Econ 251 Test 1
22. A situation in which one nation produces good A using labor more intensively (relative to capital) than good B and a second nation, producing good A, uses capital more intensively (relative to labor) than good B is called: A) a reversal of factor intensities. B) a paradox of factor intensities C) backward technology. D) micro intensity.
a reversal of factor intensities.
An American tourist buys a ticket to an opera in Paris. The U.S. government classifies this transaction as: A) a goods' import of a French Opera. B) a service export. C) a service import. D) a goods' export.
a service import.
20. An increase in demand for resources fixed or specific to an industry will cause their earnings _____ because those resources cannot be released from other industries. A) to fall B) to rise by the same rate as for all resources C) to rise disproportionally D) to fall disproportionally
to rise disproportionally
Which of the following is NOT a reason for horizontal FDI? A) to avoid tariffs or other trade barriers B) to have improved facilities and information for marketing products C) to take advantage of inexpensive labor D) to share expertise and avoid possible duplication of products
to take advantage of inexpensive labor
Table: Factor Use in Trade Exports Imports Capital ($ million) $3.55 $5 Labor (person-years) 192 160 Capital/Labor ($/person) 1. (Table: Factor Use in Trade) In the hypothetical economy provided in the table, what is the capital-to-labor ratio for exports? A) $1,849 B) $35,500 C) $18,490 D) $1,920
$18,490
Use the following to answer question 10: Table: Factor Use in Trade Exports Imports Capital ($ million) $3.55 $5 Labor (person-years) 192 160 Capital/Labor ($/person) 10. (Table: Factor Use in Trade) In the hypothetical economy provided in the table, what is the capital-to-labor ratio for imports? A) $31,250 B) $21,500 C) $1,600 D) $3,125
$31,250
Use the following to answer question 14: Figure: A Country's Before and After Trade Equilibria 14. (Figure: A Country's Before and After Trade Equilibria) How many computers will this nation import? A) 0 B) 125 C) 350 D) 500
0
Use the following to answer question 15: Table: Data on Suburbia Use this table, which represents autarkic and free trade production and consumption and resource usage for Suburbia, to answer the following question(s). Autarky Free-Trade Production of good X 1,000 units 2,000 units Consumption of good X 1,000 units 1,000 units Capital used to produce good X 1,000 units 2,000 units Labor used to produce good X 1,000 days 1,250 days Production of good Y 1,000 units 500 units Consumption of good Y 1,000 units 2,000 units Capital used to produce good Y 1,500 units 1,000 units Labor used to produce good Y 500 days 250 days 15. (Table: Data on Suburbia) What is the ratio of total capital to total labor in Suburbia? A) 1 unit/day B) 1.5 units/day C) 1.67 units/day D) 3 units/day
1.67 units/day
Use the following to answer question 11: Figure: A Country's Before and After Trade Equilibria 11. (Figure: A Country's Before and After Trade Equilibria) How many computers will this nation export? A) 0 B) 125 C) 350 D) 500
125
11. If the maximum number of units of cloth produced is 300 and the maximum number of units of corn produced is 600, then with a MPLcloth = 2, what is the number of workers in the economy? A) 100 B) 200 C) 150 D) 600
150
15. Which decade of the twentieth century had the highest average tariffs worldwide? A) 1900-1909 B) 1930-1939 C) 1950-1959 D) 1970-1979
1930-1939
20. Which of the following is classified as horizontal FDI? A) A U.S. steel-producing firm purchases an iron ore mine in Australia. B) A German auto manufacturer constructs an auto assembly plant in Alabama. C) Apple establishes a plant in Taiwan to manufacture components for iPhones that are then shipped to China for assembly at its phone assembly plant. D) McDonald's buys a Russian meat packing plant that produces ground beef for Big Macs sold at its restaurants in Moscow.
A German auto manufacturer constructs an auto assembly plant in Alabama.
