International Microeconomics: Final Exam Review
Why is NAFTA a free-trade area requiring rules of origin rather than a customs union?
A free-trade agreement allows politically sensitive tariffs of each nation to remain unchanged.
Why is it better to protect an infant industry with monopoly power with a tariff than a quota?
A tariff causes domestic production to increase, whereas a quota causes production to decrease.
Which of the following is a possible reason for a country to impose a tariff?
A tariff is a source of revenue for the government.
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. According to the Stolper-Samuelson theorem:
Chilean workers should support United States-Chile free trade.
Currently, which of the following countries is the world's largest exporter of goods (in dollar volume)?
China
Which of the following countries is NOT a member of the Organization for Economic Cooperation and Development?
China
(CHAPTER 2 - Table: Output in the United States and China) Which of the following statements is correct?
China has an absolute disadvantage in both apparel and wheat and a comparative advantage in apparel.
Which of the following statements is an example of vertical FDI?
GM opens a plant in India.
Which of the following is an example of reverse-vertical FDI?
Geely—a Chinese automaker—buys Volvo from Ford Motor Company.
Which of the following is an example of offshoring?
General Motors moves assembly operations for Chevrolets from Detroit to its plant in Mexico.
(CHAPTER 4 - Figure: Home and Foreign Autarky Equilibria) According to the shapes of the two PPFs, which nation has a comparative advantage in the production of computers?
Home
Suppose that the United States allowed its domestic fuel producers to use ethanol made from any source (corn or sugar). What is likely to happen to U.S. production of corn ethanol and U.S. imports of sugar ethanol?
U.S. production of corn ethanol would decrease, and U.S. imports of sugar ethanol would increase.
In the United States, one worker can produce 10 tons of steel per day or 20 tons of chemicals per day. In the United Kingdom, one worker can produce 5 tons of steel per day or 15 tons of chemicals per day. Which of the following statements is correct?
U.S. wages will be higher than U.K. wages.
Which one of the following statements is a rationale for the imposition of tariffs?
Under certain conditions, tariffs can be used to manipulate world prices.
To justify infant industry protection:
a firm's average cost curve must shift downward over time.
North America Free Trade Agreement (NAFTA)
a free-trade agreement among the three countries of Canada, the United, and Mexico, where goods can be traded without tariffs or quotas. quota-free area
In which form of regional trading agreements are rules of origin required?
a free-trade area
NAFTA is:
a free-trade area among Mexico, Canada, and the United States.
A customs union is different from a free-trade area, in that:
a free-trade area removes trade barriers between member countries, whereas a customs union adopts identical tariffs with the rest of the world.
With a home monopolist, the imposition of a tariff results in:
a lower deadweight loss than a quota.
To determine whether a nation has an "abundance" of a resource, economists look at:
a nation's share of the resource compared with its share of world GDP.
Malaysia is relatively abundant in labor, whereas Canada is relatively abundant in capital. In both countries, shirt production is relatively more labor intensive than computer production. According to the Heckscher-Ohlin model, Malaysia will have a(n) ________ advantage in the production of __________.
comparative; shirts
The Ricardian model assumes that the marginal product of labor is:
constant.
Skill-biased technological changes benefit:
educated workers more than uneducated workers.
If a person leaves Sweden to work in the United States, she is said to ________from Sweden and __________to the United States.
emigrate; immigrate
Reductions in trade costs will tend to:
encourage offshoring.
Normally the WTO does not allow discriminatory treatment in trade of member nations, but it makes an exception for nations:
engaging in regional free-trade agreements.
In an economy in which labor is mobile and homogeneous, the wages between industries will be:
equal.
At some point, as the price of the exported product is bid up and the price of the imported product falls, the price of the product in both nations:
equalizes.
Patent protection, especially on pharmaceuticals, was a controversial issue in the Trans-Pacific Partnership negotiations. The TPP agreement:
establishes patent protection for fewer than the 12 years that pharmaceutical companies wanted.
In the long run, profits in a monopolistically competitive market are zero because:
firms are free to enter and exit the market.
If a foreign country imposes a voluntary export restraint, then the:
foreign country will capture the area of government revenue collected with an equivalent tariff.
Who bears the burden of the terms-of-trade effect when a large country imposes a tariff?
foreign producers
The North America Free Trade Agreement (NAFTA) is an example of a:
free-trade area.
