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Sample Questionnaire:
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) What percent of all world production of goods and services is exported to other countries?
1) _______
A) 10%
B) 30%
C) 50%
D) 100%
E) None of the above.
2) The gravity model offers a logical explanation for the fact that
A) Intra-European Union trade exceeds International Trade of the European Union.
B) trade in manufactures has grown faster than in agricultural products.
C) trade in services has grown faster than trade in goods.
D) trade between Asia and the U.S. has grown faster than NAFTA trade.
E) None of the above.
2) ____
3) Why does the gravity model work?
A) Large economies have relatively large incomes, and hence spend more on government
promotion of trade and investment.
B) Large economies tend to have large incomes and tend to spend more on imports.
C) Large economies have relatively larger areas which raises the probability that a productive
activity will take place within the borders of that country.
D) Large economies became large because they were engaged in international trade.
E) None of the above.
3) _______
4) Since World War II, the likelihood that any single item in the typical consumption basket of a
consumer in the U.S. originated outside of the U.S.
A) remained constant.
B) increased.
C) decreased.
D) fluctuated widely with no clear trend.
E) both A and D above.
4) _______
5) In the pre-World War I period, the U.S. exported primarily
A) services.
B) technology intensive products.
C) manufactured goods.
D) primary products including agricultural.
E) None of the above.
5) _______
6) Which of the following does not explain the extent of trade between Ireland and the U.S.?
A) Historical ties
6) _______
B)
C)
D)
E)
Cultural Linguistic ties
Multinational Corporations
Gravity model
None of the above.
7) The Ricardian model demonstrates that
A) trade between two countries may benefit one but harm the other.
B) trade between two countries may benefit both regardless of which good each exports.
C) trade between two countries will benefit both countries.
D) trade between two countries may benefit both if each exports the product in which it has a
comparative advantage.
E) None of the above.
7) _______
8) 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
E) five
8) _______
9) Given the information in the table above, if it is ascertained that Foreign uses prison-slave labor
to produce its exports, then home should
A) export widgets.
B) export both and import nothing.
C) export and import nothing.
D) export cloth.
E) All of the above.
9) _______
10) Given the information in the table above, if the Home economy suffered a meltdown, and the
Unit Labor Requirements doubled to 30 for cloth and 60 for widgets then home should
A) export widgets.
B) export both and import nothing.
C) export cloth.
D) export and import nothing.
E) All of the above.
10) ______
11) In a two product two country world, international trade can lead to increases in
A) output of both products and consumer welfare in both countries.
B) total production of both products but not consumer welfare in both countries.
C) consumer welfare only if output of both products is increased.
D) consumer welfare in both countries but not total production of both products.
E) None of the above.
11) ______
12) In the Ricardian model, if a country's trade is restricted, this will cause all except which?
12) ______
A)
B)
C)
D)
E)
limit specialization and the division of labor
reduce the volume of trade and the gains from trade
may result in a country producing some of the product of its comparative disadvantage
cause nations to produce inside their production possibilities curves
None of the above.
13) Assume that labor is the only factor of production and that wages in the United States equal $20
per hour while wages in Japan are $10 per hour. Production costs would be lower in the United
States as compared to Japan if
A) U.S. labor productivity equalled 20 and Japan's 30.
B) U.S. labor productivity equalled 15 and Japan's 25 units per hour.
C) U.S. productivity equalled 30 units per hour whereas Japan's was 20.
D) U.S. labor productivity equalled 40 units per hour and Japan's 15 units per hour.
E) None of the above.
13) ______
14) If one country's wage level is very high relative to the other's (the relative wage exceeding the
relative productivity ratios) then it is probable that
A) free trade will result in no trade taking place.
B) free trade will improve both countries' welfare.
C) free trade will result in each country exporting the good in which it enjoys comparative
advantage.
D) free trade will result in each country exporting the good in which it suffers the greatest
comparative disadvantage.
E) None of the above.
14) ______
15) Which of the following statements is true?
A) Free trade is beneficial only if your competitor does not pay unreasonably low wages.
B) Free trade is beneficial only if your country is strong enough to stand up to foreign
competition.
C) Free trade is beneficial only if both countries have access to the same technology.
D) All of the above.
E) None of the above.
15) ______
16) The pauper labor theory, and the exploitation argument
A) are theoretically irrelevant to the Ricardian model, and do not limit its logical cogency.
B) are not relevant because the Ricardian model is based on the labor theory of value.
C) are not relevant because the Ricardian model allows for different technologies in different
countries.
D) are theoretical weaknesses that limit the applicability of the Ricardian concept of
comparative advantage.
E) None of the above.
16) ______
17) In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in
A) military capabilities.
B) tastes.
C) size.
D) labor productivities.
E) relative availabilities of factors of production.
17) ______
18) In the 2-factor, 2 good Heckscher-Ohlin model, a change from autarky (no trade) to trade will
benefit the owners of
A) the relatively scarce factor of production.
B) capital.
C) the factor of production with the largest elasticity of substitution.
D) the relatively abundant factor of production.
E) the relatively inelastic factor of production.
18) ______
19) 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 benefit from free international trade.
