Ch 2
The classical trade theories of Smith and Ricardo predict that
1.Countries will completely specialize in the production of export goods, 2.Considerable trade will occur between countries with different levels of technology, 3.Small countries could obtain all of the gains from trade when trading with large countries
Modern trade theory concerns the following questions
10.What constitutes the basis for trade? 11.At what terms of trade are products exchange in the world market? 12.What are the gains from trade regarding production and consumption?
Differences in relative product prices between two nations can be attributed to differences in
13.tastes and preferences 14.the level of technology 15.endowments of resources
International economists use production possibilities curve to help explain
16.1relative prices of products 17.levels of production 18.levels of consumption
Advocates of outsourcing by American firms maintain that its advantages consist of
19.enabling American firms to remain profitable by holding down the cost of production 20.increasing the demand for American workers in complementary jobs 21.holding down prices for American consumers
Answer the next five questions based on the production table below. Country: Output per Labor Hour A B Beer 3 9 Wine 1 2 In autarky, the relative price of wine, in terms of beer, in Country A is:
1W = 3B
Answer the next five questions based on the production table below. Country: Output per Labor Hour A B Beer 3 9 Wine 1 2 In autarky, the relative price of wine, in terms of beer, in Country B is:
1W = 4 1/2 B
Answer the next four questions based on the production possibilities diagram below. T = 500 S = 1000 The relative price (MRT) of T in terms of S is:
2
Southwestern Airlines justifies its outsourcing of some of its telephone reservation work to people in India on the grounds that outsourcing
22.helps reduce the firm's costs and increase its competitiveness 23.allows the firm to repatriate its earnings to the parent company in the United States 24.allows the firm to purchase goods from other American companies as business expands
According to the classical theory of international trade:
4.Only countries with low wages will export 5.Only countries with high wages will import 6.Countries with high wages will have higher prices
Answer the next five questions based on the production table below. Country: Output per Labor Hour A B Product X 3 9 Product Y 4 2 In autarky, the relative price of X, in terms of Y, in A would be:
4/3 Y
Dynamic gains from trade could result from
7.The stimulus of additional investment spending as markets open 8.Economies of large scale production as markets open 9.Additional competition made possible by the opening of markets
Today, about ______ percent of a typical Ford vehicle comes from parts, components, and services purchased from external suppliers, many of which are outside of the United States.
70 percent
Answer the next five questions based on the production table below. Country: Output per Labor Hour A B Product X 3 9 Product Y 4 2 If countries were to trade along the lines of comparative advantage:
A would export Y to B
If the autarky price of S were lower in country A than in country B, then if trade were allowed:
A would likely export S to B.
Answer the next five questions based on the production table below. Country: Output per Labor Hour A B Product X 3 9 Product Y 4 2 If the countries were to trade along the lines of absolute advantage:
B would import Y from A
Answer the next four questions based on the production possibilities diagram below. T = 500 S = 1000 If the relative price (MRT) of S were to increase, then the price line would:
Become steeper.
Answer the next five questions based on the production table below. Country: Output per Labor Hour A B Beer 3 9 Wine 1 2 Country B has the comparative advantage in:
Beer
If the international terms of trade settle at a level that is between each country's opportunity cost
Both countries gain from trade
Although Apple Inc. employees some 40,000 workers in the United States, it licenses most of the production of its Ipads and Ipods to Foxconn Technology Group, a company located in
China
The earliest statement of the principle of comparative advantage is associated with:
David Ricardo
The British economist, G. MacDougall compared the labor productivity ratios and export ratios for the United Kingdom and the United States in order to test
David Ricardo's principle of comparative advantage
According to the free trade argument, division of labor and specialization results in a country consuming at a point inside/beneath its production possibilities curve.
F
According to the trade model of David Ricardo, the direction of trade is determined by absolute advantage.
F
Adam Smith and David Ricardo reasoned that in a world of two countries, at least one country will be worse off as the result of trade.
F
Analysts widely agree that Boeing's use of production outsourcing for its 787 has been highly successful in generating greater efficiencies in jetliner production.
