ECON CH 3

The two-country, multi-product model differs from the two-country, two-product model in that, in the former A) the relative wage ratio will determine the pattern of trade ( which good is exported by which country. B) which country will export which product is determined entirely by labor productivity data. C) full specialization is likely to hold in equilibrium. D) none of the goods are potentially nontraded. E) domestic relative prices are not relevant.

Answer A

7) If the world terms of trade equal those of country F, then A) country H but not country F will gain from trade .B) country H and country F will both gain from trade. C) neither country H nor F will gain from trade. D) only the country whose government subsidizes its exports will gain. E) country F but not country H will gain from trade

A) country H but not country F will gain from trade.

Trade between two countries can benefit both countries if A) each country exports that good in which it has a comparative advantage. B) each country enjoys superior terms of trade. C) each country has a more elastic demand for the imported goods. D) each country has a more elastic supply for the exported goods. E) each country produces a wide range of goods for export.

A) each country exports that good in which it has a comparative advantage

If the production possibilities frontier of one trade partner ("Country A") is bowed out (concave to the origin), then increased specialization in production by that country will A) increase the economic welfare of both countries. B) increase the economic welfare of only Country A. C) decrease the economic welfare of Country A. D) decrease the economic welfare of Country B. E) not affect the economic welfare of either country.

A) increase the economic welfare of both countries.

Assume that transportation costs are especially high for Widgets in the two-country, two-product Ricardian model, and Country A enjoys a comparative advantage in Widgets, then A) country B must also enjoy a comparative advantage in Widgets. B) country B may end up exporting Widgets. C) country A may switch to having a comparative advantage in the other good. D) country A will still export Widgets. E) Trade may be impossible between the two countries.

Answer: E

In a two country and two product Ricardian model, a small country is likely to benefit more than the large country because A) the large country will wield greater political power, and hence will not yield to market signals. B) the small country is less likely to trade at price equal orclose to its autarkic (domestic) relative prices. C) the small country is more likely to fully specialize. D) the small country is less likely to fully specialize. E) the small country can raise wages.

B) the small country is less likely to trade at price equal orclose to its autarkic (domestic) relative prices

12) As a result of trade between two countries which are of completely different economic sizes, specialization in the Ricardian 2X2 model tends to A) be incomplete in both countries. B) be complete in both countries. C) be complete in the small country but incomplete in the large country. D) be complete in the large country butincomplete in the small country. E) sustain one countries economy in in direct proportion to the other.:

C) be complete in the small country but incomplete in the large country.

The Ricardian model attributes the gains from trade associated with the principle of comparative advantage result to A) differences in technology. B) differences in preferences. C) differences in labor productivity. D) differences in resources. E) gravity relationships among countries

C) differences in labor productivity

Which of the following is most likely to be an untraded good in a Ricardian two-country, multi-good model? A) steel B) textiles C) haircuts D) petroleum E) telemarketer services

C) haircuts

In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ________ unit labor requirements A) one B) two C) three D) four E) five

D) four

Mahatma Gandhi exhorted his followers in India to promote economic welfare by decreasing imports. This approach A) makes no sense. B) makes no economic sense. C) is consistent with the the Ricardian model of comparative advantage. D) is not consistent with the Ricardian model of comparative advantage .E) guarantees benefits for Indian workers

D) is not consistent with the Ricardian model of comparative advantage

5) The growth of clothing exports originating in Bangladesh is the result of the A) high productivity of workers in Bangladesh. B) low wages in Bangladesh. C) low productivity of workers in other countries. D) low productivity of workers in Bangladesh in industries other than those that produce clothing for export. E) high wages in other countries.

.D) low productivity of workers in Bangladesh in industries other than those that produce clothing for export

3) We know that in antiquity, China exported silk because no one in any other country knew how to produce this product. From this information we know that A) China had a comparative advantage insilk. B) China had an absolute advantage, but not a comparative advantage in silk .C) no comparative advantage could exist because the technology was not diffused. D) China exported silk for political reasons even though it had no comparative advantage .E) China was unable to profit by exporting silk because it was unknown in the rest of the world.

A) China had a comparative advantage insilk.

In a two-country, two-product world, the statement "Germany enjoys a comparative advantage over France in autos relative to ships" is equivalent to A) France having a comparative advantage over Germany in ships. B) France having a comparative disadvantage compared to Germany in autos and ships. C) Germany having a comparative advantage over France in autos and ships. D) France having no comparative advantage over Germany. E) France should produce autos.y

A) France having a comparative advantage over Germany in ships.