The increase in total utility derived from trading products is called:
gains from trade.
The most important reason why firms consider offshoring is to decrease their:
labor costs.
The implication of resources being mobile domestically is that:
labor is paid the same wage and capital receives the same rental price in all domestic industries.
In a two-sector (manufacturing and agriculture) specific-factors model, which resource is specific to the agriculture sector?
land
In long-run equilibrium with trade, losses from import competition will force some firms to ______________, increasing demand for the remaining firms' output, which will then cause their demand curves to become ______________, due to the increased variety of products from _______________.
leave the industry; flatter; foreign firms
A monopoly firm will sell ________output and charge a ________ price than a perfectly competitive firm.
less; higher
Consider an offshoring model in which Home's high-skilled labor has a higher relative wage than Foreign's high-skilled labor, and in which the costs of capital and trade are uniform across production activities. Home will offshore activities that are _____ labor-intensive because of the _____ relative wage of _____ labor.
low-skilled; high; high-skilled
In the long run, prices in a monopolistically competitive industry will be ________ prices without trade.
lower than
In an industrialized country, the amount of labor employed in the agriculture sector is:
lower than labor employed in either the manufacturing or the service sector.
For a monopolistic competitor, marginal revenue at its short-run equilibrium price and quantity equals:
marginal cost.
A profit-maximizing monopolist will produce at the point where:
marginal revenue = marginal cost.
A monopolistic competitive firm:
may earn monopoly profits in the short run.
What nations have the world's highest volume of international trade with one another?
member nations of the European Union
A customs union is a trade agreement in which:
members agree to set the same tariffs on nonmembers.
According to the text, what two factors account for the low (and sometimes negative) growth rates of routine manual and routine cognitive jobs in the United States since 1983?
offshoring and skill-biased technological change
When a firm in one nation purchases unfinished products internationally and adds further processing to sell in the domestic market, this is known as:
offshoring.
Suppose that Home has 20% of the world's capital, 10% of the world's skilled labor, and 30% of the world's unskilled labor and produces 20% of the world's GDP. What does this information suggest?
only that Home is abundant in unskilled labor
Some U.S. companies are choosing to move some operations back to the United States because lower costs of communication within the U.S. allow them to make quick changes to design and production. This phenomenon is called:
onshoring.
Which of the following is an example of the tragedy of the commons?
overharvesting of many species of fish
It is possible to determine how much a nation will export over and above its domestic consumption at various international prices, other things being equal, by finding a set of equilibria. This schedule is:
the export supply curve for a nation.
What is the marginal product of labor?
the extra output obtained by using one more unit of labor
A corollary to the Rybczynski theorem is that, in the long run, prices of factors will not be affected by an increase in labor. This is known as:
the factor price insensitivity result.
"Offshoring" is technically different from "outsourcing" because:
the former is FDI that establishes a subsidiary in a foreign country.
An import quota is different from a voluntary export restraint because:
the former is imposed by the home country and the latter by the exporting country.
In general, a tariff reduces the national welfare of the small importing nation because:
the gain in producer surplus is smaller than the loss in consumer surplus.
If a home country is exporting corn and importing bikes and if the relative price Pc/Pb is increasing, then:
the home country will export more corn.
If the foreign import demand curve intersects the home country's export supply curve in its horizontal portion, then:
the home country will not gain from trade.
(EXAM 2 - Figure: A Firm's Production With and Without Offshoring II) If the world price of components falls, it is likely that:
the home country will produce more R&D and trade it for components.
The international relative price and total quantity of a traded good or service is determined by:
the intersection of the total world import demand curve with the total world export supply curve.
The gravity equation is used to predict:
the level of bilateral trade.
Which principle of the GATT/WTO do regional trade agreements violate?
the most favored nation principle
According to the Ricardian principle of comparative advantage, international trade increases a nation's total output because:
the nation's resources are used where they are most productive.
A country's terms of trade is:
the price of its exports relative to its imports.
The term real wages refers to:
the purchasing power of a worker's wage.
In equilibrium, with diminishing marginal products, the slope of the PPF is equal to:
the ratio of prices for the products.
One way to gauge the impact of trade on a nation is to measure:
the ratio of total imports and exports expressed as a percent of a nation's GDP.
