Int'l Trade & Finance

In individual firms' demand curves to become ________, which will ________ demand for higher-priced goods and ________ demand for lower-priced goods. a. steeper; increase; reduce b. horizontal; reduce; reduce c. flatter; increase; reduce d. flatter; reduce; increase e. steeper; reduce; increase

a. steeper; increase; reduce

Suppose country A produces two goods, good X and good Y. Production of good X involves an intensive use of highly skilled workers. However, good Y is a relatively capital-intensive good. If the country experiences a wave of immigration of highly skilled workers, investment in physical capital remaining unchanged, the Rybczynski theorem will predict that: a. the production of good Y will contract. b. the production of both the goods will expand in the same proportion. c. the production of good X will contract. d. the production of both the goods will increase, but increase in good X will be much higher than increase in good Y

a. the production of good Y will contract.

If the terms of trade between the UK and India equal those of India, a. then the UK but not India will gain from trade. b. the UK and India will both gain from trade. c. neither country will gain from trade. d. only the country whose government subsidizes its exports will gain. e. India but not the UK will gain from trade.

a. then the UK but not India will gain from trade.

A revenue tariff is a. a tariff on domestically produced products b. a tariff levied on a product that is produced domestically and designed to protect domestic industries c. a tariff levied on a product that is not domestically produced d. a tariff based on the profits of international firms doing business within a country

c. a tariff levied on a product that is not domestically produced

a tariff of 20% on imported goods is called: a. a specific tariff b. a percentage tariff c. an ad valoren tariff d. a compound tariff

c. an ad valoren tariff

Which of the following is one of the fundamental sources of long-run economic growth? a. an expansion of foreign GDP b. an increase in demand for the country's importable product c. an improvement in the production technologies d. an expansion in the export of primary commodities

c. an improvement in the production technologies

Internal economies of scale arise when the cost per unit a. rises as the industry grows larger. b. rises as the average firm grows larger. c. falls as the average firm grows larger. d. remains constant over a broad range of output. e. falls as the industry grows larger.

c. falls as the average firm grows larger.

The theory of overlapping demands states that: a. Average income levels determine the tastes and preferences of consumers within a country. b. Countries with a low average income are more likely to trade with countries with a high average income. c. Countries are likely to trade with other countries that have similar income levels. d. Both a and c

d. Both a and c

The purpose of a protective tariff is a. to protect domestic consumers from harmful products b. to protect the international laws of commerce c. to protect the foreign country from anti-trust actions d. to protect domestic producers from foreign competition

d. to protect domestic producers from foreign competition

If the tariff on computers is not changed but the government then adds hitherto nonexistent tariffs on imported semiconductors components, then the effective rate of protection in the components, then the effective rate of protection in the computer industry will

decrease

When a tariff is imposed on imported goods or services, the consumer surplus in the domestic market _____ and producer surplus in the domestic market _______

falls: rises

It is usually safer for a large country to subsidise its export-oriented industries rather than the import-replacing industries. True False

false

Intra Industry Trade Index

1- abs(x-m)/ x+m

Quotas exist because a. not all countries are members of the WTO b. some countries that are members of the WTO are allowed to maintain quotas during a transitional period c. many industrial countries implement quotas in defiance of WTO rules d. all of the above

D. all of the above

If a good is imported into (small) country H from country F, then the imposition of a tariff in country H

raises in H and does not affect in F

If a good is imported into (large) country H from country F, then the imposition of a tariff in country H

raises the price of the good in H and lowers it in F

Which of the following characterizes monopolistic competition? Price collusion Price discrimination Product differentiation Price controls

Product differentiation

Any change in the volume of export or import by a small country will have no effect on its terms of trade. True False

true

Countries that export a diversified selection of export products do not seem to be at much risk of experiencing immiserizing growth. True False

TRUE

The Mercantilists believed: a. That international trade was a zero-sum game. b. That international trade was an n-sum game. c. That maximizing a country's imports would improve its welfare. d. That exports were detrimental to a country's economy.

That international trade was a zero-sum game.

