international econ exam 1

For each of the following​ examples, explain whether this is a case of external LOADING... or internal LOADING... economies of​ scale: A number of firms doing contract research for the drug industry are concentrated in southeastern South Carolina. _____________ All Hondas produced in the United States come from plants in​ Ohio, Indiana, or Alabama. _________ All airframes for​ Airbus, Europe's only producer of large​ aircraft, are assembled in​ Toulouse, France. __________ ​Cranbury, New​ Jersey, is the artificial flavor capital of the United States. _____________

- external - internal - internal - external

Assume the U.S. currently grows 3.0 million tons of fresh winter fruit and that the resources absorbed in the production of this fruit could have produced 200,000 laptop computers.​ Therefore, the opportunity cost of those 3.0 million tons of fruit is __________ computers. ​(Enter your response as an​ integer.) Suppose that South America could have instead produced those 3.0 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. U.S. exploitation of its poorer neighbors to the south. B. a mutually beneficial rearrangement of world production. C. unfair competition for South American laptop makers. D. unfair competition for U.S. winter fruit producers.

200,000 B

A century ago each​ country's exports were shaped largely by A. climate and natural resources. B. physical capital. C. human resources. D. treaties and diplomacy.

A

A country has a comparative advantage in producing a good if A. its opportunity cost of producing that good is lower than elsewhere. B. it can produce more of the good than other countries. C. it is more economically advanced than its trading partners. D. it produces the good at a lower money cost.

A

As more labor is​ used, holding capital​ constant, A. the marginal product of labor decreases. B. the marginal product of labor increases. C. the shape of the production function gets steeper from left to right. D. Both B and C.

A

Assume a specific factors economy produces two​ goods, cloth and​ food, and that when representing this economy​ graphically, cloth is on the​ x-axis and food is on the​ y-axis. For a trading​ economy, A. the budget constraint is tangent to the production possibility frontier at the chosen production point. B. the slope of the budget constraint is minus​(Upper P Subscript Upper F​/Upper P Subscript Upper C​). C. the budget constraint intersects the production possibility frontier at the chosen production point. D. the slope of the budget constraint is ​(Upper P Subscript Upper C​/Upper P Subscript Upper F​).

A

Evaluate the following​ statement: Mexico is quite close to the​ U.S., but it is far from the European Union​ (E.U.). 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. Do you agree or​ disagree? Based on the gravity​ model, I would A. agree. The gravity model predicts trade volume is proportional to the product of the GDPs of the trading partners and inversely related to the distance from each other. B. disagree. The larger the difference in size the more the countries will trade. Since Mexico is much smaller than the​ U.S., it makes sense that it trades largely with the U.S. Brazil is a much larger​ economy; therefore, it splits its trade with other large​ economies, such as the U.S. and the E.U. C. disagree. The gravity model predicts that trade volume is proportional to the ratio of the GDPs of the trading partners. The larger the difference in​ size, the larger the​ ratio, and the greater the trade volume. D. agree. The gravity model predicts trade volume is proportional to the product of the GDPs of the trading partners and directly related to the distance from each other.

A

External economies of scale A. are more likely to be associated with a perfectly competitive industry. B. tend to result in large profits for each firm and an industry with relatively few firms. C. lead to the creation of a single large monopoly. D. cannot be associated with a perfectly competitive industry.

A

From an economic point of​ view, India and China are somewhat​ similar: Both are​ huge, low-wage​ countries, probably with similar patterns of comparative​ advantage, which until recently were relatively closed to international trade. China was the first to open up. Now that India is also opening up to world​ trade, how would you expect this to affect the welfare of​ China? Of the United​ States? ​ (Hint: Think of adding a new economy identical to that of China to the world​ economy.) A. From​ China's perspective, the world relative supply curve will shift to the right. This shift will worsen​ China's terms of trade. The U.S. purchase of Chinese exports will benefit the U.S. by increasing the relative price of goods that the U.S. exports. B. From​ China's perspective, the world relative supply curve will shift to the right. This shift will improve​ China's terms of trade. The U.S. purchase of Chinese exports will hurt the U.S. by decreasing the relative price of goods that the U.S. exports. C. From​ China's perspective, the world relative supply curve will shift to the left. This shift will improve​ China's terms of trade. The U.S. purchases of Chinese exports will hurt the U.S. by decreasing the relative price of goods that the U.S. exports. D. From​ China's perspective, the world relative supply curve will shift to the left. This shift will worsen​ China's terms of trade. The U.S. purchase of Chinese exports will benefit the U.S. by increasing the relative price of goods that the U.S. exports.