B) countries will consume outside their production possibility frontier.
C) countries will not be fully specialized in one product.
D) comparative advantage is primarily supply related.
E) None of the above.
19) ______
20) Suppose that there are two factors, capital and land, and that the United States is relatively land
endowed while the European Union is relatively capital-endowed. According to the
Heckscher-Ohlin model,
A) European capitalists should support U.S.-European free trade.
B) all capitalists in both countries should support free trade.
C) all landowners should support free trade.
D) European landowners should support U.S.-European free trade.
E) None of the above.
20) ______
21) International trade has strong effects on income distributions. Therefore, international trade
A) will tend to hurt everyone in both countries.
B) is beneficial to everyone in both trading countries.
C) will tend to hurt some groups in each trading country.
D) will tend to hurt one trading country.
E) will be beneficial to all those engaged in international trade.
21) ______
22) As compared to potential gainers, those who stand to lose from trade
22) ______
A)
B)
C)
D)
E)
tend to reject compensation as smacking of socialism.
are universally opposed by economists who consider them parasites.
tend to be more effectively organized politically.
are likely to migrate to another country.
None of the above.
23) The 1987 study by Bowen, Leamer and Sveikauskas
A) supported the validity of the Heckscher-Ohlin model.
B) used a two-country and two-product framework.
C) proved that the U.S.'s comparative advantage relied on skilled labor.
D) demonstrated that in fact countries tend to use different technologies.
E) supported the validity of the Leontief Paradox.
23) ______
24) Tastes of individuals are represented by
A) the production possibility frontier.
B) the indifference curve.
C) the production function.
D) the isovalue line.
E) None of the above.
24) ______
25) If PC/PF were to increase,
25) ______
A)
B)
C)
D)
E)
the food exporter would increase the quantity of food exports.
the cloth exporter would increase the quantity of cloth produced.
the cloth exporter would increase the quantity of cloth exports.
Both A and C.
None of the above.
26) If two countries with diminishing returns and different marginal rates of substitution between
two products were to engage in trade, then
A) the shapes of their respective production possibility frontiers would change.
B) the country with relatively elastic supplies would export more.
C) the marginal rates of substitution of both would become equal.
D) the larger of the two countries would dominate their trade.
E) None of the above.
26) ______
27) If a small country were to levy a tariff on its imports then this would
A) change the terms of trade.
B) decrease the country's economic welfare.
C) increase the country's economic welfare.
D) have no effect on that country's economic welfare.
E) None of the above.
27) ______
28) If a country began exporting product A and importing product B, then, as compared to the
autarky (no-trade) situation, the marginal cost of product A will
28) ______
A)
B)
C)
D)
E)
increase.
decrease.
shift inward.
shift outward.
None of the above.
29) If the U.S. has a higher marginal propensity to consume (MPC) imports as compared to both its
MPC for exportables and nontradables, then such aid will
A) worsen the U.S. terms of trade.
B) improve the U.S. terms of trade.
C) leave the world terms of trade unaffected.
D) worsen the terms of trade of both donor and recipient countries.
E) None of the above.
29) ______
30) If, beginning from a free trade equilibrium, the (net barter) terms of trade improve for a country,
then it will
A) increase consumption of its export good.
B) increase the quantity of its imports.
C) experience an export-biased shift in its production possibility frontier.
D) increase production of its import competing good.
E) None of the above.
30) ______
31) During the 19th Century, economic growth of the major trading countries was biased toward
manufactures and away from food. The less developed countries of that time were net exporters
of food. From this information, we would expect to have observed
A) improving (rising) terms of trade for the less developed countries.
B) a decrease in the relative price of food.
C) falling terms of trade for the less developed countries.
D) no change at all in the terms of trade of the less developed countries.
E) None of the above.
31) ______
32) A large country experiencing import-biased economic growth will tend to experience
A) deteriorating terms of trade.
B) improving terms of trade.
C) immiserizing terms of trade.
D) positive terms of trade.
E) None of the above.
32) ______
33) If Slovenia is a small country in world trade terms, then if it imposes a large series of tariffs on
many of its imports, this would
A) deteriorate its terms of trade.
B) decrease its marginal propensity to consume.
C) have no effect on its terms of trade.
D) improve its terms of trade.
E) None of the above.
33) ______
34) If Slovenia were a large country in world trade, then if it instituted a large set of subsidies for its
exports, this must
A) deteriorate its terms of trade.
B) improve its terms of trade.
C) decrease its marginal propensity to consume.
D) have no effect on its terms of trade.
E) None of the above.
34) ______
35) Immiserizing growth could occur to
A) a poor country experiencing export-biased economic growth.
B) a poor country experiencing growth in its non-traded sector.
C) a poor country experiencing capital-intensive biased growth.
D) a poor country experiencing import-biased economic growth.
E) None of the above.
35) ______
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
36) Given the information in the table above. What is the opportunity cost of Cloth in terms
of Widgets in Foreign?
36) _____________
37) Given the information in the table above, if these two countries trade these two goods in
the context of the Ricardian model of comparative advantage, then what is the lower
limit of the world equilibrium price of widgets?
