ECON 3317 Exam 1
For trade to take place, a country must face a world relative price that is
different form the relative price that would prevail in the absence of trade
The potential for gains from the rearrangement of production among countries is due to
differing opportunity costs.
A country has a comparative advantage in producing a good if
its opportunity cost of producing that good is lower than elsewhere.
According to Ricardo, a country will have a comparative advantage in the product in which its
labor productivity is relatively high.
In the specific factors model, which of the following is treated as a specific factor?
land
Economists consider the effects of free trade on income distribution to be ________ important than the effects on overall welfare because ________.
less; many factors besides trade affect income distribution
Which of the following is not a possible explanation for why the relative supply curve for the world might be different from that for a specific factors economy? The other countries in the world could have different
levels of relative demand
Within each country that opens itself to international trade,
some factor owners gain, but other factor owners lose.
The degree of a factor's specificity is inversely related to
the mobility of the factor, with more mobile factors having less specificity.
international monetary analysis focuses on
the monetary side of the international economy, such as currency exchange
Over the past forty years the composition of developing-country exports has
undergone a dramatic shift from primary products to manufactures.
In claiming that "size matters," the gravity model asserts that there is a strong empirical relationship between the size of a country's economy and the
volume of its imports and exports
A country's budget constraint states that
whether or not a country engages in trade, the value of goods consumed must be equal to the value of goods produced.
The effect of trade on specialized employees of importminus−competing industries will be ________ jobs and ________ pay because they are relatively ________.
fewer; lower; immobile
In the specific factors model, the effects of trade on welfare overall are ________ and for fixed factors used to produce the exported good they are ________.
positive; positive
The overall welfare effects of trade are ________ if ________.
positive; those who gain can compensate those who lose and still be better off
As more labor is used, holding capital constant,
the marginal product of labor decreases.
Under perfect competition, the equilibrium price of labor used to produce cloth will be equal to
the marginal product of labor in the production of cloth times the price of cloth.
In each sector of a specific factors economy, profit-maximizing employers will demand labor up to the point where
the marginal product of labor times the price of the product equals the wage rate.
In the gravity model, empirical studies have found that the values of the exponents 'a', 'b', and 'c' are very close to:
+1
A century ago, most British imports came from relatively distant locations: North America, Latin America, and Asia. Today, most British imports come from other European countries. How does this fit in with the changing types of goods that make up world trade?
A century ago trade was mostly in commodities that were not produced in Europe. Today, 61 percent of trade is in manufactured goods, and as the gravity model predicts, Britain trades with the other large European economies.
The insight that patterns of trade are primarily determined by international differences in labor productivity was first proposed by
Adam smith
The sources of modern trade are largely rooted in
country differences in human and human-created resources.
Cloth Widgets Home 10 20 Foreign 60 30 Given the information in the table above, Foreign's opportunity cost of widgets is: A. 3.0 B. 1.5 Your answer is not correct. C. 0.5 This is the correct answer. D. 6.0 E. 2.0
C. 0.5
Cloth Widgets Home 10 20 Foreign 60 30 Given the information in the table above, if it is ascertained that Foreign uses prisonminus−slave labor to produce its exports, then home should A. export and import nothing. Your answer is not correct. B. export both and import nothing. C. export cloth. This is the correct answer. D. export widgets and import cloth. E. export widgets.
C. export cloth.
Cloth Widgets Home 10 20 Foreign 60 30 Given the information in the table above A. Home has a comparative advantage in both cloth and widgets. B. Foreign has a comparative advantage in cloth. Your answer is not correct. C. neither country has a comparative advantage in cloth. D. Home has a comparative advantage in cloth. This is the correct answer. E. neither country has a comparative advantage in widgets.
D. Home has a comparative advantage in cloth
Cloth Widgets Home 10 20 Foreign 60 30 Given the information in the table above, if the Home economy suffered a meltdown, and the Unit Labor Requirements doubled to 20 for cloth and 40 for widgets then home should A. export and import nothing. B. export widgets. Your answer is not correct. C. export both and import nothing. D. export cloth. This is the correct answer. E. export widgets and import cloth.
D. export cloth.
Cloth Widgets Home 10 20 Foreign 60 30 Given the information in the table above, if wages were to double in Home, then Home should A. export and import nothing. Your answer is not correct. B. export both and import nothing. C. export widgets and import cloth. D. export cloth. This is the correct answer. E. export widgets.
