ECON 3317 Exam 1

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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


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