A

If output more than doubles when all inputs are​ doubled, production is governed by A. increasing returns to scale. .B. ​intra-industry trade. C. decreasing returns to scale. D. imperfect competition.

A

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 A. volume of its imports and exports. B. ability it has to impose its will upon trading partners. C. influence it exerts in world affairs. D. control it has over world trade organizations.

A

In each sector of a specific factors​ economy, profit-maximizing employers will demand labor up to the point where A. the marginal product of labor times the price of the product equals the wage rate. B. the marginal product of labor equals the wage rate. C. the value produced by an additional​ person-hour equals the price of the product. D. the price of the product equals the marginal product of labor times the wage rate.

A

Over the past forty years the composition of​ developing-country exports has A. undergone a dramatic shift from primary products to manufactures. B. undergone a dramatic shift from manufactures to primary products. C. remained relatively stable and concentrated in manufactures. D. remained relatively stable and concentrated in primary products.

A

The predictive power of the​ Heckscher-Ohlin model, at least in terms of forecasting the volume of​ trade, appears to undergo improvement upon abandonment of the assumption A. that technologies are the same across countries. B. that trading goods is an indirect way of trading factors. C. that technologies vary across countries. D. of 2​ countries, 2​ factors, and 2 goods.

A

The quantity of direct foreign investment by the United States into Mexico has increased dramatically during the last decade. How would you expect this increased quantity of direct foreign investment to affect migration flows from Mexico to the United​ States, all else being​ equal? A. Direct foreign investment has increased the amount of capital per worker in Mexico. This will increase the marginal product of labor and increase the real​ wage, which should slow the flow of labor from Mexico. B. Direct foreign investment has decreased the amount of capital per worker in Mexico. This will increase the marginal product of labor and increase the real​ wage, which should slow the flow of labor from Mexico. C. Direct foreign investment has decreased the amount of capital per worker in Mexico. This will decrease the marginal product of labor and decrease the real​ wage, which will increase the flow of labor from Mexico. D. Direct foreign investment has increased the amount of capital per worker in Mexico. This will decrease the marginal product of labor and decrease the real​ wage, which will increase the flow of labor from Mexico.

A

When opening up to​ trade, an economy A. exports the good whose relative price has increased and imports the good whose relative price has decreased. B. exports and imports the good whose relative price has increased. C. exports the good whose relative price has decreased and imports the good whose relative price has increased. D. exports and imports the good whose relative price has decreased.

A

Which of the following is the most important determinant of the location of tradable industries within a​ country? A. External economies. B. Natural resource abundance. C. Labor and capital availability. D. Political influence.

A

​Recently, computer programmers in developing countries such as India have begun doing work formerly done in the United States. This shift has undoubtedly led to substantial pay cuts for some programmers in the United States. Answer the following two​ questions: How is this possible when the wages of skilled labor are rising in the United States as a​ whole? A. In the short​ run, programmers with specific skills that compete with Indian workers may face wage​ cuts, while, in the long​ run, programming in general becomes more​ efficient, which can increase wages for others in the industry. B. In the long​ run, programmers with specific skills that compete with Indian workers may face wage​ cuts, while, in the short​ run, programming in general is more​ efficient, which can increase wages for others in the industry. C. Indian firms are able to employ relatively unskilled workers at low wages to perform routine programming tasks. D. Indian firms use government subsidies to unfairly compete with U.S. programmers in specific sectors of the industry. Which of the following arguments would trade economists make against seeing these wage cuts as a reason to block outsourcing of computer​ programming? A. It is possible for those who gain from outsourcing to compensate those who lose. B. Allowing programming to be done more cheaply expands the production possibilities frontier of the​ US, making the entire country better off on average. C. The income distribution effects from outsourcing are not specific to international trade. D. All of the above. .E. Only A and B above.

