McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Bachelor of Arts in Economics (BA Economics) , Master of Business Administration (MBA) .
Chapters
| 1. |
Which of the following is NOT true? |
| A. | Small countries depend more on trade than large countries. |
| B. | U.S. imports exceed U.S. exports. |
| C. | Economists believe that international trade is beneficial for all countries involved in it, in most cases. |
| D. | Imports cannot exceed exports for an extended period of time. |
| Answer» D. Imports cannot exceed exports for an extended period of time. | |
| 2. |
The term "gains from trade" describes: |
| A. | The fact that when two countries trade, both are better off. |
| B. | Consumer surplus. |
| C. | Profits made by businessmen involved in international trade. |
| D. | Producer surplus. |
| Answer» A. The fact that when two countries trade, both are better off. | |
| 3. |
Why do some people argue against free international trade? |
| A. | Trade alters the distribution of income between broad groups of people. |
| B. | Free trade threatens our country's security. |
| C. | There is disagreement on whether or not there are gains from trade. |
| D. | The U.S. is a large country and therefore does not gain from international trade. |
| Answer» A. Trade alters the distribution of income between broad groups of people. | |
| 4. |
Which of the following theories was proposed by David Ricardo? |
| A. | Theory of differences in labor productivity. |
| B. | Theory of differences in climate and resources. |
| C. | Theory of random components determining the pattern of trade. |
| D. | Theory of differences in factor endowments. |
| Answer» A. Theory of differences in labor productivity. | |
| 5. |
What are most trade policies driven by? |
| A. | Conflicts of interest between nations. |
| B. | Conflicts of interest within nations. |
| C. | Disagreements regarding who should produce certain products. |
| D. | Disagreements on the prices of major commodities. |
| Answer» B. Conflicts of interest within nations. | |
| 6. |
Many countries were fixing the price of their currency in terms of gold: |
| A. | Before World War I. |
| B. | During World War I. |
| C. | After World War II. |
| D. | During World War II. |
| Answer» A. Before World War I. | |
| 7. |
How are international trade policies governed? |
| A. | By the IMF. |
| B. | They are not governed by anyone. |
| C. | By the GATT. |
| D. | By the U.N. |
| Answer» C. By the GATT. | |
| 8. |
Which of the following is NOT true regarding international capital markets? |
| A. | There are special regulations in many countries with respect to foreign investment. |
| B. | The volume of trade on capital markets is lower ever since the "debt crisis" of 1982. |
| C. | Nations can default on their debt and may not be brought to court. |
| D. | Currency fluctuations add instability. |
| Answer» 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 |
| A. | U.S. exports are capital intensive relative to U.S. imports |
| B. | U.S. imports are labor intensive relative to U.S. exports |
| C. | U.S. exports are neither labor nor capital intensive |
| D. | None of the above |
| Answer» D. None of the above | |
| 10. |
By adjusting the model of comparative advantage to include transportation costs along with production costs, we would expect |
| A. | the prices of traded goods to be lower than when there are no transportation costs |
| B. | specialization to stop when the production costs of the trading partners equalize |
| C. | the volume of trade to be less than when there are no transportation costs |
| D. | the gains from trade to be greater than when there are no transportation costs. |
| Answer» 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. |
| A. | Wages and rents should fall in Country A |
| B. | Wages and rents should rise in Country A |
| C. | Wages should rise and rents should fall in Country A |
| D. | Wages should fall and rents should rise in Country A |
| Answer» C. Wages should rise and rents should fall in Country A | |
| 12. |
Trade between two countries can benefit both countries if |
| A. | Each country exports that good in which it has a comparative advantage. |
| B. | Each country enjoys superior terms of trade. |
| C. | Each country has a more elastic demand for the imported goods. |
| D. | Each country has a more elastic supply for the supplied goods. |
| Answer» 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 |
| A. | Output per worker of widgets is higher in that country. |
| B. | That country's exchange rate is low. |
| C. | Wage rates in that country are high. |
| D. | The output per worker of widgets as compared to the output of some other product ishigher in that country. |
| Answer» 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 |
| A. | One |
| B. | Two |
| C. | Three |
| D. | Four |
| Answer» D. Four | |
| 15. |
As a result of trade, specialization in the Ricardian model tends to be |
| A. | Complete with constant costs and with increasing costs. |
| B. | Complete with constant costs and incomplete with increasing costs. |
| C. | Incomplete with constant costs and complete with increasing costs. |