Use the following to answer question 16: SCENARIO: CHILE AND THE UNITED STATES Chile and the United States use capital and labor to produce wheat and automobiles. The United States is capital abundant, and Chile is labor abundant. Wheat production is more labor intensive than automobile production. 16. (Scenario: Chile and the United States) According to the Heckscher-Ohlin model: A) Chilean workers should support U.S.-Chile free trade. B) Chilean owners of capital should support U.S.-Chile free trade. C) U.S. owners of capital should oppose U.S.-Chile free trade. D) both U.S. and Chilean owners of capital should oppose U.S.-Chile free trade.
Chilean workers should support U.S.-Chile free trade.
7. Currently, which of the following countries is the world's largest exporter of goods (in dollar volume)? A) China B) the United States C) Japan D) Germany
China
Use the following to answer question 3: Figure: Home and Foreign Autarky Equilibria 3. (Figure: Home and Foreign Autarky Equilibria) According to the graph, which nation has a higher no-trade equilibrium relative price for computers (in terms of shoes)? A) Home B) Foreign C) neither Home nor Foreign D) There is not enough information to answer this question.
Foreign
Use the following to answer question 18: Table: Capital Intensity Across Industries U.S. Capital/Labor Ratios in Selected Industries Industry K/L ($/worker) Apparel and other textile products $8,274 Leather and leather products $12,466 Furniture $21,736 Lumber and wood products $39,134 Textile mill products $44,060 Electronic and electric equipment $54,582 Primary metal industries $123,594 Paper and allied products $171,730 Chemicals and allied products $192,593 18. (Table: Capital Intensity Across Industries) Suppose that the United States is labor abundant relative to Canada. According to the table, which of the following U.S. industry(ies) is (are) MOST likely to export products to Canada? A) Furniture B) Electronic and electrical equipment C) Primary metal industries D) Paper and allied products
Furniture
23. Which of the following is a reason why a foreign truck manufacturer might want to acquire or construct a plant in the United States? I. By having a plant in the United States, the manufacturer will avoid the U.S. 25% tariff on imported pickup trucks. II. The manufacturer wants to take advantage of lower wages in the United States. III. U.S. consumers will buy only U.S.-made pickup trucks. A) I B) II C) III D) II and III
I
24. Which of the following statements describe what the Ricardian model predicts as a nation improves its technology and productivity? I. Its standard of living will rise. II. Wages of its workers will rise. III. It will lose its absolute advantage. A) I B) II C) III D) I and II
I and II
10. Which of the following statements explain(s) why Asian countries trade with industrialized countries? I. Workers in Asian countries have low wages. II. Workers are very productive in some Asian countries. III. Asian countries have an abundant supply of raw materials. A) I B) I, II C) 1I D) I, II, and III
I, II
8. In what way do the conclusions of the Ricardian and the specific-factors models differ? A) In the specific-factors model, all resources (labor, land, capital) are better off with free trade. In the Ricardian model, only labor is better off with free trade. B) In the Ricardian model, a country is better off with free trade. In the specific-factors model, some of a country's resources will be worse off with free trade. C) In the Ricardian model, some of a country's resources will be worse off with free trade. In the specific-factors model, some of a country's resources will be better off with free trade. D) In the Ricardian model, labor will be worse off with free trade. In the specific-factors model, labor will be better off with free trade.
In the Ricardian model, a country is better off with free trade. In the specific-factors model, some of a country's resources will be worse off with free trade.
Intel, an American company, has manufacturing plants in China that assemble U.S.-made components. Suppose one of these plants produces and sells a computer chip to a Chinese computer manufacturer. How is this sale recorded in U.S. international trade statistics? A) It is considered to be neither a U.S. import nor a U.S. export. B) It is considered to be a U.S. export to China C) It is considered to be a U.S. import from China D) The value of U.S.-made chip components is considered to be a U.S. export.
It is considered to be neither a U.S. import nor a U.S. export.