F
Answer the next 2 questions using the information in the following table Output per labor hour (tons) Steel Aluminum Germany 30 80 Brazil 20 40 Germany has the comparative advantage in producing steel.
F
As international trade proceeds, a country will produce more of its import-competing product.
F
If Canada produces computers at a lower relative cost than Germany, Canada is said to have a comparative disadvantage in computers.
F
If Mexico was to realize an increase in its factors of production, its production possibilities curve would shift inward toward the origin of the diagram.
F
If an economy is characterized by increasing opportunity costs, increasing the production of steel by constant amounts results in a constant rate of decrease in the production of autos.
F
Use the below production possibilities tables for Australia and Spain to answer the next 4 questions. Plot the production possibilities data for each of the two countries on a sheet of graph paper . Australia's Prod. Possib. Table . Spain's Prod. Possib. Table Product . A B . C . D Product . A' B' . C' D Apples . 0 . 20 40 60 . Apples . 0 20 . 40 . 60 Pears . 15 . 10 . 5 . 0 Pears . 60 . 40 . 20 . 0 Australia has the comparative advantage in pears, and Spain has the comparative advantage in apples.
F
Use the below production possibilities tables for Australia and Spain to answer the next 4 questions. Plot the production possibilities data for each of the two countries on a sheet of graph paper . Australia's Prod. Possib. Table . Spain's Prod. Possib. Table Product . A B . C . D Product . A' B' . C' D Apples . 0 . 20 40 60 . Apples . 0 20 . 40 . 60 Pears . 15 . 10 . 5 . 0 Pears . 60 . 40 . 20 . 0 Suppose the optimum product mixes before specialization (autarky) were alternative B in Australia and alternative B' in Spain. Now suppose that each country specializes according to the principle of comparative advantage. The production gains from specialization would be 10 apples and 4 pears.
F
Use the below production possibilities tables for Australia and Spain to answer the next 4 questions. Plot the production possibilities data for each of the two countries on a sheet of graph paper . Australia's Prod. Possib. Table . Spain's Prod. Possib. Table Product . A B . C . D Product . A' B' . C' D Apples . 0 . 20 40 60 . Apples . 0 20 . 40 . 60 Pears . 15 . 10 . 5 . 0 Pears . 60 . 40 . 20 . 0 The outer limits to the terms of trade would be 1 pear = 1 apple and 1 pear = 9 apples
F
International trade is based on the notion that:
Goods are more mobile internationally than are resources
The gains from international trade are closely related to:
How much the autarky price differs from international terms of trade
Suppose that a country's post-trade consumption point lies inside of its production possibilities curve. This means that the country
Loses from trade
The so-called ______ shows the amount of one product that a nation must sacrifice in order to obtain one more unit of the second product
Marginal rate of transformation
Given the terms of trade information in the table below, answer the next three questions: Export Price Index Import Price Index Nation 1990 2000 1990 2000 Mexico 100 220 100 200 Sweden 100 160 100 150 Spain 100 155 100 155 France 100 170 100 230 Denmark 100 120 100 125 Which countries' terms of trade improved between 1990 and 2000.
Mexico and Sweden
Answer the next five questions based on the production table below. Country: Output per Labor Hour A B Beer 3 9 Wine 1 2 Country A has an absolute advantage in:
Neither product
Use the information in the table below to answer the next six questions. Country Tons of steel DVDs . South Korea 80 40 Japan 20 20 With international trade, what would be the maximum number of DVDs that Japan would be willing to export to South Korea in exchange for each ton of steel:
One DVD
Use the information in the table below to answer the next six questions. Country Tons of steel DVDs . South Korea 80 40 Japan 20 20 The opportunity cost of one DVD in Japan is:
One ton of steel
Answer the next five questions based on the production table below. Country: Output per Labor Hour A B Product X 3 9 Product Y 4 2 Country B has an absolute advantage in
Product X
Answer the next five questions based on the production table below. Country: Output per Labor Hour A B Product X 3 9 Product Y 4 2 Country A has an absolute advantage in
Product Y
Given the terms of trade information in the table below, answer the next three questions: Export Price Index Import Price Index Nation 1990 2000 1990 2000 Mexico 100 220 100 200 Sweden 100 160 100 150 Spain 100 155 100 155 France 100 170 100 230 Denmark 100 120 100 125 Given free trade, small nations tend to benefit the most from trade since they:
Realize terms of trade lying near the MRTs of their large trading partners.