D. export cloth.
2 Question Help Suppose a specific factors economy produces two goods: X and Y. Given that the economy is open to trade, and assuming that D is consumption, Q is production, and P is price, the budget constraint can be defined as
Dx-Qx=(Py/Px)*(Qy-Qx)
Unit Labor Requirements Cloth Widgets Home 10 20 Foreign 60 30 Given the information in the table above, Home's opportunity cost of cloth is: A. 6.0 B. 2.0 Your answer is not correct. C. 1.5 D. 3.0 E. 0.5
E. 0.5
in general, which of the following tends to promote the probability of trade volumes between two countries? A. Linguistic and/or cultural affinity. B. Mutual membership in preferential trade agreements. C. Sizes of economies. D. Historical ties. E. All of the above.
E. All of the above
Why does the gravity model work?
Large economies tend to have large incomes and tend to spend more on imports.
The slope of a country's production possibility frontier with cloth measured on the horizontal and food measured on the vertical axis in the Ricardian model is equal to ________ and it ________ as more cloth is produced.
MPLF/MPLC; is constant
Over the last few decades, East Asian economies have increased their share of world GDP. Similarly, intra-East Asian tradelong dash—that is, trade among East Asian nationslong dash—has grown as a share of world trade. More than that, East Asian countries do an increasing share of their trade with each other. Using the gravity model, explain why East Asian countries do an increasing share of their trade with each other.
Since the GDP of East Asian countries has grown, the product of any two East Asian countries' GDP is now larger. And as the gravity model predicts, the trade volume between them has grown.
The Ricardian model attributes the gains from trade associated with the principle of comparative advantage result to
differences in labor productivity.
The two neighbors of the United States do a lot more trade with the United States than European economies of equal size.
This is consistent with predictions from gravity models.
Although trade creates gains for some and losses for others, economists do not, generally, stress the income redistribution effects of international trade. Which of the following is NOT a reason why economists tend to de-emphasize the impact of international trade on the distribution of income?
Those that lose from trade tend to be marginally impacted by trade, poorly organized, and largely devoid of political influence.
Canada and Australia are (mainly) English-speaking countries with populations that are not too different in size (Canada's is 60 percent larger). But Canadian trade is twice as large, relative to GDP, as Australia's. Why should this be the case?
Transportation costs for imports and exports are higher in Australia because the distance goods must travel, and Canada is close to a major economy
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
U.S. labor productivity equaled 40 units per hour and Japan's 15 units per hour.
In the specific factors model, a country's production possibility frontier is ________ because of ________.
a curved line; diminishing marginal returns
Suppose that South America could have instead produced those 3.03.0 million tons of fruit at an opportunity cost of 150,000 laptops. Because of the difference in opportunity costs between the two regions, it can be shown that trade gives the possibility of
a mutually beneficial rearrangement of world production.
In the specific factors model, which of the following will increase the quantity of labor used in cloth production?
an increase in the price of cloth relative to that of food
In the specific factors model, which of the following will increase the quantity of labor used in food production?
an increase in the price of food relative to that of cloth
Mexico is quite close to the U.S., but it is far from the EU. So it makes sense that it trades largely with the U.S. Brazil is far from both, so its trade is split between the two. Based on the gravity model, I would (agree/disagree)
agree, the gravity model predicts trade volume is proportional to the product of the GDP's of the trading partners and inversely related to the distance from each other.
In the specific factors model, a 5% increase in the price of food accompanied by a 1% increase in the price of cloth will cause ________ in the welfare of labor, ________ in the welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed factor in the production of cloth.
an ambiguous change; an increase; a decrease
In the specific factors model, a 5% increase in the price of food accompanied by a 10% increase in the price of cloth will cause ________ in the welfare of labor, ________ in the welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed factor in the production of cloth.
an ambiguous change; a decrease; an increase
In the specific factors model, which of the following is treated as a specific factor?
capital
A century ago each country's exports were shaped largely by
climate and natural resources.
The diagram to the right shows the Home economy's pretrade equilibrium at point X. (Click anywhere on the graph and move the slider to vary the relative price.) In this closed economy, it is the case that
consumption cannot occur anywhere outside the production possibilities frontier.