37) _____________
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
38) It is generally claimed that a movement from autarky to free trade consistent with Ricardian comparative
advantage increases the economic welfare of each of the trade partners. However, it may be demonstrated
that under certain circumstances, not everyone in each country is made better off. Illustrate such a case.
39) When we examine the 2 Good 2 Country version of the Ricardian model of comparative advantage, we note
that comparative advantage is totally determined by physical productivity ratios. Changes in wage rates in
either country cannot affect these physically determined comparative advantages, and hence cannot affect,
which product will be exported by which country. However, when more than 2 goods are added to the
model (still with 2 countries), changes in wage rates in one or the other country can in fact determine which
good or goods each of the countries will export. How can you explain this anomaly?
40) "No country is abundant in everything." Discuss.
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
41) Refer to above figure. Two countries exist in this model, P and R. P is relatively labor (L)
abundant, as is evident in the bottom right horizontal axis. If Country P were to be
completely specialized in the labor-intensive product, C, it would be producing at point
4. In fact, it produces both C and P, at point 5. The (autarky) relative price of C (in terms
of F) of Country P is at point 3; and of Country R at point If trade were to open up
between these two countries, which would export C and which would export F? Is this
consistent with the Heckscher-Ohlin model? Explain.
41) _____________
42) It is claimed that the persistence of protectionism is often the result of the fact that those who lose from trade
are usually a much more informed, cohesive and motivated a group than those who gain. Give a specific
example from "real life" that supports this claim.
43) Why are prices of factors of production not equalized?
44) An export subsidy has the opposite effect on terms of trade to the effect of an import tariff. Domestically a
tariff will raise the price of the import good, deteriorating the domestic terms of trade. A production subsidy
for the export product will lower the local price of the export good, lowering the domestic terms of trade for
the country. Hence the export subsidy and the import tariff have the same effect. This analysis seems to
contradict the first sentence in this paragraph. Discuss this paradox.
45) One reason international trade has a powerful effect on the distribution of income within countries is that
some factors cannot move costlessly from one industry to another. What is another necessary condition for
international trade to have such a strong effect on intra-country income distributions?
Answer Key
1) B
2) A
3) B
4) B
5) D
6) D
7) D
8) D
9) D
10) C
11) A
12) D
13) D
14) A
15) E
16) A
17) E
18) D
19) C
20) A
21) C
22) C
23) E
24) B
25) B
26) C
27) B
28) A
29) B
30) B
31) A
32) B
33) C
34) A
35) A
36) One half a widget.
37) 1/2 Cloths.
38) (a)
If inter-generational, or economic growth considerations are taken into account, then a country may end up
specializing in a good that has no or few growth linkages with the rest of the economy (e.g. an "enclave" sector).
(b)
If some of the residents of a country have tastes biased toward their exportable, then they may suffer due to
the trade-affected increase in the market price of the exportable good.
39) This is not really an anomaly. As long as only two goods exist, then as long as trade takes place, each country must
have a comparative advantage in one of them (or none). However, if there are more goods than countries, then the
physical productivity definition of comparative advantage becomes ambiguous. Changes in relative wage rates will
shift the international competitiveness along the "chain of comparative advantage."
40) The concept of relative (country) factor abundance is (like factor intensities) a relative concept. When we identify a
country as being capital intensive, we mean that it has more capital per worker than does the other country. If one
country has more capital worker than another, it is an arithmetic impossibility that it also has more workers per
unit capital.
41) Country R would export F. This is consistent with the H-O model. The country which is relatively capital abundant
exports the product which is relatively capital intensive.
42) The shift of shipbuilding comparative advantage in shipbuilding away from the U.S. has caused economic damage
to trained shipbuilders, as well as to owners of shipyards, and to peripheral businesses located near such shipyards.
These groups, and their Congressional representatives will be very much aware of the damage being done. The
gainers would be those who pay somewhat lower shipping charges, or lower retail prices due to the use of cheaper
(foreign built) ships. Since shipping is typically a very small component of total retail cost, this gain will hardly be
noticeable by any one single group in the economy.
43) Again this statement may or may not be argued to be true. On the one hand, the large volume and growth in world
trade between the United States and other OECD countries during the 50 years since World War II has clearly been
related to a near universal (average) convergence in real wage levels in these countries, whereas the most obvious
cases in which such a convergence did not take place (North-South countries) also happened to be cases in which
trade was relatively small and "missing."
There are many theoretical reasons why factor price equalization may not occur. If the relative country relative
abundances are very different, then the theory itself does not predict that the wage equalization will occur. The
same is true of factor intensity reversals exist within relevant relative wage ranges. Dynamic migration models such
as Harris-Todaro are another class of theory that may suggest that even if the static equilibrium solution does
include the factor-price equalization, the dynamic path of the model may never reach this solution, so that when
observed within any finite time frame, it a lack of equalization would exist.
44) While this (Lerner) equivalence may well occur domestically, internationally the tariff will improve a country's
terms of trade. An export subsidy on the other hand will in fact lower the international price of the (now readily
available) export good, hence hurting a country's terms of trade.
45) It is necessary that the relative factor intensities differ from industry to industry.