| D. | Incomplete with constant costs and incomplete with increasing costs. |
| Answer» 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 |
| A. | Inside its production possibilities frontier. |
| B. | On its production possibilities frontier. |
| C. | Outside its production possibilities frontier. |
| D. | Inside its trade-partner's production possibilities frontier. |
| Answer» C. Outside its production possibilities frontier. | |
| 17. |
In the Ricardian model, if a country's trade is restricted, this will cause all except which? |
| A. | Limit specialization and the division of labor. |
| B. | Reduce the volume of trade and the gains from trade |
| C. | Cause nations to produce inside their production possibilities curves |
| D. | May result in a country producing some of the product of its comparative Disadvantage |
| Answer» 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 |
| A. | The small country will suffer a decrease in economic welfare. |
| B. | The large country will suffer a decrease in economic welfare. |
| C. | The small country will enjoy gains from trade. |
| D. | The large country will enjoy gains from trade. |
| Answer» 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: |
| A. | Countries differ in their endowments of factors of production. |
| B. | Countries differ in their technologies. |
| C. | There are two factors of production. |
| D. | Production is subject to constant returns to scale. |
| Answer» B. Countries differ in their technologies. | |
| 20. |
In international-trade equilibrium in the Heckscher-Ohlin model, |
| A. | The capital rich country will charge less for the capital intensive good than the price paid by the capital poor country for the capital-intensive good. |
| 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. |
| C. | The capital rich country will charge more for the capital intensive good than the price paid by the capital poor country for the capital-intensive go |
| Answer» 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: |
| A. | Which country will export which product |
| B. | Which factor of production within each country will gain from trade. |
| C. | The volume of trade. |
| D. | That wages will tend to become equal in both trading countries. |
| Answer» C. The volume of trade. | |
| 22. |
The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former |
| A. | Has only two countries |
| B. | Has only two products. |
| C. | Has two factors of production. |
| D. | Has two production possibility frontiers (one for each country). |
| Answer» C. Has two factors of production. | |
| 23. |
In free trade between two countries in an H-O world: |
| A. | If both countries produce both goods, wages in the two countries will be the |
| B. | same. |
| C. | If one country does not produce both goods, wages in the two countries will be the same |
| D. | The world relative price is between the two-self-sufficiency relative Prices but the relative Price of a good would not be exactly the same in both countries |
| Answer» 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: |
| A. | Absolute advantage determines the distribution of the gains from trade |
| B. | Comparative advantage determines the distribution of the gains from trade. |
| C. | The division of labor is limited by the size of the world market |
| D. | A country exports goods for which its resource endowments are most suited. |
| Answer» 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: |
| A. | Devote excessive amounts of resources to agricultural production. |
| B. | Devote insufficient amounts of resources to agricultural production |
| C. | Export products that are land-intensive. |
| D. | Import products that are land-intensive. |
| Answer» C. Export products that are land-intensive. | |
| 26. |
According to the Heckscher-Ohlin model, the source of comparative advantage is a country’s: |
| A. | Technology |
| B. | Advertising |
| C. | Factor endowments |
| D. | Both (a) and (c) |
| Answer» 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. |
| A. | Factor endowments |
| B. | Factor intensities |
| C. | Technology |
| D. | Opportunity costs |
| Answer» C. Technology | |
| 28. |
According to the Heckscher-Ohlin model |
| A. | Everyone automatically gains from trade |
| B. | The gainers from trade outnumber the losers from trade |
| C. | The scarce factor necessarily gains from trade |
| D. | None of the above |
| Answer» 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. |
| A. | Free trade will equalize wages between the two countries |
| B. | In free trade, there will be no incentive for migration of labor from H to F. |
| C. | In free trade there will be some incentive for workers from F to migrate to H. |
| D. | Both b. and c. |
| Answer» 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, |
| A. | The United States will find its industrial base sucked into Mexico |
| B. | Mexico will find its relatively highly skilled workers drawn to the United States |
| C. | The wages of highly skilled U.S. workers will be drawn down to Mexican levels |
| D. | The wages of highly skilled Mexican workers will rise to those in the United States. |