The Dutch disease refers to a situation in which new production of a natural resource results in deindustrialization. True False

True

Quotas are a greater threat to competition than tariffs because a. quotas allow imports but only at a higher price b. tariffs are voluntary but quotas are not c. quotas preclude additional imports at any price d. tariffs do not reduce imports but quotas do

c. quotas preclude additional imports at any price

If a large country imposes a tariff: a. the imported product price rises by more than a tariff b. the imported product price rises by exactly the amount of the tariff c. the imported product price rises by exactly the amount of the tariff d. the imported product price falls by the amount of the tariff

c. the imported product price rises by exactly the amount of the tariff

Which theory explains how international trade affects factor prices? a. The Leontief paradox b. The factor-proportions theory c. The Stolper-Samuelson theory d. The factor-price equalisation theory

d. The factor-price equalisation theory

The terms of trade is given by: a. The prices paid for all imports. b. The prices received for all exports. c. The price paid for all domestically produced goods. d. The prices received for exports and paid for imports.

d. The prices received for exports and paid for imports.

Which of the following statements is false? a. Poor countries tend to have a low K/L ratio. b. Rich countries tend to have a high K/L ratio. c. The K/L ratio is important in determining the productivity of labour. d. The productivity of labour rises as the K/L falls.

d. The productivity of labour rises as the K/L falls.

a VER is: a. a tariff that is imposed by the exporting country b. a tariff that is imposed by the importing country c. a voluntary quota imposed by the importing country d. a voluntary quota imposed by the exporting country

d. a voluntary quota imposed by the exporting country

Quotas a. are a form of protectionism b. restrict imports of a product to a certain quantitative level c.are banned under the wto d. all of the above

d. all of the above

Specific tariffs are collected: a. only on industrial products b. only on pharmaceutical products c. only on products that arrive by train d. as a fixed amount of money per unit traded

d. as a fixed amount of money per unit traded

When a quota is imposed: a. foreign firms may gain by selling the imported product at a higher price b. foreign firms may lose by selling fewer imports c. domestic firms lose by selling fewer products d. both a and b

d. both a and b

Intraindustry trade is most common in the trade patterns of raw material producers. a. China with the rest of the world. b. the developing countries of Asia and Africa. c. the industrial countries of Western Europe. d. labour-intensive products

d. labour-intensive products

The Rybcznski theorem suggests that development of new natural resources in a country a. will result in balanced growth b. may cause the country to export only manufactured products c. will increase output in all sectors of the economy d. may cause the manufacturing sector of the country to shrink

d. may cause the manufacturing sector of the country to shrink

If country A is labour abundant and country B is capital abundant, then with trade wages will tend to _____ in country A and _____ in country B. a. fall; fall b. rise; rise c. fall; rise d. rise; fall

d. rise; fall

Initial empirical tests of the factor-proportions theory of international trade showed that U.S. exports tended to be labour intensive. This perverse empirical result is known as: a. Krugman's puzzle. b. Ricardo's problem. c. Adam Smith's dilemma. d. the Leontief Paradox

d. the Leontief Paradox

Nontariff barriers include all of the following except a. buy domestic requirements b. technical standards c. environmental standards d. the corporate income tax

d. the corporate income tax

The effective rate of protection measures a. the "true" ad valorem value of a tariff b. the quota equivalent value of a tariff c. the efficiency with which the tariff is collected at the customhouse d. the protection given by the tariff to domestic value added e. the difference between domestic and foreign prices of the import

d. the protection given by the tariff to domestic value added

In a country that produces only wine and gums, which of the following is least likely to lead to biased growth a. the amount of usable land has increased substantially b. the relaxation of migration laws has led to a huge influx of unskilled workers c. the technology used to produce gums improves while the technology used to produce wine does not change d. the relative price of guns in the international market changes

d. the relative price of guns in the international market changes

In the Heckscher-Ohlin model, when two countries begin to trade with each other a. relative factor prices in the two countries diverge. b. all factors in one country will gain, but there may be no gains in the other country. c. benefits from trade are evenly distributed between the two countries. d. the relative prices of traded goods in the two countries converge. e. all factors in both countries will gain from trade.

d. the relative prices of traded goods in the two countries converge.

According to the product cycle model, comparative advantage: A. May move from one country to another country as the product matures. b. Will remain in the country where the product is introduced. c. Is based on the income level of the domestic country. d. Is based on economies of scale.

