International Economics and Finance

To find the hourly wage rate of a country's economy

divide the price per pound of the good by the number of labor hours needed to produce a unit of the good in this country

where there are economies of scale, an increase in the size of the market will

lead to more firms producing and selling in that market and lower the price per unit

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 general form of the gravity model that economists typically estimate is given by equation (). Empirical studies have found that the values of exponents 'a', 'b', and 'c' are very close to

+1

Reasons for external economies of scale:

- specialized suppliers of intermediate goods -knowledge spillovers -labor market pooling

Suppose that home's labor force increases relative to the foreign labor force, a plausible consequence of this change is

an increase in the range of goods produced by home

International trade based on scale economies is likely to be associated with: - ricardian comparative advantage - absolute advantages due to resource abundance - comparative advantages associated with heckscher-ohlin factor proportions - the law of diminishing returns -none of the above

None of the above

How do economies of scale give rise to international trade?

International trade occurs because it increases the market size

The United States imports from 1945 through 1970 were more capital intensive than its exports. one would have expected that the United Stated would have imported more labor-intensive goods and exported capital-intensive goods during this period. This phenomenon that occurred in the United States is known as the

Leontief paradox

a relative demand for labor function is shaped as

a step function

Home and foreign produce two goods, flowers and soybeans. Home exports the labor intensive flowers and foreign exports the land intensive soybeans. Suppose that home provides an export subsidy to its domestic flower producers. The provision of an export subsidy to flower producers by home will cause

an improvement in foreign' s terms of trade

What factor primarily explains how a particular region develops the external economies that support an industry?

accidents of history

According to the factor proportions model, a consequence of international trade is that factor prices across trading nations

become completely equalized

A century ago each country's exports were shaped largely by

climate and natural resources

A growing movement among economists to model phenomena such as interregional and international trade as well as the rise of cities as different aspects of the same phenomenon - economic interaction across space - is referred to as

economic geography

the fundamental reason why trade potentially benefits a country is that it

expands the economy's choices

Cost-benefit analysis of international trade

focuses attention on conflicts of interest within countries

Which of the following is not true: - foreign-owned multinationals are less important in the U.S. than in the rest of the world - the main goal of multinationals is to control production abroad - multinationals are an important part of international trade - multinationals are an important part of international factor movement

foreign-owned multinationals are less important in the U.S. than in the rest of the world

Suppose home and foreign only differ in their resources: Home has a higher ratio of labor to land than foreign done. According to the factor proportions model, factor prices will become equalized because

home indirectly exports its labor and foreign indirectly exports its land

Movement of labor from a foreign country to the domestic (home) economy

increases the marginal product of labor in foreign

Transactions that involve the physical movement of goods or a tangible commitment of resources are the domain of

international trade analysis

the provision of the export subsidy by home on flowers, in the absence of Metzler's paradox, will have which of the following income distribution effects

it worsens home's terms of trade but aids its exporting sector as the internal relative price of flowers declines

A country has comparative advantage in producing a good if

its opportunity cost of producing is lower than elsewhere

internal economies of scale

may be associated with an imperfectly competitive industry

In the real world, the dividing line between trade and monetary issues is

neither simple nor clear-cut

in the multi-good, single factor Ricardian model the equilibrium relative wage of home's workers is determined by the

relative demand and relative supply of labor

when an economy is open to trade, the relative price of a good is determined by the

relative supply and demand for the world

During the time period 1945-1970 the U.S. exported more

technologically-intensive goods

The predictive power of the Heckscher-Ohlin model, at least in terms of forecasting the volume of trade, appears to undergo improvement upon abandonment of the assumption

that technologies are the same across countries

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 8% and the price of food increases by 8%

the outputs of the two goods does not change

Higher wage-rental ratio means that the product is labor intensive while a high land-labor ratio means

the product is land intensive

which of the following is not a misconception about comparative advantage and the nature of the gains from free trade: - trade exploits a country and makes it worse off if its workers receive much lower wages than workers in other countries - foreign competition is unfair and hurts other countries when it is based on low wages - trade based upon comparative advantage can be mutually beneficial - free trade is beneficial only if your country is strong enough to stand up to foreign competition

trade based upon comparative advantage can be mutually beneficial

If there are large disparities in wage levels between countries, then

trade is likely to be harmful to neither country

The nature of political battles over trade in the modern era

typically centers on issues involving the trade-induced devaluation of labor skills

Over the past fifty years, the composition of developing-country exports has

undergone a dramatic shift from primary products to manufacturers