What is the most important labor market situation at home and abroad that affects a firm's decision to offshore?
the relative equilibrium wages of skilled versus unskilled workers at home and abroad
As a nation opens up to free trade:
the relative price rises in the export sector and falls in the import sector.
In comparison to the welfare effects of a tariff in a perfectly competitive home market, the welfare effects of a tariff under a home monopoly are _______, and the deadweight loss for the home monopoly is ________.
the same; the same
When countries open up for offshoring, which country will tend to specialize in research and development?
the skilled-labor-abundant country
If a large country imposes a tariff:
the terms-of-trade effect may offset deadweight losses on its economy.
An example of "value-added" as an important concept for international trade was the case of imports of iPhones from China. The value-added by China was equal to:
the total value of the export to the United States minus the total value of imported raw and semi-finished materials into China.
Which of the following is NOT included in the calculation of a country's gross domestic product (GDP)?
the value of all its intermediate goods produced in a year
If a large nation subsidizes its exports, it will increase its supply to the world and:
the world price will fall.
The small-country monopolist's free-trade equilibrium features a marginal revenue curve equal to __________ and coincident with _____________.
the world price; the new competitive demand curve for the firm
If the index of intra-industry trade for an industry is zero, then:
there are either no exports or no imports in that industry.
If agriculture is a capital-intensive industry in the United States and a labor-intensive industry in India, then:
there is factor-intensity reversal in agricultural production between the two countries.
The phenomenon known as the tragedy of the commons occurs whenever:
there is no ownership of resources, so they become depleted due to lack of management.
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)?
to take advantage of low wages in Malaysia
What do economists call factors that reduce the total dollar volume of goods and services sold across international borders?
trade barriers
Import Quota
a quantity restriction on the good that can be imported into a country.
A Chinese student pays tuition at a U.S. university. The Chinese government classifies this transaction as:
a service import.
An American tourist buys a ticket to an opera in Paris. The U.S. government classifies this transaction as:
a service import.
In competitive labor markets, the wage equals:
the marginal product of labor times the price of output.
When a firm in an industrial nation purchases a firm in a lower-income nation, economists call it:
vertical FDI.
A restriction on the quantity of a good allowed into a country is called an:
import quota.
As a nation increases its production of exports, demand for all factors of production used in the exporting sector will:
rise.
A nation will gain from trade if it:
consumes outside its PPF and produces along its PPF.
(CHAPTER 3 - Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign). Under the condition of no trade, what is the relative price of manufacturing goods?
1.66 of the agricultural good in Home
(CHAPTER 2 - Figure: Home Equilibrium with No Trade) Suppose that trade occurs and Home finds its comparative advantage in the production of wheat. How many bushels of wheat will it produce?
100 bushels
(CHAPTER 2 - Figure: Upperia's Production and Consumption) The graph shows Upperia's international trading pattern. Point P (0,125) is production with trade, and point C (80,65) is consumption with trade. Assume that the marginal product of labor in producing shoes is one pair per hour. How many hours of labor occur in Upperia?
125
(CHAPTER 2 - Figure: Upperia's Production and Consumption) The graph shows Upperia's international trading pattern. What is the autarkic relative price of shirts in Upperia?
5/4 pairs of shoes per shirt
Assume the MPLc = 2 cars and the MPLb = 5 boats. There are 150 workers in this hypothetical economy. What is the maximum number of boats that can be produced?
750
(CHAPTER 2 - Figure: Home Equilibrium with No Trade) Under the condition of no trade, which attainable combination gives the nation the MOST utility?
A
Which of the following is classified as reverse-vertical FDI?
A Chinese steel producer purchases an iron ore mine in Minnesota.
(CHAPTER 2) Home has a comparative advantage in wheat, and Foreign has a comparative advantage in cloth. Once trade occurs, Home produces 1,500 bushels of wheat, and Foreign produces 1,000 yards of cloth. The following table shows the amount of wheat that Home is willing to trade to acquire more cloth. Suppose that Home's trade price rose from 0.5 bushel of wheat per yard of cloth in 2009 to a bushel of wheat per yard of cloth in 2010. Which of the following statements is true?
Home's situation had deteriorated in 2010.
According to the article "A Sea Change in Shipping 50 Years Ago," what impact did container shipping have on global trade?
It reduced the time that ships delivering goods spent at the port.
What is the immediate effect of increasing tariffs in a country on its economy?