16. What is the immediate effect of increasing tariffs in a country on its economy? A) It increases the volume of trade. B) It reduces the volume of imports. C) It increases the volume of imports. D) It promotes better trade relations with other countries.
It reduces the volume of imports.
Why do larger countries tend to have lower ratios of international trade to GDP than smaller countries? A) Larger countries tend to have more trade between states or provinces within their borders than smaller countries. B) Larger countries tend to have higher tariffs than smaller countries. C) Larger countries tend to trade with other larger countries. D) Larger countries tend to have larger trade deficits than smaller countries.
Larger countries tend to have more trade between states or provinces within their borders than smaller countries.
Which of the following is an example of reverse-vertical FDI? A) Ford Motor Company acquires the British firm Jaguar. B) Lenovo, a Chinese company, acquires IBM's personal computing business. C) Daimler-Benz, a German company, merges with Chrysler Corporation, an American company, to form the Daimler-Benz Corporation. D) General Motors Corporation builds a plant in China to supply Buicks to the Chinese market.
Lenovo, a Chinese company, acquires IBM's personal computing business.
8. Which of the following entries is considered to be a service export? A) the Japanese buying soybeans from the United States B) the Chinese selling iPhones to the United States C) Mexican tourists visiting the Grand Canyon D) the French selling wine to the United States
Mexican tourists visiting the Grand Canyon
4. Ricardo's theory made a number of assumptions, including which of the following? A) Nations had balanced trade with their partners. B) There were no barriers to trade (free trade). C) There was no transfer of gold or silver. D) Nations had balanced trade with their partners, and there were no barriers to trade (free trade).
Nations had balanced trade with their partners, and there were no barriers to trade (free trade).
21. What does the HO model predict will happen to the real returns to factors of production after trade occurs? A) Labor and capital must be used together in production, and there is no room for competition for remuneration. B) Capital owners always get the "gains from trade." C) Resources used intensively in export industries (such as labor in China and capital in the United States) will see an increase in their returns, whereas the resources used intensively in import-competing industries will see a decline in their return. D) Poor nations will always get the least returns to their factors of production.
Resources used intensively in export industries (such as labor in China and capital in the United States) will see an increase in their returns, whereas the resources used intensively in import-competing industries will see a decline in their return.
22. Which of the following is a reason why a Chinese pork-producing firm recently acquired Smithfield Foods (an American pork-processing firm)? A) The Chinese firm wanted to learn Smithfield's pork-processing techniques in order to improve its own pork-processing techniques. B) The acquisition would help the Chine firm to satisfy a growing demand for pork in China. C) The Chinese firm wanted to take advantage of lower wages in the United States. D) The Chinese firm wanted to learn Smithfield's pork-processing techniques in order to improve its own pork-processing techniques, and also the acquisition would help it satisfy a growing demand for pork in China..
The Chinese firm wanted to learn Smithfield's pork-processing techniques in order to improve its own pork-processing techniques, and also the acquisition would help it satisfy a growing demand for pork in China..
9. Suppose that world demand shifts away from agricultural goods toward high-tech manufactured goods. If land is specific to agriculture, capital is specific to manufacturing, and labor is mobile between sectors, which of the following is TRUE? A) The percentage change in capital income is less than the percentage change in labor income. B) The percentage change in labor income is greater than the percentage change in the relative price of manufacturing goods. C) The percentage change in capital income is greater than zero. D) The percentage change in labor income is more than the percentage change in the relative price of manufacturing goods.
The percentage change in capital income is greater than zero.
Use the following to answer question 20: SCENARIO: CANADA AND THE UNITED STATES Canada and the United States produce computers and chemicals using labor and capital as the only inputs in production. The United States is capital abundant, and Canada is labor abundant. Computer production is more labor intensive than chemical production in both countries. 20. (Scenario: Canada and the United States) What does the Heckscher-Ohlin model predict will happen to prices of computers or chemicals in the two countries? A) The price of chemicals should rise in the United States. B) The price of chemicals should fall in the United States. C) The price of computers should fall in Canada. D) The price of chemicals should rise in Canada.