A, D

A growing movement among economists to model phenomena such as interregional and international trade as well as the rise of cities as different aspects of the same phenomenonlong dasheconomic interaction across spacelong dashis referred to as A. interspatial analysis. B. economic geography. C. spatial economics. D. physical geography.

B

Movement of labor from a Foreign country to the domestic​ (Home) economy A. occurs only if the marginal product of labor is higher in Foreign than at Home. B. increases the marginal product of labor in Foreign. C. leaves the marginal product of land unchanged in both countries. D. increases the marginal product of labor at Home.

B

The Ricardian trade model put forth by British economist David Ricardo nearly two centuries ago is one that A. is not valid in a world dominated by technological change. B. expounds principles still valid in​ today's world. C. holds little relevance in​ today's world. D. is relevant only to​ agrarian-based economies.

B

Trade has ambiguous effects on A. the factor that is specific to the export sector of each country. B. mobile factors. C. all factors in the economy. D. the factor that is specific to the import minus competing sectors.

B

Why do internal economies of scale lead to imperfectly competitive​ industries? A. This is an observation based on measurable data. B. Large firms have cost advantages over small firms. C. Patent laws prevent firms from entering the market. D. There are barriers to entry due to large fixed costs.

B

Internal economies of scale occur when the average costs A. rise as the representative firm grows larger. B. fall for a given firm as the industry grows larger. C. fall as the representative firm grows larger. D. rise for a given firm as the industry grows larger.

C

International economics can be divided into two broad​ subfields: A. monetary and barter. B. macro and micro. C. international trade and international money. D. developed and less developed. E. static and dynamic.

C

Suppose the United Colonies​ (a hypothetical​ country) happens to be the​ world's most​ capital-abundant country. According to the​ factor-proportions (aka​ Heckscher-Ohlin) model, the U.C. would be expected to A. export​ labor-intensive goods and import​ capital-intensive goods. B. export capital goods and import consumer goods. C. export​ capital-intensive goods and import​ labor-intensive goods. D. export expensive goods and import inexpensive goods.

C

The​ one-factor Ricardian model refutes the myth that free trade is beneficial only if a country is strong enough to stand up to foreign competition by A. stating that trade is solely dependent upon the productivity level of a​ country's workers. B. only requiring that one country have an absolute productivity advantage over another country. C. indicating that a country only needs a comparative advantage to benefit from trade. D. arguing that trade depends on the sheer amount of a good a country could produce.

C

What factor primarily explains how a particular region develops the external economies that support an​ industry? A. The presence of internal economies. B. Artful regional planning. C. Accidents of history. D. Shrewd political leadership.

C

When an economy is open to​ trade, the relative price of a good is determined by the A. relative supply and demand for that economy. B. supply and demand for that economy. C. relative supply and demand for the world. .D. supply and demand for the world.

C

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? ​(Mark all that​ apply.) A. Canada is a member of the World Trade Organization while Australia is not. B. ​Canada's GDP is approximately double that of​ Australia's. C. Canada is close to a major economy. D. Transportation costs for imports and exports are higher in Australia because the distance goods must travel. E. ​Australia's GDP is very​ large; therefore, its volume of trade relative to GDP would be expected to be small.

C & D

Within each country that opens itself to international​ trade, A. workers always lose while corporations always win. B. there is a clearcut gain for all factor owners. C. some factor owners​ gain, but other factor owners lose. D. there will be losses to the​ country's abundant factor. 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? A. Those that lose from trade tend to be marginally impacted by​ trade, poorly​ organized, and largely devoid of political influence. B. Most economists argue that trade with income transfers is better than no trade at all. C. Income distribution effects are not specific to international trade. D. Economists focus on the aggregate gains from trade and place little emphasis on losses to specific groups.

C, A

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. A century ago trade was mostly in agricultural and mining products not produced in Europe.​ Today, 38 percent of trade is in​ services, and as the gravity model​ predicts, Britain trades with the other large European economies. B. A century ago trade was mostly in commodities that were not produced in Europe. Although they are​ inferior, these commodities are now purchased from European countries because of higher transportation costs. C. A century ago trade was mostly in commodities such as​ sugar, wheat, and cotton that were not produced in Europe.​ Today, oil and mining products are the most important commodities​ traded, which Britain imports from Eastern European countries and Ireland. D. 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.