The terms of trade is given by the prices:
Received for exports and paid for imports.
G. MacDougall compared export ratios and labor productivity ratios for the United States and the United Kingdom in order to test the
Ricardian theory of comparative advantage
Use the information in the table below to answer the next six questions. Country Tons of steel DVDs . South Korea 80 40 Japan 20 20 According to the principle of comparative advantage:
South Korea should export steel
A country with high wages can export to a country with low wages, given sufficiently high labor productivity in the exporting country.
T
According to Adam Smith, mutually beneficial trade requires each nation to be the least-cost producer of at least one good that it can export to its trading partner.
T
Answer the next 2 questions using the information in the following table Output per labor hour (tons) Steel Aluminum Germany 30 80 Brazil 20 40 Germany has the absolute advantage in producing both steel and aluminum.
T
Critics maintain that outsourcing by American businesses results in jobs moving to low-wage countries, to the disadvantage of American workers.
T
Given constant opportunity cost conditions, international trade will be complete rather than partial. Complete specialization allows countries to maximize their gains from trade.
T
In his empirical test of the principle of comparative advantage, G. MacDougall found that relatively high export ratios are associated with relatively high labor productivity.
T
In justifying its production outsourcing strategy, Apple Inc. notes that American workers lack the speed and flexibility the firm needs to produce its electrical products such as Ipod and Ipad.
T
In the early 1950s, G. MacDougall conducted the first empirical of Ricardo's theory of comparative advantage by considering labor productivity and labor costs for 25 industries of the United States and the United Kingdom.
T
Mercantilism refers to a system of restraints on imports and the promotion of exports, as used by governments in the 1600s and 1700s.
T
The expression "the importance of being unimportant" to applys to small trading countries. It means that because a small country's terms of trade lie at or near the MRTs of its large trading partner, the small country tends to benefit the most from trade.
T
The gains from trade are closely related to the difference between the autarky price and the international terms of trade (international price).
T
Use the below production possibilities tables for Australia and Spain to answer the next 4 questions. Plot the production possibilities data for each of the two countries on a sheet of graph paper . Australia's Prod. Possib. Table . Spain's Prod. Possib. Table Product . A B . C . D Product . A' B' . C' D Apples . 0 . 20 40 60 . Apples . 0 20 . 40 . 60 Pears . 15 . 10 . 5 . 0 Pears . 60 . 40 . 20 . 0 Suppose that the equilibrium terms of trade is 1 pear = 2 apples. Show these trading possibilities lines on your figures that you have drawn on graph paper. Also suppose that 15 pears are exported by Spain. We can conclude that both Spain and Australia will realize "consumption gains" from trade in that their post- trade consumption points lie outside of their production possibilities schedules.
T
Use the below production possibilities tables for Australia and Spain to answer the next 4 questions. Plot the production possibilities data for each of the two countries on a sheet of graph paper . Australia's Prod. Possib. Table . Spain's Prod. Possib. Table Product . A B . C . D Product . A' B' . C' D Apples . 0 . 20 40 60 . Apples . 0 20 . 40 . 60 Pears . 15 . 10 . 5 . 0 Pears . 60 . 40 . 20 . 0 The marginal rate of transformation (MRT) for Australia is 1 pear = 4 apples; the marginal rate of transformation for Spain is 1 pear = 1 apple.
T
John Stuart Mill was the founder of the
Theory of reciprocal demand
Use the information in the table below to answer the next six questions. Country Tons of steel DVDs . South Korea 80 40 Japan 20 20 According to the principle of absolute advantage; Japan should:
There is no basis for gainful specialization and trade
If Hong Kong and Taiwan have identical production possibilities curves that are subject to increasing opportunity costs:
Trade would depend on differences in demand conditions
Under free trade, Canada would not realize any gains from trade with Sweden if Canada:
Trades at Canada's marginal rate of transformation.