The price of chemicals should rise in the United States.
6. Suppose that the Home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. Which statement below best describes changes in returns on capital and land after trade occurs? A) The return on capital and land will both rise. B) The return on capital and land will both fall. C) The return on capital will rise and the return on land will fall. D) The return on capital will fall and the return on land will rise.
The return on capital will rise and the return on land will fall.
5. Why does the return to capital change after trade occurs? A) There is more labor used per unit of capital in the manufacturing sector. B) There is more capital used per unit of labor in the manufacturing sector. C) There is more labor used per unit of land in the agricultural sector. D) There is more land used per unit of labor in the agricultural sector.
There is more labor used per unit of capital in the manufacturing sector.
4. Which of the following groups will NOT gain if China and the United States engage in completely free trade? A) U.S. unskilled labor B) U.S. consumers of Chinese made products C) U.S. skilled labor D) U.S. owners of capital
U.S. unskilled labor
7. The example of "fair-trade" coffee illustrates the problem of trying to stabilize returns to specific factors. What is the problem? A) Production is inherently egalitarian—all resources get the same return. B) When coffee prices rose, as a result of the price stabilization efforts, the specific factors' incomes would have risen disproportionally, yet the fair-trade contracts provided a smaller increase. C) When coffee prices fell, the farmers sold their plots and sought employment in other industries. D) Fair-trade efforts are unpopular among U.S. workers, who see imports increase and their returns from coffee production fall.
When coffee prices rose, as a result of the price stabilization efforts, the specific factors' incomes would have risen disproportionally, yet the fair-trade contracts provided a smaller increase.
2. Suppose that the Home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in agricultural output. Will workers be better or worse off following the opening of trade with other countries? A) Workers will be better off because the nominal wage increases. B) Workers will be worse off because the nominal wage decreases. C) Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls. D) Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.
Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.
4. In the specific-factors model, suppose that a country has a comparative advantage in manufacturing output. Will workers be better or worse off following the opening of trade with other countries? A) Workers will be better off because the nominal wage increases. B) Workers will be better off because both nominal and real wages increase. C) Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls. D) Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.
Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls.
Use the following to answer question 25: SCENARIO: FRANCE AND ITALY (1) France and Italy only trade with each other; (2) each produces wine and bread; (3) The production of bread is relatively capital intensive, and the production of wine is relatively labor intensive, and (4) France is relatively abundant in capital, while Italy is relatively abundant in labor. 25. (Scenario: France and Italy) According to the HO model, free trade between Italy and France should cause: A) a decrease in the French price of wine and a decrease in the Italian price of wine. B) increases in the price of wine in Italy and in France. C) an increase in the French price of wine and an increase in the Italian price of bread. D) a decrease in the Italian price of bread and a decrease in the French price of wine.
a decrease in the Italian price of bread and a decrease in the French price of wine.
10. Assume the MPLt = 5 tennis rackets and MPLb = 4 baseball bats. If the economy has 100 workers, then the economy can produce: A) a maximum of 500 tennis rackets. B) a maximum of 350 baseball bats. C) 500 tennis rackets and 400 baseball bats. D) either 100 tennis rackets only or 100 baseball bats only.
a maximum of 500 tennis rackets.
12. To complete the model of international trade using the PPF, we must also use the idea of indifference curves. These curves represent: A) a set of alternate quantities of both goods (sloped negatively), whereby consumers are equally satisfied in their level of utility gained. B) consumers who are indifferent to everything. C) producers who do not care which production method is chosen. D) a fixed quantity of one good (such as wheat) and a varying amount of the other good.
a set of alternate quantities of both goods (sloped negatively), whereby consumers are equally satisfied in their level of utility gained.