It reduces the volume of imports.
Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufacturing output. What will happen to the amount of land used in producing agricultural output when trade occurs?
It will not change.
Jane Ferlengeti, a U.S. citizen, purchases a phone for $300 that Apple imported from China. Apple paid its Chinese subsidiary $150 for the phone. How did these transactions change the U.S.-Chinese bilateral trade balance?
It worsened by $150.
Which of the following statements describes what the Ricardian model predicts as a nation improves its technology and productivity?
Its standard of living will rise.
Which of the following is an example of reverse-vertical FDI?
Lenovo, a Chinese company, acquires IBM's personal computing business.
Which of the following entries is considered a service export?
Mexican tourists visit the Grand Canyon.
Suppose that the wage is $20 per hour in a two-sector (manufacturing and agriculture) specific-factors model. Currently, the prices of manufactured and agricultural outputs are $5 and $1, respectively; the marginal product of labor in the manufactured sector is 6 units per hour; and the marginal product of labor in the agricultural sector is 10 units per hour. What will happen to the distribution of labor between the two sectors?
The manufacturing sector will demand more labor, and the agricultural sector will demand less labor at the current wage.
During the 2008-09 financial crisis, what happened to the ratios of trade to GDP for most developed nations?
They fell.
Which of the following is an example of a service export?
Universal Pictures licenses the right to show the movie Jurassic Park to a Chinese theater chain.
A country's service exports include:
a ticket on a country's airline sold to a foreign resident.
If the value of a nation's imports is more than the value of its exports, then the nation is experiencing:
a trade deficit.
U.S. and European merchandise trade accounted for approximately what share of total world merchandise (goods) trade in 2014?
about one half
In trade, if a nation has the technology to produce a good with fewest resources (such as Germany's production of snowboards), it is known as a(n):
absolute advantage.
In the two-sector (manufacturing and agriculture) specific-factors model, an increase in the price of the manufactured good will cause:
an increase in the wage in the manufacturing sector.
Production possibilities frontiers in the Ricardian model:
are linear (i.e., straight lines), with end points showing a country's production when it produces only one or the other good.
What is the term for a capital flow that is used to purchase or build a tangible asset like a factory?
foreign direct investment
The movement of people across borders is known as:
migration.
What is the MOST likely reason why neighboring nations engage in trade?
proximity
What is the name given to a tax on imported goods?
tariff
In the Ricardian model, wages are equal across industries because:
workers are freely mobile between industries.
Job polarization refers to situations in which:
the employment shares of jobs with lower and higher wages both rise.
(CHAPTER 10 - Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, the deadweight loss from the $50 export subsidy is:
$1,000.
With other things unchanged, a rise in the average price of imports or a fall in the average price of exports will:
worsen the terms of trade.
If the price per bushel of wheat is $3 and the marginal product of labor is four bushels per hour, then what is the hourly wage?
$12
(CHAPTER 3 - Table: An Economy Before and After Trade) According to the table, what is the return to capital after trade occurs?The top part of the table gives manufacturing and agricultural prices, production, resource utilization, and resource payments in autarky (a no-trade situation). The bottom part of the table provides (some of) the same information after trade occurs.
$12.00 per unit
(EXAM 2 - Figure: Costs and Demand for a Monopolistic Competitor)What price should the firm charge?
$15
Suppose that the world price of sugar is $100 per ton. If a small country gives its sugar exporters a subsidy of $50 per ton, then its exporters will receive:
$150 per ton.
(CHAPTER 11 - Figure: The Home and World Markets) The terms-of-trade gain is _____, and the deadweight loss is _____.
$160; $120
(EXAM 2 - Figure: The Soybean Market)A quota generates a protective effect just like a tariff. Using the graph, calculate the"equivalent import tariff" that would produce the same result as an import quota of 200 units.
$3
(CHAPTER 9 - Figure: Supply and Demand at Home) With a quota of 200 units, what would be the price in a home monopoly situation?
$30
(CHAPTER 3 - Table: Production and Prices in Two Industries) According to the information provided in the table, the wage rate in the manufacturing sector is:
$30.
(CHAPTER 3 - Table: Production and Prices in Two Industries) According to the information provided in the table, the wage rate in the agriculture sector is:
$50.
(CHAPTER 10 - Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, when the home country provides a subsidy of _______, exports will increase by _____ units.
