Internation Economics 421 Exam 1

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.

What percent of U.S. firms export?

4%

If Japan is relatively capital rich and the United States is relatively land rich, and if food is relatively land intensive, the trade between these two, formerly autarkic countries will result in what price changes?

An increase in the relative price of food in the U.S. and a decrease in the relative price of food in Japan.

In the 2-factor, 2 good Heckscher-Ohlin model, trade will ______ the owners of a country's ______ factor and will ______ the good that uses that factor intensively.

Benefit; abundant; export

What causes comparative advantage to exist? a. Gains from trade b. Absolute advantage c. Opportunity cost d. Differences in wages

C. Opportunity cost

Why does the gravity model work?

Large economies tend to have large incomes and tend to spend more on imports.

An imperfectly competitive firm has the following total cost curve: C=100 + 4Q. What is marginal cost equal to when Q = 10?

MC = 4; MC is the derivative of the TC curve

An imperfectly competitive firm has the following demand curve: Q=100 - 2P. What is marginal revenue equal to when P=30?

Q=40

In the 2-factor, 2-good Hecksher-Ohlin model, an influx of workers from another country would do what?

Shift the production possibility curve outward and decrease production of the capital-intensive product.

The Ricardian model attribute the gains from trade associated with the principle of comparative advantage result to what?

The Ricardian model suggests that only difference in labor productivity are necessary to get gains from trade.

What type of firms benefit most from opening markets to international trade?

The most productive (lowest marginal cost) firms benefit the most from international trade

TRUE/FALSE/UNCERTAIN and WHY? "A good cannot be both land- and labor-intensive."

True, because the factor intensities are relative intensities.

The two neighbors of the United States do a lot more trade with the United States than European economies of equal size. Is this consistent with predictions of the gravity model?

Yes

Dropping which assumption does the best job of improving our prediction of the direction of trade? a. Common technologies b. Costless trade equalizes goods prices across countries c. None of the assumptions seem to affect the quality of our predictions. d. None of the assumptions seem to affect the quality of our predictions.

a. Common technologies

Increases in the relative price of the capital intensive good will: a. Increase the relative rental rate for capital b. Decrease the relative demand for labor c. Increase the relative wage rate d. Increase the relative price of the labor intensive good

a. Increase the relative rental rate for capital

Which firms gain from a trade liberalization? a. Low cost firms b. High cost firms c. No firms gain d. Small firms

a. Low cost firms (most productive)

Which firms are able to profitably export? a. Low cost firms b. Trade costs prevent profits from exporting c. High cost firms e. Small firms

a. Low cost firms (productive firms)

The largest share of export value is in: a. Multiple productions, exported to multiple countries b. Single products, exported to multiple countries c. Multiple products, exported to a single country d. Single products, exported to multiple countries

a. Multiple productions, exported to multiple countries

What is absolute advantage? a. Having a comparative advantage in both goods b. Being more productive than your trade partner c. Selling both goods at a lower price than your trade partner d. Being richer than your trade partner

b. Being more productive than your trade partner

Which of the following was not one of the US's top 5 trade partners in 2012? a. China b. Saudia Arabia c. Canada d. Japan e. Mexico

b. Saudia Arabia

What sector contributed over 50% of global trade among developed countries in 1960? a. Agriculture b. Services c. Manufacturing d. Retail/Wholesale Trade

c. Manufacturing

Which of the following does not affect the size of firms' markups in the monopolistically competitive model described in the chapter? a. Number of firms b. Elasticity of demand c. Market size d. No answer text provided.

c. Market size

Exporters: a. employ more workers b. employ more capital per worker c. employ more skilled workers d. All of the above

d. All of the above

In the Ricardian model trade: a. Increases wages in both countries b. Lowers wages in both industries c. Helps the only the most productive trade partner d. Makes both countries better off e. Helps only the least productive trade partner

d. Makes both countries better off

If a firm increases its output in the long run and unit costs ______, then the firm is experiencing ______ of scale

decrease; economies of scale

Trade between two countries can benefit both countries if...

each country exports the good they have a comparative advantage in.

The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former

has two factors of production and the later only has one.

In our model of monopolistic competition, ______ in the number of firms in the industry will cause average price in the industry to ______.

increase; decrease OR decrease; increase

The Heckscher-Ohlin model predicts that capital abundant countries should export capital ____ products.

intensive