A. May move from one country to another country as the product matures.

When economic growth in a large country lowers its willingness to trade, it can result in: A. an improvement in the country's terms of trade. B. a biased growth. C. immiserizing growth. D. the Dutch Disease.

A. an improvement in the country's terms of trade.

Adam Smith stated that trade was: a. A zero sum game. b. To be controlled by government to maintain a surplus. c. Beneficial to all countries. d. Beneficial to large countries that can reduce costs.

Beneficial to all countries.

Which of the following is most unlikely to lead to a reversal of a country's trade pattern? A. Growth in the country's endowment of the input that is initially scarce B. A proportionate increase in output in all the sectors of the economy C. International diffusion of technology D. Shifting tastes of the country's consumers

C. International diffusion of technology

In international trade jargon, an economy is said to be a large country if: A. it is a price-taker in the world market. B. a majority of its production is consumed domestically. C. a decline in its exports raises the world price of those goods. D. a decline in its imports does not affect its terms of trade.

C. a decline in its exports raises the world price of those goods.

Suppose a small country experiences economic growth which leads to an increased willingness to trade. The country's terms of trade will _____ because the prices of its exports will _____ relative to the price that it has to pay for its imports. A. worsen; fall B. improve; not change C. remain unaffected; not change D. remain constant; fall

C. remain unaffected; not change

Large countries are _____ susceptible to immiserizing growth than small countries because when large countries expand their exports, their terms of trade ____. A. less; improve B. less; worsen C. more; improve D. more; worsen

D. more; worsen

Which of the following statements is true? a. A VER is essentially the same thing as a quota b. a VER is essentially the same thing as a quota c. Quotas are legal under WTO rules d. VERs enhance consumer welfare whereas quotas do not

a. A VER is essentially the same thing as a quota

The effect of international trade on the price of the goods traded: a. Are long-run changes. b. Are short-run changes. c. Are nonexistent and should not be considered. d. Are secondary effects and only partially beneficial to both countries.

a. Are long-run changes.

Changes in industrial structure: a. Cause changes in the returns to the factor of production. b. Cause changes in the price of the traded goods. c. Do not cause changes in the distribution of a country's income. d. Cause changes in a country's comparative advantage.

a. Cause changes in the returns to the factor of production.

When a production possibilities frontier is a straight line, production occurs under conditions of: a. Constant costs. b. Increasing costs. c. Decreasing costs. d. None of the above

a. Constant costs.

The Free alongside method of valuing imports: a. Defines the price of the imported good as the foreign market price before it is loaded into the ship, train, or plane for shipment to the importing country b. defines the imported price as the price in the foreign market including the cost of loading it onto the ship, train, or plane for shipment too the importing country c. defines the imported price as the price including all inter-country charges up to the importing country's port of entry d. none of the above.

a. Defines the price of the imported good as the foreign market price before it is loaded into the ship, train, or plane for shipment to the importing country

The factor-proportions theory identifies the source of comparative advantage as: a. Differences in relative factor endowments between countries. b. Similarities in tastes. c. Identical production methods. d. Similar factor endowments.

a. Differences in relative factor endowments between countries.

In the Heckscher-Ohlin model, countries are assumed to differ only in terms of their a. Factor endowments b. available technologies. c. tastes and preferences. d. physical size. e. factor productivities

a. Factor endowments

In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in a. In relative abundance of factors of production. b. the size of their economies. c. military capabilities. d. tastes and preferences. e. labor productivities.

a. In relative abundance of factors of production.

Intraindustry trade: a. Occurs when a country simultaneously exports and imports the same product. b. Cannot be adequately explained using the factor-proportions theory of international trade. c. Is measured using the intraindustry trade index. d. All of the above

a. Occurs when a country simultaneously exports and imports the same product.

Intra-industry trade: a. Tends to be associated with differentiated products. b. Is never associated with vertically differentiated products. c. Rarely occurs between developed and developing countries. d. Can be dismissed as a data issue.

a. Tends to be associated with differentiated products.

the product cycle refers to: a. The changing location of production of a particular good over time. b. The changing of the marketing strategy for a particular good over time. c. The changing nature of a particular good over time. d. The changing pattern of comparative advantage over time.

a. The changing location of production of a particular good over time.