$50; 40
(CHAPTER 9 - Figure: The Home Monopolist's Market) The graph shows a home monopolist market with free trade and with the imposition of a tariff. What is the dollar value of the tariff and the new quantity of imports?
$70; 40
If country X has a GDP of $1 trillion, exports $200 billion to country Y, and imports $300 billion from country Y, then its bilateral trade balance with country Y is:
-$100 billion.
If exports of an industry are $100 million and imports are zero, which of the following is the value of the index of intra-industry trade?
0
Chile and Argentina each produce jellybeans and peanut butter, using labor as their only resource. Each country has 1,000 hours of labor. In Chile, an hour produces a pound of jellybeans and 2 hours produce a pound of peanut butter. In Argentina, an hour produces a pound of jellybeans and 3 hours produces a pound of peanut butter. When they do not trade with each other, Chile consumes 600 pounds of jellybeans and 200 pounds of peanut butter, and Argentina consumes 400 pounds of jellybeans and 200 pounds of peanut butter. Suppose that Chile and Argentina begin to trade with each other. Each completely specializes in the product in which it finds its comparative advantage. How many pounds of peanut butter and jellybeans do the two countries jointly produce?
1,000 pounds of jellybeans and 500 pounds of peanut butter
According to the U.S. Department of Commerce, a foreign direct investment inflow to the United States occurs whenever a foreign company acquires ____ or more of a U.S. firm.
10%
(CHAPTER 9 - Figure: The Home Market) Under conditions of no-trade, the domestic monopolist will produce and sell _______ at a price of _________.
12; $25
In 2013, what percentage of the U.S. population was foreign-born?
14.3%
(CHAPTER 9 - Figure: The Home Market) If the world price is $15, the domestic monopolist will produce ______ and the country will import ________.
18; 10
Use the following information to answer the question. Manufacturing: Sales revenue = PM × QM = 150 Payments to labor = W × LM = 100 Payments to capital = RK × K = 50 Agriculture: Sales revenue = PA × QA = 150 Payments to labor = W × LA = 50 Payments to land = RT × T = 100 Holding the price of manufacturing constant, suppose the price of agriculture increases by 20% and the wage increases by 10%. The rental on land increases by:
25%. (What is the change in the payment to land divided by the original payment to land?)
Chile and Argentina each produce jellybeans and peanut butter, using labor as their only resource. Each country has 1,000 hours of labor. In Chile, an hour produces a pound of jellybeans and 2 hours produce a pound of peanut butter. In Argentina, an hour produces a pound of jellybeans and 3 hours produces a pound of peanut butter. When they do not trade with each other, Chile consumes 600 pounds of jellybeans and 200 pounds of peanut butter, and Argentina consumes 400 pounds of jellybeans and 200 pounds of peanut butter. What is the price of peanut butter in Argentina before the two countries begin to trade with each other?
3 pounds of jellybeans per pound of peanut butter
(EXAM 2 - Figure: Costs and Demand for a Monopolistic Competitor)The profit-maximizing amount of output produced will be:
32.
If the maximum number of units of cloth produced is 300 and the maximum number of units of corn produced is 600, then with an MPLcloth = 2, what is the MPLcorn?
4
(CHAPTER 10 - Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, how many units of the product will domestic consumers demand when the world price is $125?
40
(CHAPTER 9 - Figure: The Home Monopolist's Market) The graph shows a home monopolist market with free trade and with the imposition of a tariff. The world price is $250. With free trade, the home country will produce ________ and import ________.
75; 110
(CHAPTER 3) Suppose that the relative price of manufactures falls. Starting at the autarky point A, determine what happens to production and consumption of each good. _____ output _____, and consumption of _____.
Agricultural; increases; manufactures increases
(CHAPTER 10 - Scenario: Payoff Matrix for Airbus and Boeing) The payoff matrix supplied shows outcomes of various strategies that Airbus and Boeing might follow in response to action on the part of the other company. This payoff matrix describes actions in developing so-called superjumbo jets that can carry 600 or more passengers. In each element, the lower-left value gives the outcome for Boeing based on the action of Airbus and the upper-right value gives the outcome for Airbus based on the action of Boeing. For example, in element A, each company will lose $10 million if they both decide to produce superjumbo jets. Which choices (A, B, C, D) are Nash equilibria?