20) 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 A) U.S. labor productivity equaled 40 units per hour and Japan's 15 units per hour. B) U.S. labor productivity equaled 30 units per hour and Japan's 20 units per hour. C) U.S. labor productivity equaled 20 units per hour and Japan's 30 units per hour. D) U.S. labor productivity equaled 15 units per hour and Japan's 25 units per hour. E) U.S. labor productivity equaled 15 units per hour and Japan's 40 units per hour.

A) U.S. labor productivity equaled 40 units per hour and Japan's 15 units per hour

15) If labor productivities were exactly proportional to wage levels internationally, this would A) not negate the logical basis for trade in the Ricardian model. B) render the Ricardian model theoretically correct but practically useless. C) negate the logical basis for trade in the Ricardian model. D) negate the applicability of the Ricardian model if the number of products were greater than the number of trading partners .E) demonstrate the validity of the Ricardian model.

A) not negate the logical basis for trade in the Ricardian model.

4) When compared with China, the growth of clothing exports originating in Bangladesh is the result of A) the comparative advantage that Bangladesh has in the production of clothing for export. B) the absolute advantage that China has in the production of clothing for export. C) the absolute advantage that Bangladesh has in the production of clothing for export. D) the comparative and absolute advantage that China has in the production of clothing for export. E) the comparative and absolute advantage that Bangladesh has in the production of clothing for export.

A) the comparative advantage that Bangladesh has in the production of clothing for export

7) If the United States' production possibility frontier was flatter to the widget axis, whereas Germany's was flatter to the butter axis, we know that A) the United States has no comparative advantage B) Germany has a comparative advantage in butter .C) the U.S. has a comparative advantage in butter. D) Germany has comparative advantages in both products. E) the U.S. has a comparative disadvantage in widgets.

B) Germany has a comparative advantage in butter

8) Suppose the United States' production possibility frontier was flatter to the widget axis, whereas Germany's was flatter to the butter axis. We now learn that the German mark sharply depreciates against the U.S. dollar. We now know that A) the United States has no comparative advantage B) Germany has a comparative advantage in butter. C) the United States has a comparative advantage in butter. D) Germany has a comparative advantage in widgets. E) Germany has lost its comparative advantage.c.

B) Germany has a comparative advantage in butter

9) Suppose the United states production possibility frontier was flatter to the widget axis, whereas Germany's was flatter to the butter axis. We now learn that the German wage doubles, but U.S. wages do not change at all. We now know that A) the United States has no comparative advantage. B) Germany has a comparative advantage in butter. C) the United States has a comparative advantage in butter. D) Not enough information is given. E) Germany gains a comparative advantage in widgets.

B) Germany has a comparative advantage in butter

The pauper labor theory, and the exploitation argument A) are theoretical weaknesses that limit the applicability of the Ricardian concept of comparative advantage. B) are theoretically irrelevant to the Ricardian model, and do not limit its logical relevance. C) are not relevant because the Ricardian model is based on the labor theory of value. D) are not relevant because the Ricardian model allows for different technologies in different countries. E) invalidate the Ricardian model.

B) are theoretically irrelevant to the Ricardian model, and do not limit its logical relevance.

If the world terms of trade for a country are somewhere between the domestic cost ratio of H and that of F, then A) country H but not country F will gain from trade. B) country H and country F will both gain from trade. C) neither country H nor F will gain from trade. D) only the country whose government subsidizes its exports will gain. E) country F but not country H will gain from trade.

B) country H and country F will both gain from trade.

If a production possibilities frontier is bowed out (concave to the origin), then production occurs under conditions of A) constant opportunity costs. B) increasing opportunity costs. C) decreasing opportunity costs. D) infinite opportunity costs. E) uncertain opportunity costs.

B) increasing opportunity costs.

A country engaging in trade according to the principles of comparative advantage gains from trade because it A) is producing exports indirectly more efficiently than it could alternatively. B) is producing imports indirectly more efficiently than it could domestically. C) is producing exports using fewer labor units. D) is producing imports indirectly using fewer labor units .E) is producing exports while outsourcing services.

B) is producing imports indirectly more efficiently than it could domestically.

According to Ricardo, a country will have a comparative advantage in the product in which its A) labor productivity is relatively low. B) labor productivity is relatively high. C) labor mobility is relatively low. D) labor mobility is relatively high .E) labor is outsourced to neighboring countries.

B) labor productivity is relatively high.

In a two product two country world, international trade can lead to increases in A) consumer welfare only if output of both products is increased. B) output of both products and consumer welfare in both countries. C) total production of both products but not consumer welfare in both countries. D) consumer welfare in both countries but not total production of both products. E) prices of both goods in both countries.

B) output of both products and consumer welfare in both countries.