Which of the following factors could potentially cause intraindustry trade? a. The existence of significant economies of scale b. R&D being an important input into the production process c. The operation of the sunspot cycle d. BothAandB

a. The existence of significant economies of scale

Industrial structure refers to: a. The percentage of output that is accounted for by each industry within a country. b. The output that is accounted for by each industry within a country. c. The types of industries in a country. d.The percentage of industries that account for a country's exports.

a. The percentage of output that is accounted for by each industry within a country.

Once a country joins the WTO a. all quotas must immediately be eliminated b. all quotas are allowed under the WTO c. quotas must be slowly eliminated over a given period d. all quotas are allowed since the WTO does not pay attention to this trade issue

c. quotas must be slowly eliminated over a given period

Horizontally differentiated products are products where: a. The prices are similar but the products differ slightly in some perceived manner. b. Both the physical characteristics and the prices of the products differ. c. The physical characteristics of the product are identical but product prices differ. d. The physical characteristics and product prices are identical.

a. The prices are similar but the products differ slightly in some perceived manner.

Factor-price equalisation means that: a. Trade will have a tendency to equalise the prices of factors of production among countries that trade. b. International trade theory has nothing to do with reality. c. International trade will tend to only equalise the price of labour among countries. d. International trade has no influence on the prices of factors of production in countries that trade.

a. Trade will have a tendency to equalise the prices of factors of production among countries that trade.

Assume that labour 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. labour productivity equaled 40 units per hour and Japan's 15 units per hour. b. U.S. labour productivity equaled 15 units per hour and Japan's 25 units per hour. c. U.S. labour productivity equaled 15 units per hour and Japan's 40 units per hour. d. U.S. labour productivity equaled 30 units per hour and Japan's 20 units per hour. e. U.S. labour productivity equaled 20 units per hour and Japan's 30 units per hour.

a. U.S. labour productivity equaled 40 units per hour and Japan's 15 units per hour.

If a country has a _____ advantage in the production of a particular good, its opportunity cost of producing that good is lower than the opportunity cost for the trading partner for producing the same good. a. comparative b. absolute c. interim d. mercantilist

a. comparative

For the government, a quota is worse than a tariff because part of the lost surplus is not transferred to the government a. consumer b. producer c. dead-weight d. tariff

a. consumer

When a quota is imposed in a domestic market a. domestic producers capture all of any future increase in demand b. foreign producers capture all of any future increase in demand c. the government captures all of any future increase in demand d. none of the above

a. domestic producers capture all of any future increase in demand

A nation engaging in trade according to the Ricardian model will a. find its consumption bundle outside its production possibilities frontier. b. on its production possibilities frontier. c. on its trade-partner's production possibilities frontier. d. inside its production possibilities frontier. e. inside its trade-partner's production possibilities frontier.

a. find its consumption bundle outside its production possibilities frontier.

When demand increases for a good subject to a quota: a. imports would stay the same but the price would rise b. the price would stay the same but imports would increase c. the supply curve shifts outward at the world price d. the price wouldn't change since imports ensure consumption

a. imports would stay the same but the price would rise

A reduction in the price of a commodity due to an increase in supply will: a. increase consumer surplus b. reduce consumer surplus c. leave consumer surplus unchanged d. Cause the demand curve to shift to the right

a. increase consumer surplus

Which of the following statements is true? a. increases in a country's endowments of land, labour, and capital will lead to long-run economic growth b. improvements in the technology used in production can lead to increases in current output levels, but will not affect long run economic growth. c. Improvements in production technology do not affect the shape or position of the production-possibility curve. d. biased growth leads to a proportionate shift in the production-possibility curve

a. increases in a country's endowments of land, labour, and capital will lead to long-run economic growth

Starting from an autarky (no-trade) situation with Heckscher-Ohlin model, if Country H is relatively labour abundant, then once trade begins wages should rise and rents should fall in H. a. rent will be unchanged but wages will rise in H. b. wages and rents should rise in H. c. wages should fall and rents should rise in H. d. wages and rents should fall in H.

a. rent will be unchanged but wages will rise in H.