B and C
What happened to growth rates of routine manual and routine cognitive jobs in the United States after 2007?
Both routine manual and routine cognitive jobs experienced negative growth rates.
A case study of NAFTA, with regard to the benefits for Canada from U.S. trade, found that:
Canada had more trade creation than trade diversion and so benefited overall.
Which of the following is a reason why the Japanese truck manufacturer Toyota might want to acquire or construct a plant in the United States?
By having a plant in the United States, Toyota avoids the U.S. 25% tariff on imported pickup trucks.
How does a tariff imposed by a large country differ from a tariff imposed by a small country?
Because of its size, the large nation's tariff not only decreases the quantity demanded of the product but may also reduce the world price of the good.
(CHAPTER 10 - Scenario: Payoff Matrix for Airbus and Boeing) The payoff matrix supplied shows outcomes of various strategies that Airbus and Boeing might follow in response to action on the part of the other company. This payoff matrix describes actions in developing so-called superjumbo jets that can carry 600 or more passengers. In each element, the lower-left value gives the outcome for Boeing based on the action of Airbus and the upper-right value gives the outcome for Airbus based on the action of Boeing. For example, in element A, each company will lose $10 million if they both decide to produce superjumbo jets. Boeing has decided NOT to produce superjumbo jets. Instead, it will continue to market its 450-passenger 747s. However, Airbus will produce superjumbo jets. Which element represents both of their decisions?
C
(CHAPTER 10 - Scenario: Payoff Matrix for Airbus and Boeing) The payoff matrix supplied shows outcomes of various strategies that Airbus and Boeing might follow in response to action on the part of the other company. This payoff matrix describes actions in developing so-called superjumbo jets that can carry 600 or more passengers. In each element, the lower-left value gives the outcome for Boeing based on the action of Airbus and the upper-right value gives the outcome for Airbus based on the action of Boeing. For example, in element A, each company will lose $10 million if they both decide to produce superjumbo jets. Boeing has decided NOT to produce superjumbo jets. Instead, it will continue to market its 450-passenger 747s. Which elements represent this decision?
C and D
(Figure: Payoff Matrix for Airbus and Boeing) Which of the following options is a Nash equilibrium in the payoff matrix in the figure below?
Either Boeing produces and Airbus does not produce or Boeing does not produce and Airbus produces.
What is the "most favored nation" principle of the WTO?
Every nation must grant the same rights and treatment to other nations in the WTO as its "most favored nation."
Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the euro, a common currency used in 19 European countries, including Finland.) Finland, a small country, imposes a €60 per-ton specific tariff on imported steel. With the tariff, Finland produces 300,000 tons of steel and consumes 600,000 tons of steel. Who will gain and who will lose as a result Finland's €60-per-ton tariff on imported steel?
Finnish steel producers will be better off; Finnish steel consumers will be worse off with the tariff than without it.
(CHAPTER 7 - Table: Labor Requirements) The table gives U.S. and Indian labor requirements (hours per unit of output) needed in each of four activities to produce the final product. Suppose that wages of unskilled and skilled workers are $10 and $20 in the United States and $1 and $5 in India. Which country has a higher relative wage for skilled labor?
India
What do tests of the gravity equation for trade between Canadian provinces and American states indicate?
Individual state and individual provincial GDPs are positively related to the amount of trade between individual states and provinces.
Intel produces microchips in China and Costa Rica using subsidiaries that it owns. Mattel, in contrast, contracts with firms in several different countries to produce the Barbie doll, which it then imports to the United States. Which of the following statements about the two companies is correct?
Intel is involved in foreign offshoring and Mattel is involved in foreign outsourcing.
What is the difference between final goods and intermediate goods?
Intermediate goods are inputs for other goods.
Which of the following was an important reason why the United States did NOT sign the Kyoto Protocol?
It believed that exemptions for some of its major developing-country trading partners (such as China and India) were unfair.
What is the Kyoto Protocol?
It is based on the 1992 UN climate treaty that set specific air pollution reduction targets for each nation.
Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. What will happen to the amount of capital used in manufacturing production when trade occurs?
It will not change.
Why did the U.S. price of imports of compact trucks (like the Toyota Tacoma) not increase by 25% when the U.S. Customs Service reclassified them as "complete or unfinished trucks" with a tariff of 25%?
Japanese truck manufacturers lowered their prices on trucks exported to the U.S. market and absorbed part of the tariff.