D

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 9​% and the price of food does not change​, A. the allocation of labor between sectors does not change. B. the wage rate rises by more than the increase in the price of cloth. C. the output of food rises. D. the output of cloth rises.

D

For trade to take​ place, a country must face a world relative price that is A. the same as the relative price that would prevail in the absence of trade. B. less than the relative price that would prevail in the absence of trade. C. more than the relative price that would prevail in the absence of trade. D. different from the relative price that would prevail in the absence of trade.

D

If there are large disparities in wage levels between​ countries, then... A. trade is likely to have no effect on either country. B. trade is likely to be harmful to the country with the high wages. C. trade is likely to be harmful to the country with the low wages. D. trade is likely to be harmful to neither country. E. trade is likely to be harmful to both countries.

D

Internal economies of scale A. may be associated with a perfectly competitive industry. B. are associated only with​ high-tech or complex products such as robotics. C. can never form the basis for international trade. D. may be associated with an imperfectly competitive industry.

D

It is fairly common for an industrial cluster to break up and for production to move to locations with lower wages when the technology of the industry is no longer rapidly improvinglong dashwhen it is no longer essential to have the absolutely most modern​ machinery, when the need for highly skilled workers has​ declined, and when being at the cutting edge of innovation conveys only a small advantage. Explain this tendency of industrial clusters to break up in terms of the theory of external economies. As technological change and innovation slows in an​ industry, A. knowledge spillovers will enable production to become efficient in low wage​ countries; thus, firms will seek out low cost production locations and the cluster will breakdown. B. specialized suppliers and labor market​ pooling, which are the reasons clusters are more efficient than individual​ firms, become less​ important; thus, firms will seek out low cost production locations and the cluster will breakdown. C. low wage countries will be able to reverse engineer products and produce them at a lower​ cost; thus, the cluster will lose its cost advantage and breakdown. D. specialized​ suppliers, labor market​ pooling, and knowledge​ spillovers, which are the reasons clusters are more efficient than individual​ firms, become less​ important; thus, firms will seek out low cost production locations and the cluster will breakdown.

D

Like the simple Ricardian​ model, the specific factors model A. has a production possibilities curve that reflects diminishing returns to labor. B. distinguishes between mobile and specific factors. C. allows for the existence of factors of production besides labor. D. assumes an economy that produces two goods and that can allocate its labor supply between the two sectors.

D

The fundamental reason why trade potentially benefits a country is that it A. promotes restoration of natural resources. B. increases dependence on foreign countries. C. guarantees that everyone is better off. D. expands the​ economy's choices.

D

What is a​ "forward-falling supply​ curve"? A. The supply curve of a perfectly competitive industry with internal economies. B. The supply curve of a monopolistically competitive industry with internal economies. C. The supply curve of a monopolist engaged in dumping. D. The supply curve of a perfectly competitive industry with external economies. E. A supply curve describing reciprocal dumping.

D

Suppose that one country​ (Country A) subsidizes its exports and the other country​ (Country B) imposes a​ "countervailing" tariff that offsets its​ effect, so that in the end relative prices in the second country are unchanged. What happens to the terms of​ trade? What about welfare in the two​ countries? A. From Country​ A's perspective, world relative supply will decrease and world relative demand will increase. This will improve its terms of trade. The countervailing tariff exacerbates this effect so Country A will definitely gain and Country B definitely loses. B. From Country​ A's perspective, world relative supply will increase and world relative demand will increase. This will improve its terms of trade. The countervailing tariff exacerbates this effect so Country A will definitely gain and Country B definitely loses. C. From Country​ A's perspective, world relative supply will decrease and world relative demand will increase. This will worsen its terms of trade. The countervailing tariff exacerbates this effect so Country B will definitely gain and Country A definitely loses. D. From Country​ A's perspective, world relative supply will increase and world relative demand will decrease. This will worsen its terms of trade. The countervailing tariff exacerbates this effect so Country B will definitely gain and Country A definitely loses. ​Suppose, on the other​ hand, that Country B retaliates with an export subsidy of its own. Contrast the result. A. Country​ B's export subsidy would offset the terms of trade effect from Country​ A's export​ subsidy, which helps Country B and hurts Country A. B. Country​ B's export subsidy would offset the terms of trade effect from Country​ A's export​ subsidy, which helps Country A and hurts Country B.