Use the information in the table below to answer the next six questions. Country Tons of steel DVDs . South Korea 80 40 Japan 20 20 The opportunity cost of one DVD in South Korea is:
Two tons of steel
Use the information in the table below to answer the next six questions. Country Tons of steel DVDs . South Korea 80 40 Japan 20 20 With international trade, what would be the maximum amount of steel that South Korea would be willing to export to Japan in exchange for each DVD
Two tons of steel
Mercantilism
Was a system of export promotion and barriers to imports practiced by governments.
Answer the next five questions based on the production table below. Country: Output per Labor Hour A B Beer 3 9 Wine 1 2 Country A has the comparative advantage in:
Wine
For the United States, outsourcing tends to result from
a change in the pattern of comparative advantage
Absolute advantage is determined by:
actual differences in labor productivity between countries.
Answer the next four questions based on the production possibilities diagram below. T = 500 S = 1000 If the relative price (MRT) of T were to increase, then the price line would:
become flatter.
The presence of increasing opportunity costs gives rises to production possibilities schedules that are
bowed outward from the diagram's origin
David Ricardo's simplified trade model is based on all of the assumptions except
capital is the only factor of production
In the classical model of Ricardo, the direction of trade is determined by:
comparative advantage
If a production possibilities schedule appears as a downward sloping straight line, there occurs
constant opportunity cost
International trade tend to be complete, rather than partial, when there occurs
constant opportunity cost
If a country has a linear (downward sloping) production possibilities frontier, then production is said to be subject to:
constant opportunity costs.
Suppose that international trade results in an outward shift in a country's production possibilities curve. This would be described as
dynamic gains from trade
The United States benefits from outsourcing in all of the following ways except
ess tax revenue for the American government
In autarky equilibrium,
exports equal imports.
During the 1980s, U.S. iron ore workers realized dynamic gains from trade due to
foreign competition inspiring greater productivity for iron ore producers
Suppose that a country's post-trade consumption point lies outside of its production possibilities curve. As a result, the country
gains from trade
If a country has a bowed out production possibility frontier, then production is said to be subject to:
increasing opportunity costs.
Outsourcing (offshoring)
is the transfer of work previously done by domestic workers to workers located in foreign countries
In Adam Smith's trade theory, ______ is the only factor of production and is of one quality (homogeneous)
labor
In autarky, when a community maximizes its standard of living, its production point is:
on the production possibility frontier
Given the terms of trade information in the table below, answer the next three questions: Export Price Index Import Price Index Nation 1990 2000 1990 2000 Mexico 100 220 100 200 Sweden 100 160 100 150 Spain 100 155 100 155 France 100 170 100 230 Denmark 100 120 100 125 In autarky, when a community maximizes its standard of living, its production and consumption point is:
on the production possibility frontier.
Which theory attempted to explain why a favorable balance of trade could only exist in the short run, since it would automatically be eliminated in the long run?
price-specie flow doctrine
Referring to the textbook's example of Babe Ruth, the famous player for the New York Yankees--Ruth switched from being a pitcher to being an outfielder and batter because of the
principle of comparative advantage
Comparative advantage is determined by:
relative differences in labor productivity between countries.
G. MacDougall showed in his tests that
relatively higher U.K. labor productivity was associated with relatively higher U.K. export ratios
All of the following are sources of dynamic gains from trade except
specialization and the reallocation of existing resources
G. MacDougall's empirical results can be interpreted as
support for the Ricardian model
David Ricardo's simplified trade model assumes all of the following except
tariffs and quotas are used to protect a nation's producers from foreign competition
Which of the following trade theories asserts that within the outer limits of the terms of trade, the actual terms of trade is determine by the relative strength of each country's demand for the other country's product?
theory of reciprocal demand
In defending its strategy of production outsourcing, Apple Inc. notes that
there are not enough American workers with the skills the company needs
Which of the following is not an argument to support international trade
trade is a method of achieving income equality across sectors of an economy
Both Adam Smith and David Ricardo
were advocates of free trade and opponents of protectionism
Answer the next four questions based on the production possibilities diagram below. T = 500 S = 1000 The relative price (MRT) of S in terms of T is:
½