Why didn't U.S. tire producers support the recently enacted tariff on imported Chinese tires?
Many of them manufacture tires in China.
Which of the following entries is considered a service export of the U.S.?
Mexican tourists visit the Grand Canyon.
Economist John Nash analyzed game theory and came up with a most likely outcome based on the best net benefit to each party. Such an outcome is called the:
Nash equilibrium.
Suppose that land is specific to agriculture, capital is specific to manufacturing, and labor is mobile between sectors. According to the specific-factors model, if this country begins importing manufactured goods, which factor will experience the highest unemployment?
No factors will experience unemployment.
There are several conditions that justify limiting imports to ensure the survival of the "infant industry" and to justify government protection. Which of the following is(are) a justification?
Protection allows a firm to reduce future costs and cause its average cost curve to shift downwards.
Which of the following activities in the value chain is LEAST likely to be offshored?
R&D
Which of the following is the correct ranking (first to last) of the value chain by order of production?
R&D, component production, assembly, marketing and sales
What does the Stolper-Samuelson theorem predict will happen to the real returns to factors of production after trade occurs?
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.
There are many real-life examples of factor-intensity (the ratio of capital to labor) differences in the same industries in different nations. How does the Heckscher-Ohlin model handle this?
The Heckscher-Ohlin model ignores the possibility of different factor intensities and instead assumes that each industry has the same factor intensity in every nation.
According to the short-run (specific-factors) model, how will FDI affect the marginal productivity of labor in the recipient nation?
The MPL will rise in the production of both the labor- and capital-intensive goods.
Consider two products: automobiles and shoes. If shoes are labor intensive and automobiles are capital intensive, what will happen under the Heckscher-Ohlin model?
The capital-abundant country will import shoes.
Suppose that there is a negative externality associated with alcohol consumption in the United States (e.g., the costs of publicly funded alcoholism treatment centers). What does this negative consumption externality imply about the relationship between the demand curve for alcohol and the social marginal benefit (SMB) curve for alcohol?
The demand curve lies above the SMB curve for alcohol.
Several economists have hypothesized that the terms of trade for developing countries will decline over time. Which of the following might be a cause of this decline?
The demand for primary product exports from developing countries has not risen as fast as the demand for manufactured exports of industrialized countries.
How will an increase in offshoring affect the demand for skilled labor and the wages of skilled labor in the home country?
The demand for skilled labor and the wages of skilled labor will both increase.
At its current production level, a monopolist's marginal revenue is $20 and its marginal cost is $10. Which of the following is correct?
The monopolist should produce and sell more output.
Consider two products: automobiles and shoes. If shoes are labor intensive and automobiles are capital intensive, what can we expect in free-trade conditions?
The relative price of shoes in the shoe-exporting country will increase.
Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. What is the effect on the return of capital after trade occurs?
The return on capital increases.
When the supply of labor increases, according to the specific-factors model, which of the following is likely to happen?
The wages for workers will decline.
Offshoring of very-high-skill medical and technology services to other nations seems to contradict the value chain model of offshoring. Which of the following could be a reason?
The wages of higher-skilled workers (such as accountants) in these other nations are relatively lower than in the United States.
Which of the following statements about the European Union (EU) is correct?
There is free trade among EU member countries.
Which of the following statements characterizes NAFTA's economic arrangements among its member countries (Canada, Mexico, and the United States)?
There is free trade among the three member countries.
Suppose country X currently produces widgets. Then it establishes a regional trade agreement with country Y. Following the formation of the regional trade agreement, country X no longer produces widgets and now imports widgets from country Y. What has occurred?
There is trade creation and a welfare gain for both country X and country Y.
Without productivity growth, what is the long-run effect of labor migration?
There will be an increase in production in the sector using labor intensively.
Despite hopes that migration between nations in the European Union would be free, several nations have agreements to restrict it. Why?
They are concerned that mass inflows of workers will lower wages and offer competition for their own domestic labor force.
The WTO also ruled on the U.S. restriction of gasoline imports from Venezuela and Brazil in 1994 on environmental grounds. What was the outcome?
They could not ban the imports because they had not given Venezuela and Brazil a grace period as they had given their own U.S. companies.
According to the short-run (specific-factors) model, how will FDI affect wages in the recipient nation?
They will rise.