Vertically differentiated products are products where: a. The prices are similar but the products differ slightly in some perceived manner. b. Both the physical characteristics and the prices of the products differ. c. The physical characteristics of the product are identical but the prices differ. d. The physical characteristics and the prices are identical.

b. Both the physical characteristics and the prices of the products differ.

Firms in imperfectly competitive markets: a. Are not able to influence the price of the product. b. Can influence the price of the product by changing the quantity offered for sale. c. Are not able to differentiate the products within the industry. d. Have alliances with foreign countries to avoid double taxation.

b. Can influence the price of the product by changing the quantity offered for sale.

Which of the following has been confirmed by empirical tests of the Ricardian model? a. International trade has no impact on income distribution. b. Companies tend to export goods in which they have a relatively high level of productivity. c. All predictions of the model for a multi-product, multi-country world are highly unrealistic. d. The existence of nontraded goods results in a high degree of specialization among countries. e. The unimportance of economies of scale as a cause of trade.

b. Companies tend to export goods in which they have a relatively high level of productivity.

If the amount of capital and labour in Country A are $100 million and 100 million workers, and the amount of capital and labour in Country B are $50 million and 25 million workers, then: a. Country A is capital abundant compared to Country B. b. Country B is capital abundant compared to Country A. c. Country B is labour abundant compared to Country A. d. Both a and c

b. Country B is capital abundant compared to Country A

Which of the following economists discovered the basic idea of comparative advantage? a. John Maynard Keynes b. David Ricardo c. Paul Samuelson d. Milton Friedman

b. David Ricardo

The theory of absolute advantage developed by Adam Smith was based on the assumption that: a. Capital was the only factor of production. b. Labour was the only factor of production. c. Capital and labour were the only factors of production. d. Absolute advantage was a myth.

b. Labour was the only factor of production.

Assume that the U.S. is relatively capital abundant and Mexico is relatively labour abundant. Further, assume that the production of wheat is capital intensive and the production of iron is labour intensive. Which of the following would be true? a. Mexico would tend to export wheat. b. Mexico would tend to import wheat. c. The U.S. would tend to export iron. d. The U.S. would tend to import wheat.

b. Mexico would tend to import wheat.

The Ricardian model of international trade demonstrates that trade can be mutually beneficial. Why, then, do governments restrict imports of some goods? a. Import restrictions are the result of trade wars between hostile countries. Trade can have significant harmful effects on some segments of a country's economy. b. Restrictions on imports can have significant beneficial effects on domestic consumers. c. The Ricardian model is often incorrect in its prediction that trade can be mutually beneficial. d. Imports are only restricted when foreign-made goods do not meet domestic standards of quality.

b. Restrictions on imports can have significant beneficial effects on domestic consumers.

If a country has an absolute advantage in two products and has a comparative advantage in only one product, what should it do? a. Produce both products and export them to maximize its returns. b. Specialize in the product it has a comparative advantage in and import the other. c. Produce both products and export the cheapest and import the most expensive. d. Produce both products and export the most expensive and import the cheapest.

b. Specialize in the product it has a comparative advantage in and import the other.

When economists talk about the gains from trade, they mean that: a. No one ever gets hurt by trade. b. The benefits of trade outweigh the losses. c. Business firms benefit from trade but not necessarily individuals. d. Trade increases government revenue through taxes on imports.

b. The benefits of trade outweigh the losses

The concept of reciprocal demand suggests that: a. The country with the greater demand for the other country's product will gain more from trade. b. The country with the greater demand for the other country's product will gain less from trade. c. That the demand for another country's product does not influence the terms of trade. d. That the terms of trade will dictate the amount of debt the country will acquire to purchase the product.

b. The country with the greater demand for the other country's product will gain less from trade.

The rybczynski theorem asserts that in a two good model, and assuming that product prices stay constant, growth in the endowment of one factor of production with the other factor remaining unchanged will result in a. an equal increase in the output of both goods b. an increase in the output of the good that uses the growing factor intensively and a decrease in the output of the other good c. an increase in the out of both goods but a relatively greater increase in the output of the good that uses the growing factor intensively d. an increase in the output of the good that uses the growing factor intensively, but the output level of the other good will remain unchanged

b. an increase in the output of the good that uses the growing factor intensively and a decrease in the output of the other good