International economics__________ use the same fundamental methods of analysis as other branches of economics, because ________.
does, the motives and behavior of individuals are the same in international trade as they are in domestic transactions
Trade between two countries can benefit both countries if
each country exports that good in which is has a comparative advantage
The fundamental reason why trade potentially benefits a country is that it
expands the economy's choices.
The Ricardian trade model put forth by British economist David Ricardo nearly two centuries ago is one that
expounds principles still valid in today's world.
In the specific factors model, a 5% increase in the price of food accompanied by a 0% increase in the price of cloth will cause wages to ________, the production of cloth to ________, and the production of food to ________.
increase by less then 5%; decrease; increase
In the specific factors model, a 0% increase in the price of food accompanied by a 5% increase in the price of cloth will cause wages to ________, the production of cloth to ________, and the production of food to ________.
increase by less then 5%; increase; decrease
According to the one-good model, international mobility of labor
increases the world's output.
international economics can be divided into two broad sub - fields
international trade and international money
an improvement in a country's balance of payments means a decrease in its balance of payments deficit, or an increase in its surplus. In fact we know that a surplus in a balance of payments
is sometimes harmful
An important insight of international trade theory is that when countries exchange goods and services one with the other, it
is usually beneficial to both countries
An important insight of international trade theory is that when two countries engage in voluntary trade
it is almost always beneficial to both countries
In the present, most of the exports from China are in
manufactured goods
In the present, most of the exports from China are
manufactured goods.
The slope of a country's production possibility frontier is equal to ________ and the optimal production point is located where the slope is equal to ________. Assume that output of good Y is measured on the vertical axis, output of good X is measured on the horizontal axis, MPL is the marginal product of labor with a subscript indicating which good, P is the price of a good, and w is the wage rate.
minus−MPLY/MPLX; minus−PX/PY
In the specific factors model, labor is defined as a(an)
mobile factor
In the specific factors model, a 5% decrease in the price of food accompanied by a 5% decrease in the price of cloth will cause ________ in the welfare of labor, ________ in the welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed factor in the production of cloth.
no change; no change; no change
In 1986, the price of oil on world markets dropped sharply. Since the United States is an oil-importing country, this was widely regarded as good for the U.S. economy. Yet in Texas and Louisiana, 1986 was a year of economic decline. Why? In Texas and Louisiana, 1986 was a year of economic decline because in these two states,
oil production was reduced
In the specific factors model, the effects of trade on welfare overall are ________ and for fixed factors used to produce the imported good they are ________.
positive; negative
In the early 20th century, the United Kingdom imported mainly
primary products including agricultural.
In the fourminus−quadrant diagram of the specific factors model, the graph in the lower right quadrant is a country's
production function for cloth.
In the fourminus−quadrant diagram of the specific factors model, the graph in the upper left quadrant is a country's
production function for food.
In the fourminus−quadrant diagram of the specific factors model, the graph in the upper right quadrant is a country's
production possibility frontier.
When an economy is open to trade, the relative price of a good is determined by the
relative supply and demand for the world
A factor of production that cannot be used outside of a particular sector of an economy is a(an)
specific factor
According to the gravity model, a characteristic that tends to affect the probability of trade existing between any two countries is
the distance between them
According to the gravity model, a characteristic that tends to affect the probability of trade existing between any two countries is
the distance between them.
trade benefits
the factor that is specific to the export of each country
A country's budget constraint states that
the value of exports must be equal to the value of imports.
The gravity model suggests that over time
the value of trade between two countries will be proportional to the product of the two countries' GDP.
Assume a specific factors economy produces two goods, cloth and food, and that when representing the output of this economy graphically, cloth is on the x-axis and food is on the y-axis. When the price of cloth increases by 33% and the price of food does not changedoes not change,
the wage rate rises by less than the increase in the price of cloth
trade is generally harmful if there are large disparities between countries in wage
this generally is false
There is a bias in the political process against free trade because
those who lose from free trade are better organized than those who gain.
The gravity model explains why
trade between Sweden and Germany exceeds that between Sweden and Spain.
The Ricardian model demonstrates that
trade between two countries may benefit both if each exports the product in which it has a comparative advantage.
The specific factors model assumes that there are ________ goods and ________ factor(s) of production.
two; three