2. In trade, if—due to technology—a nation can produce a good (such as Germany's production of snowboards) with fewest resources, it is known as a(n): A) absolute advantage. B) technology advantage. C) comparative advantage. D) resource advantage.
absolute advantage.
6. The Heckscher-Ohlin theorem explains patterns of trade between countries using: A) economies of scale. B) monopoly power in the industry. C) abundance or scarcity of resources. D) tariffs and quota.
abundance or scarcity of resources.
5. According to Ricardo: A) all countries can gain from trade if they export goods for which they have an absolute advantage. B) one country can gain from trade only at the expense of another country. C) all countries can gain from trade if they export goods for which they have a comparative advantage. D) all countries lose from international trade.
all countries can gain from trade if they export goods for which they have a comparative advantage.
16. When a nation is in autarky (a no-trade state) and maximizes its living standard, its consumption and production points are: A) along its production possibilities frontier. B) above its production possibilities frontier. C) beneath production possibilities frontier. D) along, above, or beneath its production possibilities frontier.
along its production possibilities frontier.
19. In the specific-factors model, an increase in the price of the manufactured good will cause: A) an increase in the wage in the manufacturing sector. B) capital to move from the agricultural to the manufacturing sector. C) land to move from the manufacturing to the agricultural sector. D) a decrease in the wage in the agricultural sector.
an increase in the wage in the manufacturing sector.
8. Production possibilities frontiers in the Ricardian model: A) are linear (i.e., straight lines), with end points showing a country's production when it produces only one or the other good. B) are bowed out from the origin, with end points showing a country's production when it produces only one or the other good. C) are linear and begin from the origin. D) are curvilinear and increase at a decreasing rate.
are linear (i.e., straight lines), with end points showing a country's production when it produces only one or the other good.
7. If the wage-rental ratio in Japanese auto production is lower than the wage-rental ratio in U.S. auto production, then: A) Japan must have a comparative advantage in the production of autos. B) Japan must have an absolute advantage in the production of autos. C) auto production costs must be lower in Japan than in the United States. D) auto production costs could be lower in the United States if U.S. labor productivity is higher than Japanese labor productivity.
auto production costs could be lower in the United States if U.S. labor productivity is higher than Japanese labor productivity.
21. If the international terms of trade settle at a level that is between each country's opportunity cost: A) there is no basis for gainful trade for either country. B) both countries gain from trade. C) only one country gains from trade. D) one country gains and the other country loses from trade.
both countries gain from trade.
Use the following to answer question 2: Table: Capital Intensity Across Industries U.S. Capital/Labor Ratios in Selected Industries Industry K/L ($/worker) Apparel and other textile products $8,274 Leather and leather products $12,466 Furniture $21,736 Lumber and wood products $39,134 Textile mill products $44,060 Electronic and electric equipment $54,582 Primary metal industries $123,594 Paper and allied products $171,730 Chemicals and allied products $192,593 2. If there are only two nations, one nation's exports are the other's imports; which of the following is identical for both nations? A) only the equilibrium relative price of the first nation's exports B) only the opportunity cost of the first nation's exports C) neither the equilibrium relative price nor the opportunity cost of the first nation's exports D) both the equilibrium relative price and the opportunity cost of the first nation's exports
both the equilibrium relative price and the opportunity cost of the first nation's exports
3. If the wage rate in the agriculture sector is lower than the manufacturing sector, then labor will migrate to the manufacturing sector. This will cause: A) both wage and marginal product of labor in the manufacturing sector to decrease. B) both wage and marginal product of labor in the agriculture sector to decrease. C) the nation to import more goods. D) There will be no effect on either sector.
both wage and marginal product of labor in the manufacturing sector to decrease.
13. When there are diminishing marginal returns to factors of production, the PPF is: A) a negatively sloped straight line. B) bowed out from the origin. C) caved in toward the origin. D) a positively sloped straight line.
bowed out from the origin.
