ECN 306 Exam 1

Celine buys a new MP3 player for $90. She receives consumer purplys of $15 on her purchase if her willingness to pay is

$105

Suppose the domestic supply (QS) and demand (QD) for MP3 players in the united states are given by the following set of equations: QS = -25 + 10p QD = 875 -5p If the U.S. can import MP3 players from the rest of the world at a per unit price of $50, how many MP3 players will be produced in the U.S.?

475

According to the factor- endowment theory, which factor is the ultimate determinant of comparative advantage?

Relative differences in resources

Consumer suplus is

The amount a buyer is willing to pay for a good minus that amount the buyer actually pays for it.

Producer surplus is the area

below the price and above the supply curve

Suppose that the U.S. states eliminates its tariff on steel imports, permitting foreign-produced steel to enter the U.S. market. Steel prices to U.S. consumers would be expected to

decrease, and the foreign demand for U.S. exports would increase.

Proponents of ____ maintain that government should enact policies that encourage the development of emerging "sunrise" industries

industrial policy

If Country A has an absolute advantage over Country B in the production of every commodity,

mutual gains from trade would still be possible as long as there are differences in the relative cost of producing goods.

In a two-product, two-country world, international trade can lead to increases in

output of both products and consumer welfare in both countries.

An importer of computers is required to pay a duty to the government of $100 per computer regardless of the price of the computer. Which type of tariff is described in this example?

specific tariff

A compound tariff is a combination of a(n)

specific tariff and an ad valorem tariff

Donald produces nails at a cost of $350 per ton. If he sells the nails for $500 per ton, his producer surplus is

$150

If the world price is $40, a specific tariff of $10 is equivalent to an ad valorem tariff of

25 percent (25% x $40 = $10)

which of the following is a fixed percentage of the value of an imported product as it enter the country?

Ad valorem tariff

Hong Kong is relatively abundant in labor, while Canada is relatively abundant in capital. In both countries, the production of shirts is relatively more labor intensive than the productions of computers. According to the factor-endowment theory, Hong Kong will have a(n)

Comparative advantage in the production of shirts.

All else equal, what happens to consumer surplus if the price of a good increases?

Consumer Surplus decreases.

Country Y has 15 thousand acres of land and 45 thousand laborers, whereas the Rest of the World has 100 thousand acres of land and 200 thousand laborers. These countries produce a labor-intensive good A, and a land-intensive good B. Bases on the information given here, we can conclude that

Country Y is relatively labor-abundant.

A tariff imposed by a small country hurts the tariff imposing country but the rest of the world gains.

False

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.

False

Output per labor hour (tons) Country ------- steel ------ Aluminum Germany ----------30 ------ 80 Brazil ------ -----20 ---- ---- 40

False

The product life cycle theory contends that when a new product is introduced to the home market, it generally requires low-skilled labor to produce it.

False

Table 18-5 Units of Output per worker day ------- U.S. ------ Japan Food ----------4 ------ 3 Clothing------ -----12---- ---- 6 Refer to Table 18-5. which of the following is true?

Joint output would be maximized if the U.S. specialized in producing clothing and Japan in producing food.

Table 2.2 Output possibilities of the South Korea and the Japan Output per worker per day Country -------tons of steel --- VCRs South Korea ----------80 ------ 40 Japan ------ -----20 ---- ---- 20 Referring to Table 2.2, According to the principle of comparative advantage

South Korea should export steel.

An increase in the imports of clothing into the U.S. from India will benefit the ___ and hurt the _____

The U.S. consumers; the U.S. clothing producers

Assume that the U.S. is relatively scarce in labor and relatively abundant in capital. According to the Heckscher-Ohlin theory, which of the following will occurs in the united states in the presence of trade?

The price of capital will rise and the price of labor will fall.

According to the product life cycle theory, the first stage of a product's trade cycle is when it is introduced to the home market.

True

The trading principle formulated by Adam Smith maintained that

absolute cost differences determine the immediate basis for trade.

A tax of 15% per imported item is an example of a(n)

ad valorem tariff

Davis Ricardo's simplified trade model is based on all of these assumptions EXCEPT

capital is the only factor of production.

Table 2.1 Output possibilities of the U.S. and the U.K. Output per worker per labor hour Country --------- Wine --- Cloth U.S. ------ 5 bottles --- 20 years U.K. ------ 15 bottles ---- 10 years Referring to Table 2.1, the United States has the absolute advantage in the production of

cloth

Which of the following suggests that by widening the market's size, international trade can permit longer production runs for manufacturers, which leads to increasing efficiency

economies of scale

Country Y has 15 thousand acres of land and 45 thousand laborers, whereas the Rest of the World has 100 thousand acres of land and 200 thousand laborers. These countries produce a labor-intensive good A, and a land-intensive good B. When trade opens up between these countries, it can be inferred that country Y will:

export good A, and import good B.

As industry output increases, suppose that new knowledge about production technology spreads among firms in the area through direct contacts among firms or as workers transfer from firm to firm. Which concept does this example demonstrate?

external economies of scale.

Suppose that a country's post trade consumption point lies outside of its production possibilities frontier. As a result, the country

gains from trade

Suppose the domestic supply (QSU.S) and demand (QDU.S) for bicycles in the U.S. are given by the following set of equations: QSU.S= 2P QDU.S> = 200-2p Quantities are measured in thousands and price in U.S. dollards After the opening of free trade with the U.S., if the world price of the bicycles settles at $60, the Rest of the World will:

import 40,000 bicycles.

Suppose the domestic supply (QS) and demand (QD) for MP3 players in the united states are given by the following set of equations: QS = -25 + 10p QD = 875 -5p The consumer surplus will ____ by _____ when the U.S. engages in international trade and the international price for MP3 player settles at $50

increases; $6,000

Assume a two-country, two-good, and two-input model where the following relationships hold: (K/L)u.s. > (K/L)row (K/L)automobiles > (K/L)shoes Where (K/L)u.s. is the capital-labor ration in the U.S., (K/L)row is the capital-labor ratio in the Rest of the World, (K/L)automobiles, and (K/L)shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the U.S. and the Rest of the World. This information indicates that the U.S.

is relatively capital-abundant country.

A nation can gain from international trade when

it exports goods for which it is a low-opportunity cost producer while importing goods that it could produce only at a high opportunity cost.

Opening trade between two nations would

make it possible for both countries to consume a bundle of goods that was greater than what could be produced domestically

Assume that prior to international trade that domestic price of steel in Canada was higher than the world price of steel. If trade was permitted, this suggests that,

other countries have a comparative advantage over Canada in the production of steel and Canada will import steel.

If a small country imposes a tariff on imported motorcycles, the world price of motorcycles will _____ and the domestic price of motorcycles will _____.

remain constant; rise

The production possibilities frontier illustrates

the combinations of output that an economy can produce.

Figure 2.3 production Possibilities Frontier W H E A T 50 tons | \ |. \ |. \ | \ ------30 Cars AUTOS In figure 2.3, one ton of wheat can be produced at a cost of

three fifths of a car.