D, B

Home and Foreign produce two​ goods, flowers and soybeans. Home exports the labor intensive flowers and Foreign exports the land intensive soybeans. Suppose that Home places an import tariff on soybeans that it imports from Foreign. The imposition of the import tariff on soybeans by Home will cause A. ​Home's welfare to improve unambiguously. B. no terms of trade effects on Home or Foreign. C. ​Home's welfare to improve as long as the import tariff imposed is​ "large." D. ​Home's terms of trade to improve. The imposition of the import tariff by Home on​ Foreign's soybeans, in the absence of Metzler's paradox LOADING...​, will have which of the following income distribution​ effects? The import tariff A. increases​ Home's internal relative price of flowers while benefiting the exporting sector. B. decreases​ Home's internal relative price of flowers while benefiting the exporting sector. C. increases​ Home's internal relative price of flowers while benefiting the importing sector. D. decreases​ Home's internal relative price of flowers while benefiting the importing sec

D, D

An important insight of international trade theory is that when countries exchange goods and services one with the​ other, it A. is typically beneficial only to the low wage trade partner country. B. tends to create unemployment in both countries. C. is typically harmful to the technologically lagging country. D. is always beneficial to both countries. E. is usually beneficial to both countries.

E

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

In our discussion of labor market​ pooling, we stressed the advantages of having two firms in the same​ location: If one firm is expanding while the other is​ contracting, it's to the advantage of both workers and firms that they be able to draw on a single labor pool. But it might happen that both firms want to expand or contract at the same time. Does this constitute an argument against geographical​ concentration? To answer this​ question, imagine that there are two companies that both use the same kind of specialized​ labor, say, two film studios that make use of experts in computer animation. Suppose that there are 550 workers with this special skill. Now compare two different​ scenarios: In scenario​ 1, both firms and all 550 workers are in the same​ city, and each firm is able to hire 275 workers. In scenario​ 2, the two​ firms, each with 275 ​workers, are in two different cities. Now suppose that both firms are contracting comma decreasing their demand for labor down to 170 each. In the first​ scenario, each firm will face a local labor ___________ of _____ workers. ​(Enter your response as an​ integer.) In the second​ scenario, each firm will face a local labor ___________ of ______ workers. ​(Enter your response as an​ integer.) ​Thus, locating next to each other __________________________ disadvantages over locating far apart when both firms are contracting.

Surplus, 105 Surplus, 105 does not present any

Japan primarily exports manufactured​ goods, while importing raw materials such as food and oil. Determine the impact on​ Japan's terms of trade of the following​ events: a. A war in the Middle East disrupts oil supply. b. Korea develops the ability to produce automobiles that it can sell in Canada and the United States. c. U.S. engineers develop a fusion reactor that replaces fossil fuel electricity plants. d. A harvest failure in Russia. e. A reduction in​ Japan's tariffs on imported beef and citrus fruit.

a. deteriorates term of trade b. deteriorates terms of trade c. improves terms of trade d. deteriorates terms of trade e. deteriorates terms of trade

Explain why the Leontief paradox and the more recent​ Bowen, Leamer, and Sveikauskas results reported in the text contradict the​ factor-proportions theory. The​ factor-proportions theory predicts that the U.S. should export ____________________ goods.​ However, Leontief found that the U.S. actually exported ______________________ goods. ​Bowen, Leamer, and Sveikauskas tested the​ Heckscher-Ohlin theory by comparing the ratio of a​ country's endowment of a factor to each​ country's share of world income. Assuming the factor proportions theory is​ correct, a country whose factor share exceeded their income share would be an ________________ of that factor. For​ two-thirds of the factors​ tested, trade ran in the predicted direction less than ____ percent of the time.

capital intensive labor intensive exporter 70

In the​ "2 by 2 by​ 2" version of the​ factor-proportions model, assume that Home is​ labor-abundant and coal is​ labor-intensive. The movement from​ no-trade to​ free-trade between Home and Foreign can be expected to cause the relative price of coal to _______________ in Home. Suppose that the Home government is somewhat beholden to landowners. Which of the following adjectives might describe the Home​ government's stance toward the opening of​ trade? A. Indifferent. B. Encouraging. C. Resistant. D. None of the above.

increase C