Suppose a large country experiences economic growth which results in a reduced willingness to trade. The country's terms of trade will _____ because the fall in demand for imports will cause the price of its exports to _____ relative to the price that it has to pay for its imports. a. worsen, fall b. improve, rise c. improve, fall d. worsen, rise

b. improve, rise

Which of the following industries would be an example of comparative advantage based on the relative abundance of physical capital? a. Pharmaceuticals b. Brooms c. Canned peas d. Steel

d. Steel

The rapid accumulation of capital and worker skills In the United States in the 1800s a. resulted in an increase in the export of natural resources by the country b. made the United States more dependent on imported minerals c. made the United States more self sufficient and led to a reduction in its trade volume d. resulted in rapid deindustrialization within the country

b. made the United States more dependent on imported minerals

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. opportunity costs b. technology c. factor endowments d. scale of production e. factor intensities

b. technology

If in 2002, U.S. automobile exports were $100 billion and imports were $300 billion, the index of intraindustry trade would be: a. 0.25. b. 0.75. c. 0.50. d. 1.00.

c. 0.50.

A country is said to be relatively abundant in capital if it has a. A greater absolute amount of capital. b. A smaller absolute amount of labour. c. A higher capital-to-labour ratio. d. A lower capital-to-labour ratio.

c. A higher capital-to-labour ratio.

An economy without international trade is an economy in a state of: a. Disequilibrium. b. Economic depression. c. Autarky. d. Economic expansion.

c. Autarky

Which of the following is not an assumption of the factor-proportions theory? a. Perfect competition in the product and factor markets b. Homogeneous labour and capital in both countries c. Different tastes and preferences between countries d. Constant returns to scale

c. Different tastes and preferences between countries

The availability of alternative definitions of "price" such as FAS, CIF, and FOB creates complications regarding the administration of the _____ tariff. a. Ad valorem b. Generic c. Export d. Specific

c. Export

The factor-proportions theory of international trade implies that countries would tend to: a. Export products that intensively utilise their scarce factor of production. b. Import products that intensively utilise their abundant factor of production. c. Export products that intensively utilise their abundant factor of production. d. Import products that intensively utilise their unknown factor of production.

c. Export products that intensively utilise their abundant factor of production.

Which gives consumers more product choices? a. No international trade b. Interindustry trade c. Intraindustry trade d. All of the above

c. Intraindustry trade

Intraindustry trade in homogeneous products occurs because: a. Foreign products are more expensive. b. Tariffs make domestic good affordable. c. Seasonal fluctuations. d. Lower domestic communication costs.

c. Seasonal fluctuations.

The slope of a country's production possibilities frontier is called: a. The marginal rate of expansion. b. The marginal rate of substitution. c. The marginal rate of transformation. d. The marginal benefits of trade.

c. The marginal rate of transformation.

A problem associated with measuring intraindustry trade is a. The industry or product groups are well defined. b. The industries do not have the data to measure trade. c. The trade is two-way trade. d. The products are not counted as exports or imports.

c. The trade is two-way trade.

Specialisation and trade by countries based on absolute advantage results in: a. A faster depletion of the world's resources. b. Products produced at higher cost. c. The world using its resources more efficiently causing an increase in world output. d. The world using its resources more efficiently causing a decrease in world output.

c. The world using its resources more efficiently causing an increase in world output.

International trade in a single product: a. Would tend to lower the price in the exporting country. b. Would tend to increase the price in the importing country. c. Would tend to increase the price in the exporting country. d. Would not affect the price in either country.

c. Would tend to increase the price in the exporting country.

If trade is consistent with the H-O theory, then growth in a country's scarce factor of production will lead to: a. an increased willingness to trade b. balanced growth c. a decreased willingness to trade d. a deterioration in country's terms of trade

c. a decreased willingness to trade

Like tariffs, quotas result in a. additional government revenue b. an increase in consumer surplus c. a higher imported price d. more imports

c. a higher imported price

The fact that industrialised countries levy very low or no tariff on raw materials and semi processed goods a. helps developing countries export manufactured products b. has no effect on developing country exports c. hurts developing country efforts to export manufactured goods d. hurts developing country efforts to export raw materials

c. hurts developing country efforts to export manufactured goods

If there are a large number of firms in a monopolistically competitive industry the country in which the firms are located can be expected to export the goods they produce. a. there will be barriers to entry that prevent addition firms from entering the industry. b. there will be a small number of firms that are very large and the rest will be very small. c. long-run profit will be equal to zero. d. the firms will converge production on a standardized product.

c. long-run profit will be equal to zero.

