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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 |
51. |
A primary reason why nations conduct international trade is because: |
A. | Some nations prefer to produce one thing while others produce another |
B. | Resources are not equally distributed to all trading nations |
C. | Trade enhances opportunities to accumulate profits |
D. | Interest rates are not identical in all trading nations |
Answer» B. Resources are not equally distributed to all trading nations |
52. |
A main advantage of specialization results from: |
A. | Economics of large scale production |
B. | The specializing country behaving as a monopoly |
C. | Smaller production runs resulting in lower unit costs. |
D. | High wages paid to foreign workers |
Answer» 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: |
A. | International movements of capital. |
B. | International movements of labor. |
C. | International movements of technology |
D. | Domestic production of different goods and services |
Answer» D. Domestic production of different goods and services |
54. |
If a nation has an open economy it means that the nation: |
A. | Allows private ownership of capital. |
B. | Has flexible exchange rates |
C. | Has fixed exchange rates |
D. | Conducts trade with other countries |
Answer» D. Conducts trade with other countries |
55. |
International trade forces domestic firms to become more competitive in terms of: |
A. | The introduction of new products |
B. | Product design and quality |
C. | Product price |
D. | All of the above |
Answer» D. All of the above |
56. |
The movement to free international trade is most likely to generate short-term unemployment in which industries: |
A. | Industries in which there are neither imports nor exports |
B. | Import-competing industries. |
C. | Industries that sell to domestic and foreign buyers |
D. | Industries that sell to only foreign buyers |
Answer» B. Import-competing industries. |
57. |
International trade is based on the idea that: |
A. | Exports should exceed imports |
B. | Imports should exceed exports |
C. | Resources are more mobile internationally than are goods |
D. | Resources are less mobile internationally than are goods |
Answer» D. Resources are less mobile internationally than are goods |
58. |
Arguments for free trade are sometimes disregarded by politicians because: |
A. | Maximizing domestic efficiency is not considered important |
B. | Maximizing consumer welfare may not be a chief priority |
C. | There exist sound economic reasons for keeping one’s economy isolated from other economies. |
D. | Economists tend to favor highly protected domestic markets |
Answer» B. Maximizing consumer welfare may not be a chief priority |
59. |
Increased foreign competition tend to |
A. | Intensify inflationary pressure at home |
B. | Induce falling output per worker-hour for domestic workers |
C. | Place constraints on the wages of domestic workers |
D. | Increase profits of domestic import-competing industrie |
Answer» C. Place constraints on the wages of domestic workers |
60. |
Free trade is based on the principle of: |
A. | Comparative advantage |
B. | Comparative scale |
C. | Economies of advantage |
D. | Production possibility advantage |
Answer» B. Comparative scale |
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