24. It may be unrealistic to assume that consumer tastes are the same across nations and invariant with respect to income: A) so it is not one of the HO assumptions. B) but it is an HO assumption because it enables the analysis to focus on other issues that drive trade and prices. C) but it actually is true so it is an HO assumption. D) and it is not an HO assumption because consumer tastes within a nation are not relevant to international trade.
but it is an HO assumption because it enables the analysis to focus on other issues that drive trade and prices.
Use the following to answer question 5: Table: Factor Use in Latvian Trade Factor Contents of Latvia's Trade Import Substitutes Exports Dollars of capital per million dollars of: $4,000 $3,000 Years of labor per million dollars of: 2,000 3,000 5. (Table: Factor Use in Latvian Trade) Does Latvia import capital- or labor-intensive products? A) capital intensive B) labor intensive C) neither capital nor labor intensive D) both capital and labor intensive
capital intensive
3. The focus of the Ricardian model is on how differences in _________ influence international trade patterns. A) demand B) comparative costs C) absolute costs D) transportation costs
comparative costs
18. If the opportunity cost is constant (the PPF is a straight line), then a country will: A) partially specialize in the production of its exported product. B) completely specialize in the production of its exported product. C) not benefit from importing goods from another country. D) benefit by raising trade barriers.
completely specialize in the production of its exported product.
9. When the production possibilities frontier is a straight line, then production occurs under conditions of: A) increasing costs. B) decreasing costs. C) constant costs. D) increasing, then decreasing, then constant costs.
constant costs.
15. International trade allows countries to: A) produce outside their PPF. B) produce inside their PPF. C) consume inside their PPF. D) consume outside their PPF.
consume outside their PPF.
19. In a labor-abundant country, free trade will cause a(n) __________ in the rental of capital and a(n) _________ in the marginal product of capital. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase
decrease; decrease
1. Which of the following is NOT a reason why countries trade goods with one another? A) differences in technology used in different countries B) differences in countries' total amount of resources C) the proximity of countries to one another D) differences in countries' languages and cultures
differences in countries' languages and cultures
7. In the Ricardian model, the marginal product of labor: A) first rises, then falls, as more labor is employed to produce a good. B) first falls, then rises, as more labor is employed to produce a good. C) continuously falls, as more labor is employed to produce a good. D) does not change, as more labor is employed to produce a good.
does not change, as more labor is employed to produce a good.
13. The Heckscher-Ohlin model assumes that factors of production can move freely _______, but cannot move _______. A) domestically; internationally B) after they are fully trained; before the training period is over C) internationally; domestically D) within unskilled occupations; into high-skill jobs
domestically; internationally
23. The Heckscher-Ohlin model offers an explanation of: A) only the gains from international trade. B) only the pattern of international trade. C) only the effects of international trade on returns to mobile resources. D) gains from international trade, the pattern of international trade, and the effects of international trade on returns to mobile resources.
gains from international trade, the pattern of international trade, and the effects of international trade on returns to mobile resources.
22. The increase in total utility derived from trading products is called: A) trade patterns. B) gains from trade. C) comparative advantage. D) labor productivity.
gains from trade.
17. After 1945, world trade: A) grew more slowly than in the decade before World War II. B) grew more rapidly than in the decade before World War II. C) grew in absolute dollar terms but not as a ratio of GDP. D) fell both in absolute and relative terms.
grew more rapidly than in the decade before World War II.
23. A worker's "real" wage is related to: A) his productivity in the workplace. B) the value of his production to his employer. C) the nation's absolute advantage in production of that product. D) his productivity in the workplace, the value of his production to his employer, and the nation's absolute advantage in production of that product.
his productivity in the workplace, the value of his production to his employer, and the nation's absolute advantage in production of that product.
19. Most foreign direct investment among industrialized countries is: A) vertical FDI. B) horizontal FDI. C) industrial FDI. D) reverse-vertical FDI.
horizontal FDI.
