Quiz 2

In a two-country world, suppose Country A has a comparative advantage in good X. Then: a. Country A also has an absolute advantage in good X. b. Country B has an absolute advantage in good Y. c. Country A has an absolute advantage in good Y. d. Country B has a comparative advantage in good Y. e. None of the above is necessarily true.

Not sure

Consider a Ricardian world where if all workers are employed, Country A can produce 50 units of good X, but Country B can produce 100 units of good X. On the other hand, if all workers are employed, Country A can produce 100 units of good Y and Country B can produce 50 units of good Y. We can say that: a. Country B has an absolute advantage in the production of good Y. b. Country B has a comparative advantage in the production of good Y. c. If the international terms of trade is P (price of X in terms of Y) = 2.5, it may be acceptable to country B, but it will not be acceptable to country A. d. If (price of X in terms of Y) = 1/3 it will be acceptable to country B, but it will not be acceptable to country A. e. all of the above are true.

Not sure. Not b or d

International trade started to become an engine of growth circa 1750 because a. Shipping: easy transportation became possible across the Mediterranean region. b. Tariffs were reduced. c. Zheng He sailed his massive ships circa 1750 d. Robert Fulton discovered the Steam Boat circa 1750

a. Shipping: easy transportation became possible across the Mediterranean region.

In the diagram below suppose the United States produces at S on the left panel and Rest of the World (ROW) produces at S on the right panel. After trade the US consumes at point C on the left panel and Rest of the ROW produces at C on the right panel. How much does the US export? a. The US exports 20 units of wheat. b. The US exports 10 units of wheat. c. The US exports 10 units of cloth. d. The US exports 35 units of cloth. e. None of the above.

a. The US exports 20 units of wheat.

Many people believe that the goal of international trade should be to create jobs. Consequently, when they see workers laid off due to a firm's inability to compete against cheaper and better imports, they assume that trade must be bad for the economy. This assumption is a. generally incorrect since trade is about improving living standards through a more efficient allocation of resources. There are, of course, winners and losers. b. correct since job creation matters above all else. If there are no jobs, we will have no imports. c. incorrect since trade always results in an increase in total employment. Exports lead to more job creation compared to to imports which lead to job destruction. d. incorrect since empirical evidence shows that trade has a neutral effect on economies.

a. generally incorrect since trade is about improving living standards through a more efficient allocation of resources. There are, of course, winners and losers.

In the diagram below, the United States has a comparative advantage on cloth. a. True b. False

b. False

If Canada experiences constant opportunity costs, its supply schedule (i.e., supply curve) of steel will be a. Downward-sloping b. Upward-sloping c. Horizontal d. Vertical

c. Horizontal

Country A has a comparative advantage in the production of good X if a. the relative price of X in A is higher than that in B. b. the opportunity cost of good X is higher in A than in B. c. the opportunity cost of good X is lower in A than in B. d. the PPC in A has a steeper slope than that in B. e. both a) and b).

c. the opportunity cost of good X is lower in A than in B.

The following information is available for output of South Korea and Japan. South Korea produces 80 tons of steel or 40 VCRs per worker per day. Japan produces 60 tons of steel or 20 VCRs per worker per day. If international trade takes place according to the comparative advantage theory, which price ratio would be acceptable to South Korea (but not necessarily to Japan)? a. 1/2 ton of steel = 1 VCR b. 1 ton of steel = 1 VCR c. 3 tons of steel = 2 VCRs d. 8 tons of steel = 3 VCRs

d. 8 tons of steel = 3 VCRs

If one follows the Mercantilist Policy of increasing exports and reducing imports: a. The world as a whole cannot gain from foreign trade. b. The country that maximizes exports and minimizes imports may not continue with that policy too long because domestic inflation will raise the prices of exportable goods and reduce the country's exports eventually. c. Higher exports and lower imports may hurt a country''s domestic consumers. d. All of the above.

d. All of the above.