econ 319 lesson 4

The figure given below shows the production-possibility curves of Canada (AB) and the rest of the world (CD). I1 and I2 are community indifference curves for Canada and the Rest of the World. In the absence of trade, Canada consumes _____ bales of cotton and _____ bushels of wheat. 20; 3 16; 6 20; 6 12; 11

16;6

n the figure given below, AB is the production-possibility curve of Canada. The line PQ shows the price ratio of 1 bushel of wheat/bale of cotton. The international price ratio is 0.25 bushel of wheat/bale of cotton as shown by the line RS. I1 and I2 are two of the community indifference curves of Canada. Which of the following can be inferred from this figure? Canada has a comparative advantage in the production of wheat. Canada has a comparative advantage in the production of cotton. Canada has an absolute disadvantage in the production of both the goods. Canada has absolute advantage in the production of both the goods.

Canada has a comparative advantage in the production of wheat.

Which of the following best explains why increasing marginal costs of production arise? The factor endowments vary across countries. All the factor inputs are not fully utilized in the production of different commodities. Different consumers have different tastes and preference sets. Different commodities use inputs in different proportions.

Different commodities use inputs in different proportions

Assume a two-country, two-good, and two-input model where the following relationships hold: (K/L)U.S. > (K/L)ROW (K/L)automobiles > (K/L)shoes (K/L)U.S. is the capital-labor ratio in the United States, (K/L)ROW is the capital-labor ratio in the rest of the world, (K/L)automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the rest of the world. According to the Heckscher-Ohlin model, free trade between the United States and the rest of the world would result in: an improvement in economic well-being in the United States but deterioration of economic well-being in the rest of the world. no change in economic well-being in the United States but an improvement in economic well-being in the rest of the world. an improvement in economic well-being in both the United States and the rest of the world. deterioration of economic well-being in the United States but an improvement in economic well-being in the rest of the world.

an improvement in economic well- being in both the united states and the rest of the world

Assume a two-country, two-good, and two-input model where the following relationships hold: (K/L)U.S. > (K/L)ROW (K/L)automobiles > (K/L)shoes (K/L)U.S. is the capital-labor ratio in the United States, (K/L)ROW is the capital-labor ratio in the rest of the world, (K/L)automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the rest of the world. The relationships shown here indicate that the United States has a comparative advantage in the production of _____ while the rest of the world has a comparative advantage in the production of _____. both the goods; neither shoes nor automobiles shoes; automobiles automobiles; shoes neither shoes nor automobiles; both of the goods

automobiles; shoes

Which of the following statements is true about production-possibility curves? Constant cost production-possibility curves are straight lines and usually lead to complete specialization under free trade. Under free trade, bowed-out production-possibility curves are associated with partial specialization because the opportunity cost of producing each good is constant along the curve. Increasing-cost production-possibility curves provide us with information about the preferences of the consumers. Constant cost production-possibility curves are convex to the origin.

constant cost production- possibility curves are straight lines and usually lead to complete specialization under free trade

Country Y has 15 thousand acres of land and 45 thousand laborers, whereas the rest of the world has 100 thousand acres of land and 200 thousand laborers. These countries produce a labor-intensive good A and a land-intensive good B. When trade opens up between these countries, it can be inferred that country Y will: export both goods. export good B and import good A. export good A and import good B. import both goods.

export good A and import good B

Assume a two-country, two-good, and two-input model. Let the two countries in this model be the United States and the rest of the world and the two goods being produced by each of the countries be steel and wheat. The two factors of production used in producing the goods in each country are capital and land. If the United States is capital-abundant and steel production is capital-intensive, the Heckscher-Ohlin model would predict that the United States would: export steel and import wheat. export wheat and import steel. import both the goods from the rest of the world. export both the goods to the rest of the world.

export steel and import wheat

Assume a two-country, two-good, and two-input model. Let the two countries in this model be the United States and the rest of the world and the two goods being produced by each of the countries be steel and wheat. The two factors of production used in producing the goods in each country are capital and land. If the United States is capital-abundant and wheat production is land-intensive, the Heckscher-Ohlin model would predict that the rest of the world would: export steel and import wheat. export wheat and import steel. import both the goods from the United States. export both the goods to the United States.

export wheat and import steel.

The figure given below shows the free-trade production and consumption in country Y. AB is the production-possibility curve of country Y. I1 is the community indifference curve of country Y. Here country Y's production-possibility curve indicates that it faces _____ marginal costs of production. constant increasing decreasing fluctuating

increasing

The table given below shows the units of land and labor required to produce a unit of bread and cheese respectively in country X. If country X is a relatively land-abundant country, the opening up of free trade would cause the price of bread relative to cheese to: 1 Unit of Bread 1 Unit of Cheese Labor Input 5 units 20 units Land Input 4 units 10 units rise. fall. stay the same. initially rise but fall afterward.

rise

Which of the following can be concluded from the relationships given below? (U.K.capital stock) < (Rest of the world's capital stock) (U.K. labor supply) > (Rest of the world's labor supply) The United Kingdom is relatively labor-abundant compared to the rest of the world. The United Kingdom is relatively capital-abundant compared to the rest of the world. The rest of the world would export labor-intensive goods. The rest of the world would export both the commodities.

the United Kingdom is relatively labor-abundant compared to the rest of the world