24. The greatest amount of FDI is: A) vertical FDI. B) horizontal FDI. C) third-party FDI. D) between the United States and Mexico.
horizontal FDI.
19. In the absence of trade, a nation is in equilibrium where an indifference curve: A) lies above its production possibilities frontier. B) is tangent to its production possibilities frontier. C) intersects its production possibilities frontier. D) lies below its production possibilities frontier.
is tangent to its production possibilities frontier.
9. The implication of resources being mobile domestically is that: A) there is often unemployment. B) capital and land are often not suited for use in other industries. C) labor and capital are paid the same wage and rental price in all domestic industries. D) they lose the chance to become guest workers in other nations.
labor and capital are paid the same wage and rental price in all domestic industries.
11. The specific-factors model is termed a "short-run" model because: A) labor cannot move from one activity to another. B) land resources can move from one activity to another. C) labor can move from one activity to another. D) land and capital cannot move from one activity to another.
land and capital cannot move from one activity to another.
12. Economist Wassily Leontief tested the Heckscher-Ohlin model to determine whether it correctly predicted the capital and labor content of imports and exports of: A) Russia. B) China. C) the United States. D) Belgium.
the United States.
17. If a nation begins to trade, it will be able to sell (export) the product for which its own relative price is: A) lower than other nations. B) higher than other nations. C) the same as other nations. D) less than 10% of the value of other nations.
lower than other nations.
18. Immigration issues are usually more intense in: A) low-wage nations. B) nations whose borders are not secured. C) nations with open-door policies. D) nations whose wages are higher than world averages.
nations whose wages are higher than world averages.
13. As a consumer moves down one of her indifference curves, her satisfaction: A) falls. B) rises. C) remains unchanged. D) first falls, then levels out.
remains unchanged.
8. Leontief suggested that his results were not a paradox once we account for differences in: A) resource endowments. B) capital stocks. C) labor forces. D) resource productivities.
resource productivities.
14. If a consumer moves to a higher indifference curve, her satisfaction: A) falls. B) rises. C) remains unchanged. D) first falls, then levels out.
rises.
18. As relative prices in various industries change due to trade, the marginal product of fixed resources used in the expanding industry __________, and the marginal product of fixed resources used in the contracting industry __________. A) rises; falls B) remains the same; remains the same C) changes by exactly the same percentage; changes by exactly the same percentage D) falls; rises
rises; falls
The United States-China bilateral trade balance may overstate the trade gap if: A) some of the inputs used to produce Chinese exports are imported. B) none of the inputs used to produce Chinese exports are imported. C) Chinese exports are valued in the United States versus Chinese currency. D) the United States imposes trade restrictions on Chinese imports.
some of the inputs used to produce Chinese exports are imported.
14. The two-sector (manufacturing and agriculture) specific-factors model assumes: A) that there are increasing returns to labor. B) that there are diminishing returns to labor. C) that there are diminishing returns to capital in the agricultural sector. D) that there are diminishing returns to land in the manufacturing sector.
that there are diminishing returns to labor.
17. In the long run, when factors are mobile, an increase in the relative price of a good will increase the real earnings of the factor used intensively in the production of that good. This is known as: A) the Heckscher-Ohlin model. B) the Stolper-Samuelson theorem. C) the Riparian model. D) the specific-factor theorem.
the Stolper-Samuelson theorem.
9. A bilateral trade balance is: A) half the trade deficit. B) the measure of imports only—not exports. C) the difference between the value of imports and exports between two trading nations. D) the sum of the value of imports and exports traded between two nations.
the difference between the value of imports and exports between two trading nations.
25. FDI flows into the United States and Europe are: A) the largest in the world B) smaller than FDI to China. C) smaller than their share of trade flows. D) called horizontal FDI.
the largest in the world
6. According to the Ricardian principle of comparative advantage, international trade increases a nation's total output because: A) the nation's resources are used where they are most productive. B) the output of the nation's trading partner declines. C) the nation can produce to the exterior of its production possibilities frontier. D) the nation is able to increase its consumption.
the nation's resources are used where they are most productive.