In the Ricardian model, if a country's trade is restricted, this will cause all EXCEPT which? A) limited specialization and the division of labor B) reduced volume of trade and reduced gains from trade C) nations to produce inside their production possibilities curves D) a country to produce some of the product of its comparative disadvantage E) raised costs as more diverse product is produced internally

C) nations to produce inside their production possibilities curves

13) A nation engaging in trade according to the Ricardian model will find its consumption bundle A) inside its production possibilities frontier. B) on its production possibilities frontier C) outside its production possibilities frontier. D) inside its trade-partner's production possibilities frontier. E) on its trade-partner's production possibilities frontier

C) outside its production possibilities frontier

21) If two countries engage in Free Trade following the principles of comparative advantage, then A) neither relative prices nor relative marginal costs (marginal rates of transformation-MRTs) in one country will equal those in the other country. B) both relative prices and MRTs will become equal in both countries. C) relative prices but not MRTs will become equal in both countries. D) MRTs but not relative prices will become equal in both countries. E) trade will be unrestricted, regardless of relative costs and MRTs.

C) relative prices but not MRTs will become equal in both countries.

If a very small country trades with a very large country according to the Ricardian model, then' A) the small country will suffer a decrease in economic welfare. B) the large country will suffer a decrease in economic welfare. C) the small country only will enjoy gains from trade. D) the large country will enjoy gains from trade. E) both countries will enjoy equal gains from trade.

C) the small country only will enjoy gains from trade.

The Ricardian model demonstrates that A) trade between two countries will benefit both countries. B) trade between two countries may benefit both regardless of which good each exports. C) trade between two countries may benefit both if each exports the product in which it has a comparative advantage. D) trade between two countries may benefit one but harm the other. E) trade between two countries always benefits the country with a larger labor force.

C) trade between two countries may benefit both if each exports the product in which it has a comparative advantage

In the Ricardian model, comparative advantage is likely to be due to A) scale economies. B) home product taste bias.C) greater capital availability per worker. D) labor productivity differences. E) political pressure.

D) labor productivity differences

Let us define the real wage as the purchasing power of one hour of labor. In the Ricardian 2X2 model, if two countries under autarky engage in trade then A) the real wage will not be affected since this is a financial variable. B) the real wage will increase only if a country attains full specialization. C) the real wage will increase in one country only if it decreases in the other. D) the real wage will rise in both countries. E) the real wage will fall under pressure of international competition.

D) the real wage will rise in both countries

Which of the following has been confirmed by empirical tests of the Ricardian model? A) All predictions of the model for a multi-product, multi-country world are highly unrealistic. B) The existence of nontraded goods results in a high degree of specialization among countries. C) International trade has no impact on income distribution. D) The unimportance of economies of scale as a cause of trade. E) Companies tend to export goods in which they have a relatively high level of productivity.

E) Companies tend to export goods in which they have a relatively high level of productivity.

Which of the following statements is TRUE? A) Free trade is beneficial only if your country is strong enough to stand up to foreign competition. B) Free trade is beneficial only if your competitor does not pay unreasonably low wages. C) Free trade is beneficial only if both countries have access to the same technology. D) Free trade is never beneficial for developing countries. E) Free trade can be beneficial to economic welfare of all countries involved.

E) Free trade can be beneficial to economic welfare of all countries involved

The Country of Rhozundia is blessed with rich copper deposits. The cost of copper produced (relative to the cost of widgets produced) is therefore very low. From this information we know that A) Rhozundia hasa comparative advantage in copper. B) Rhozundia should import copper and export widgets. C) Rhozundia should export both widgets and copper. D) Rhozundia should invest in more in widget production. E) Rhozundia may or may not have a comparative advantage in copper

E) Rhozundia may or may not have a comparative advantage in coppe

If the world terms of trade equal those of country H, then A) country H but not country F will gain from trade. B) country H and country F will both gain from trade. C) neither country H nor F will gain from trade .D) only the country whose government subsidizes its exports will gain. E) country F but not country H will gain from trade 11Copyright © 2015Pearson Education, Inc.

E) country F but not country H will gain from trade

4) If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios), then if they both use the same currency A) neither country has a comparative advantage. B) only the low wage country has a comparative advantage. C) only the high wage country has a comparative advantage. D) consumers will still find trade worth while from their perspective. E) it is possible that both will enjoy the conventional gains from trade.

E) it is possible that both will enjoy the conventional gains from trade

3) If two countries have identical production possibility frontiers, then trade between them is likely to be beneficial if A) their supply curves are identical. B) their cost functions are identical. C) their demand conditions are identical. D) their incomes are identical. E) their demand functions differ.

E) their demand functions differ.