per unit of imported cheese would be an example of a (an):
Correct : D. Specific tariff
88. A sudden shift from import tariffs to free trade may induce short-term unemployment
in:
Correct : A. Import-competing industries
89. The movement to free international trade is most likely to generate short-term
unemployment in which industries?
Correct : B. Import-competing industries
90. Suppose the government grants a subsidy to domestic producers of an import-competing good. The subsidy tends to result in deadweight losses for the domestic economy in the form of the:
Correct : D. Protective effect
91. Tariffs and quotas on imports tend to involve larger sacrifices in national welfare than would occur under domestic subsidies. This is because, unlike domestic subsidies, import tariffs and quotas:
Correct : B. Distort choices for domestic consumers
92. Suppose the government grants a subsidy to its export firms that permits them to charge lower prices on goods sold abroad. The export revenue of these firms would rise if the foreign demand is:
Correct : A. Elastic in response to the price reduction
93. Because export subsidies tend to result in domestic exporters charging lower prices on
their goods sold overseas, the home country’s:
Correct : C. Terms of trade will worsen
94. Which trade restriction stipulates the percentage of a product’s total value that must be
produced domestically in order for that product to be sold domestically?
Correct : C. Local content requirement
95. The imposition of a domestic content requirement by the United States would cause consumer surplus for Americans to:
Correct : B. Fall
96. Domestic content legislation applied to autos would tend to:
Correct : C. Encourage American automakers to locate production overseas
97. Compared to an import quota, an equivalent tariff may provide a less certain amount of
protection for home producers since:
Correct : D. Quotas do not result in increases in the price of the imported good