17. Because the marginal product of labor measures the quantity of labor required to produce a unit of a good, the slope of the PPF can also be expressed as: A) the ratio of abundance of labor to capital. B) consumer utility. C) the opportunity cost (in units of labor) to obtain an additional unit of good 1 in terms of what we give up of good 2. D) the ratio of the marginal products of labor to the marginal product of capital.
the opportunity cost (in units of labor) to obtain an additional unit of good 1 in terms of what we give up of good 2.
14. The "first golden age" of trade was: A) the period from 1890 to 1913, when tariffs were increased between countries. B) the period from 1890 to 1913, when steamships and railroads increased trade. C) the period between 1919 and 1935. D) the inter-war period.
the period from 1890 to 1913, when steamships and railroads increased trade.
11. Which of the following ratios is used to measure a country's openness to international trade? A) the ratio of its exports to its GDP B) the ratio of its imports to its GDP C) the ratio of its trade balance (exports minus imports) to its GDP D) the ratio of its exports plus imports to its GDP
the ratio of its exports plus imports to its GDP
16. In equilibrium, with diminishing marginal products, the slope of the PPF is equal to: A) the ratio of prices for the products. B) the slope of the highest possible indifference curve. C) the ratio of the marginal products of labor. D) the ratio of prices for the products, the slope of the highest possible indifference curve, and the ratio of the marginal products of labor.
the ratio of prices for the products, the slope of the highest possible indifference curve, and the ratio of the marginal products of labor.
A microeconomic analysis shows that in a competitive economy in which labor is homogenous and mobile, the ratio of the prices of the products in equilibrium is inversely proportional to: A) the ratio of the capital used in production. B) the ratio of the marginal products of labor. C) the geographical region of the country in which the factory is located. D) the strength of bargaining power of the workers.
the ratio of the marginal products of labor.
12. What does the specific-factors model allow us to analyze? A) the returns to factors of production B) the allocation of resources between sectors C) the returns to factors of production and the allocation of resources between sectors D) the allocation of resources to the service sector
the returns to factors of production and the allocation of resources between sectors
20. In the home equilibrium situation, the relative price of wheat is the same as: A) the relative price of cloth. B) the slope of the PPF. C) the marginal product of wheat. D) the cost of labor to produce wheat.
the slope of the PPF.
12. What does a country's gross domestic product (GDP) measure? A) the value of all intermediate goods produced in a year B) the value of all exports produced in a year C) the value of all final goods produced in a year D) the value of all production in a year
the value of all final goods produced in a year
21. What is the principal reason for Intel (a U.S. computer chip producer) to establish a computer chip manufacturing plant in a developing country (e.g., Malaysia)? A) to take advantage of low wages in Malaysia B) to take advantage of Malaysia's climate C) to take advantage of Malaysia's low tariffs on imported computer chips D) All of these are reasons for Intel to establish a computer chip manufacturing plant in Malaysia.
to take advantage of low wages in Malaysia
13. What do economists call factors that influence (reduce) the total dollar volume of goods and services sold across international borders? A) trade factor issues B) trade barriers C) trade conditions D) the ratio of total trade to GDP
trade barriers
15. In an economy in which labor is mobile and homogeneous, the wages between industries: A) will be equal. B) will be very unequal. C) will be less in the export industry. D) will be unequal because in some firms the management is more fair to its workers.
will be equal.
10. Under free trade and comparative advantage, the home country: A) will see only benefits for its resources. B) will see only losses for its resources. C) will see winners and losers within its economy. D) will be convinced that trade is not beneficial.
will see winners and losers within its economy.
In the Ricardian model, wages are equal across industries because: A) employers care for their workers. B) workers prefer to work in exporting industries. C) workers are freely mobile between industries. D) workers are freely mobile between countries.
workers are freely mobile between industries.