CIF stands for

cost, insurance, and freight

When there is balanced (exports equal imports) intraindustry trade in a certain product, the index of intraindustry trade is: a. 0.00. b. 0.25. c. 0.50. d. 1.00.

d. 1.00.

When we say that steel is capital intensive with respect to wheat, this means that: a. More capital is used in the production of steel than for wheat. b. Less labour is used in the production of steel than for wheat. c. A lower capital-to-labour ratio is used in the production of steel than wheat. d. A higher capital-to-labour ratio is used in the production of steel than wheat.

d. A higher capital-to-labour ratio is used in the production of steel than wheat.

A point on a country's production possibilities frontier indicates: a. A level of production that would cause unemployment. b. A level of production that is unattainable. c. An undesirable level of production. d. A level of production where resources are fully employed.

d. A level of production where resources are fully employed.

Which of the following is not one of the dynamic gains from trade? a. Greater efficiency in the use of resources b. Larger gains from trade for small countries c. Increases in the quality of goods d. A lower rate of growth of GDP

d. A lower rate of growth of GDP

The Stolper-Samuelson theorem states that with international trade the: a. Scarce factor receives a larger piece of the economic pie and the abundant factor tends to receive a smaller piece. b. Larger factor receives a larger piece of the economic pie and the smaller factor tends to receive a smaller piece. c. Smaller factor receives a larger piece of the economic pie and the larger factor tends to receive a smaller piece. d. Abundant factor receives a larger piece of the economic pie and the scarce factor tends to receive a smaller piece.

d. Abundant factor receives a larger piece of the economic pie and the scarce factor tends to receive a smaller piece.

A large amount of international trade: a. Involves differentiated products. b. Is intraindustry trade. c. Is based on imperfect competition. d. All of the above

d. All of the above

The Mercantilists advocated: a. Lower labour costs to increase exports. b. Tariffs and quotas to reduce imports. c. Trade policies designed to cause an inflow of gold. d. All of the above

d. All of the above

The factor-proportions theory is a simplification of international trade between countries because it is explained using: a. Two countries. b. Two goods. c. Two factors of production. d. All of the above

d. All of the above

Intraindustry trade (IIT): a. Is nothing but a trivial data problem. b. Can be analysed in exactly the same way we analysed interindustry trade. c. Has nothing to do with trade in differentiated products. d. Can be related to the existence of overlapping demands.

d. Can be related to the existence of overlapping demands.

International trade tends to: a. Have no effect on factor prices. b. Cause all factor prices to fall. c. Cause the price of the scarce factor to rise and the price of the abundant factor to fall. d. Cause the price of the scarce factor to fall and the price of the abundant factor to rise.

d. Cause the price of the scarce factor to fall and the price of the abundant factor to rise.

Which of the following products would the product cycle least likely be applied to? a. TVs b. Calculators c. VCRs d. Crude oil

d. Crude oil

Which of the following is one of the most important determinants of intraindustry trade? a. Physical capital b. Human capital c. Unskilled labour d. Economies of scale

d. Economies of scale

A country will have a comparative disadvantage in goods whose production a. Uses its relatively abundant resource. b. Has a higher wage rate than the other country. c. Is not in high demand relative to other countries products. d. Intensively uses its relatively scarce factor of production.

d. Intensively uses its relatively scarce factor of production.

Which of the following is not an explanation of intraindustry trade in homogeneous products? a. Foreign suppliers may be closer along the borders of a country than domestic suppliers. b. Entrepot and re-export trade c. Seasonal fluctuations in output or demand d. Lack of resources to make a product domestically

d. Lack of resources to make a product domestically

To say that the U.S. possesses a comparative advantage over Japan in the production of certain types of music implies that (for a similar quality of music) the: a. Opportunity cost of production is less in Japan. b. Absolute cost of production is less in the U.S. c. Absolute cost of production is less in Japan. d. Opportunity cost of production is less in the U.S.

d. Opportunity cost of production is less in the U.S.