| Answer» 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 |
| A. | Moves the point of production along the production possibility curve |
| B. | Shifts the production possibility curve outward, and increase the production of both good |
| C. | Shift the production possibility curve outward and decrease the production of the Labor-intensive product |
| D. | Shift the production possibility curve outward and decrease the production of the capital-intensive product. |
| Answer» 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 |
| A. | Tastes |
| B. | Military capabilities |
| C. | Size |
| D. | Relative availabilities of factors of production |
| Answer» D. Relative availabilities of factors of production | |
| 33. |
According to the Heckscher-Ohlin model, the source of comparative advantage is a country's |
| A. | Technology |
| B. | Advertising. |
| C. | Factor endowments |
| D. | Both A and B. |
| Answer» 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. |
| A. | Factor of production endowments |
| B. | Scale economies |
| C. | Factor of production intensities |
| D. | Technology |
| Answer» D. Technology | |
| 35. |
The Heckscher-Ohlin model assumes that _____ are identical in all trading countries |
| A. | Gross domestic product |
| B. | Technologies |
| C. | Factor endowments |
| D. | Both A. and B |
| Answer» 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 |
| A. | Countries will not be fully specialized in one product |
| B. | Countries will benefit from free international trade. |
| C. | Countries will consume outside their production possibility frontier. |
| D. | Comparative advantage is primarily supply related. |
| Answer» A. Countries will not be fully specialized in one product | |
| 37. |
Which of the following is false (for the Heckscher-Ohlin model)? |
| A. | Differences in technologies could be the source of gains from trade |
| B. | Some groups may gain and some may lose due to trade |
| C. | Gains for the trade-related winners will tend to be larger than losses of losers. |
| D. | None of the above. |
| Answer» 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 |
| A. | demand reversal. |
| B. | factor-intensity reversal. |
| C. | balance of payment reversal |
| D. | factor price reversal |
| Answer» 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? |
| A. | (w/r) rises in A and falls in B |
| B. | (w/r) rises in A and also rises in B |
| C. | (w/r) falls in A and rises in B |
| D. | (w/r) falls in A and also falls in B |
| Answer» C. (w/r) falls in A and rises in B | |
| 40. |
An implication of the Heckscher-Ohlin Theorem is that |
| A. | if two countries have identical tsetse, then no trade will occur between them. |
| B. | the relative price of a country's scarce factor of production will rise when the country is opened to trade. |
| C. | income distribution in a country does not change when a country is opened to trade. |
| 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. |
| Answer» 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: |
| A. | Adam Smith |
| B. | Ricardo |
| C. | Hicks |
| D. | Arshad |
| Answer» B. Ricardo | |
| 42. |
Which of the following is international trade: |
| A. | Trade between provinces |
| B. | Trade between regions |
| C. | Trade between countries |
| D. | (b) and (c) of above |
| Answer» C. Trade between countries | |
| 43. |
Which is NOT an advantage of international trade: |
| A. | Export of surplus production |
| B. | Import of defence material |
| C. | Dependence on foreign countries |
| D. | Availability of cheap raw materials |
| Answer» C. Dependence on foreign countries | |
| 44. |
Trade between two countries can be useful if cost ratios of goods are: |
| A. | Equal |
| B. | Different |
| C. | Undetermined |
| D. | Decreasing |
| Answer» B. Different | |
| 45. |
Modern theory of international trade is based n the views of: |
| A. | Robbins and Ricardo |
| B. | Adam Smith and Marshall |
| C. | Heckcsher and Ohlin |
| D. | Saleem and Kareem |
| Answer» C. Heckcsher and Ohlin | |
| 46. |
Foreign trade creates among countries: |
| A. | Conflicts |
| B. | Cooperation |
| C. | Hatred |
| D. | Both (a) & (b) |
| Answer» B. Cooperation | |
| 47. |
Net exports equal: |
| A. | Exports x Imports |
| B. | Exports + Imports |
| C. | Exports - Imports |
| D. | Exports of services only |
| Answer» C. Exports - Imports | |
| 48. |
If Japan and Pakistan start free trade, difference in wages in two countries will: |
| A. | Increase |
| B. | Decrease |
| C. | No effect |
| D. | Double |
| Answer» B. Decrease | |
| 49. |
According to Hecksher and Ohlin basic cause of international trade is: |
| A. | Difference in factor endowments |
| B. | Difference in markets |
| C. | Difference in political systems |
| D. | Difference in ideology |
| Answer» A. Difference in factor endowments | |
| 50. |
All are advantages of foreign trade EXCEPT: |
| A. | People get foreign exchange |
| B. | Nations compete |
| C. | Cheaper goods |
| D. | Optimum utilisation of country's resources |
| Answer» A. People get foreign exchange | |
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