CHAPTER 3: LABOUR PRODUCTIVITY AND COMPARATIVE ADVANTAGE: The Ricardian Model

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 equaled 40 units per hour and Japan's 15 units per hour. B. U.S. productivity equaled 30 units per hour whereas Japan's was 20. C. U.S. labor productivity equaled 20 and Japan's 30. D. U.S. labor productivity equaled 15 and Japan's 25 units per hour. E. None of the above.

A

If the world terms of trade equal those of country F, then A. country H but not country F will gain from trade. B. country H and country F will both gain from trade. C. neither country H nor F will gain from trade. D. only the country whose government subsidizes its exports will gain. E. None of the above.

A

Ricardo's original theory of comparative advantage seemed of limited real-world value because it was founded on the A. labor theory of value. B. capital theory of value. C. land theory of value. D. entrepreneur theory of value. E. None of the above.

A

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. E. Both C and D.

A

n a two-country, two-product world, the statement "Germany enjoys a comparative advantage over France in autos relative to ships" is equivalent to A. France having a comparative advantage over Germany in ships. B. France having a comparative disadvantage compared to Germany in autos and ships. C. Germany having a comparative advantage over France in autos and ships. D. France having no comparative advantage over Germany. E. None of the above.

A

A country engaging in trade according to the principles of comparative advantage gains from trade because it A. is producing exports indirectly more efficiently than it could alternatively. B. is producing imports indirectly more efficiently than it could domestically. C. is producing exports using fewer labor units. D. is producing imports indirectly using fewer labor units. E. None of the above.

B

According to Ricardo, a country will have a comparative advantage in the product in which its A. labor productivity is relatively low. B. labor productivity is relatively high. C. labor mobility is relatively low. D. labor mobility is relatively high. E. None of the above.

B

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. E. None of the above.

B

Given the following information: Unit Labor Requirements Cloth Widgets Home 10 20 Foreign 60 30 A. Neither country has a comparative advantage. B. Home has a comparative advantage in cloth. C. Foreign has a comparative advantage in cloth. D. Home has a comparative advantage in widgets. E. Home has a comparative advantage in both products.

B

If a production possibilities frontier is bowed out (concave to the origin), then production occurs under conditions of A. constant opportunity costs. B. increasing opportunity costs. C. decreasing opportunity costs. D. infinite opportunity costs. E. None of the above.

B

If the United States' production possibility frontier was flatter to the widget axis, whereas Germany's was flatter to the butter axis, we know that A. the United States has no comparative advantage B. Germany has a comparative advantage in butter. C. the U.S. has a comparative advantage in butter. D. Not enough information is given. E. None of the above.

B

If the world terms of trade for a country are somewhere between the domestic cost ratio of H and that of F, then A. country H but not country F will gain from trade. B. country H and country F will both gain from trade. C. neither country H nor F will gain from trade. D. only the country whose government subsidizes its exports will gain. E. None of the above.

B

Suppose the United States' production possibility frontier was flatter to the widget axis, whereas Germany's was flatter to the butter axis. We now learn that the German mark is sharply depreciated against the U.S. dollar. We now know that A. the United States has no comparative advantage B. Germany has a comparative advantage in butter. C. the United States has a comparative advantage in butter. D. Not enough information is given. E. None of the above.

B

Suppose the United States' production possibility frontier was flatter to the widget axis, whereas Germany's was flatter to the butter axis. We now learn that the German wage doubles, but U.S. wages do not change at all. We now know that A. the United States has no comparative advantage. B. Germany has a comparative advantage in butter. C. the United States has a comparative advantage in butter. D. Not enough information is given. E. None of the above.

B

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. E. on its trade-partner's production possibilities frontier.

C

Countries trade with each other because they are _______ and because of ______. A. different, costs B. similar, scale economies C. different, scale economies D. similar, costs E. None of the above.

C

If a very small country trades with a very large country according to the Ricardian model, 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. E. None of the above.

C

If two countries have identical production possibility frontiers, then trade between them is not likely if A. their supply curves are identical. B. their cost functions are identical. C. their demand functions differ. D. their incomes are identical. E. None of the above.

C

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 E. None of the above.

C

If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios), then A. it is not possible that producers in each will find export markets profitable. B. it is not possible that consumers in both countries will enhance their respective welfares through imports. C. it is not possible that both countries will find gains from trade. D. it is possible that both will enjoy the conventional gains from trade. E. None of the above.

D

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

D

The Ricardian model is based on all of the following except A. only two nations and two products. B. no diminishing returns. C. labor is the only factor of production. D. product quality varies among nations. E. None of the above.

D

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 is higher in that country. E. Both B and C.

D

If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios), then if they both use the same currency A. neither country has a comparative advantage. B. only the low wage country has a comparative advantage. C. only the high wage country has a comparative advantage. D. consumers will still find trade worth while from their perspective. E. None of the above.

E

If the world terms of trade equal those of country ,F then A. country H but not country F will gain from trade. B. country H and country F will both gain from trade. C. neither country H nor F will gain from trade. D. only the country whose government subsidizes its exports will gain. E. None of the above.

E

If two countries have identical production possibility frontiers, then trade between them is not likely if A. their supply curves are identical. B. their cost functions are identical. C. their demand conditions identical. D. their incomes are identical. E. None of the above.

E