What will happen to wages of skilled workers domestically when offshoring occurs?
They will rise.
When work done by skilled workers is offshored, what will happen to wages of skilled workers abroad?
They will rise.
The United States maintains a program to help workers affected by trade relocation. This is called:
Trade Adjustment Assistance.
__________ foreign direct investment occurs when a firm from an industrial country owns a plant in a developing country.
Vertical
Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. Will workers be better or worse off following the opening of trade with other countries?
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.
When a foreign resident purchases a good or service from someone in the United States, the transaction is:
a U.S. export.
What is an "export subsidy"?
a payment (or other benefit) to domestic firms by their government to help them sell exports more cheaply
When a domestic monopolist becomes subject to international competition, it faces:
a perfectly elastic demand curve.
What was an eventual outcome of the Smoot-Hawley tariff enacted by the United States?
a renewed effort to reestablish international trade and the flow of payments via new international organizations
An export tariff is:
a tax applied by the country exporting the product.
In trade, if a nation has the technology to produce a good with fewest resources, it is known as a(n):
absolute advantage.
The Heckscher-Ohlin theorem explains patterns of trade between countries using:
abundance or scarcity of resources.
A country's effective factor endowment is defined as its:
actual factor endowment times factor productivity.
In autarky, wages generally:
are lower in the labor-abundant country than in the capital-abundant country.
Which of the following was a major disagreement during the Doha Round?
agricultural subsidies
David Ricardo believed that:
all nations can gain from free international trade.
With respect to environmental issues, the GATT:
allows countries to adopt environmental laws that are applied uniformly against domestic producers and imports.
When a nation is in autarky (a no-trade state) and maximizes its living standard, its consumption and production points are:
along its production possibilities frontier.
The tariff imposed to punish a foreign discriminating monopolist is called:
an antidumping duty.
In the two-sector (manufacturing and agriculture) specific-factors model, an increase in the price of the manufactured good will cause:
an increase in nominal wages in both the agricultural and manufacturing sectors.
According to the Rybczynski theorem, immigration will cause:
an increase in the output of the labor-intensive good and a decrease in the output of the capital-intensive good in the receiving country.
In the Heckscher-Ohlin model with two goods and two factors, an increase in one factor will cause:
an increase in the production of the good that uses the factor intensively.
In the long run (the Heckscher-Ohlin model), immigration will lead to:
an increase in the production of the labor-intensive good and a decrease in the production of the capital-intensive good in the receiving country.
in the long run (the Heckscher-Ohlin model), immigration will lead to:
an increase in the production of the labor-intensive good and a decrease in the production of the capital-intensive good in the receiving country.
Which of the following is an effect of an international trade agreement that provides an incentive for nations NOT to impose tariffs?
an increase in world welfare and standard of living
Which of the following activities in the value chain is most likely to be offshored?
assembly
Which of the following is the correct ranking of the value chain by level of skill of the labor force (from lowest to highest skill levels)?
assembly, component production, marketing and sales, R&D
The Heckscher-Ohlin model assumes that a nation's two industries use labor and capital:
at different intensities, with one being more capital-intensive than the other.
The small-country monopolist's free-trade equilibrium occurs:
at the "world" price, which becomes a perfectly elastic demand curve for the monopoly firm and the firm's marginal cost curve.
One way to fairly distribute quotas, while getting revenue for the government, is to:
auction quotas in a public sale to the highest bidder.
The absence of trade is known as:
autarky.
In the long run, a monopolistically competitive firm will produce where:
average cost equals price.
Increasing returns to scale occur when a firm's:
average costs of production decrease as its output increases.
Suppose that the United States is a large country and it wishes to impose optimal tariffs on its imports of avocados, bananas, and cherries. The export supply elasticities of avocados, bananas, and cherries are 1, 2, and 3, respectively. Which of the following ranks the products on the basis of their optimal tariffs from lowest to highest tariff?
avocados, bananas, cherries
Reasons that firms in an industrial nation acquire firms in another industrial nation do NOT include:
avoidance of export taxes in the other nation.
Foreign-born workers in the United States tend to:
be poorly educated (high school dropouts) or very highly educated (graduate degrees).
According to the GATT, a tariff applied under the safeguard provision must:
be temporary.
Poland requires 4 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The Czech Republic requires 6 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The international price of wheat must fall between which of the following two prices?
between 1/6 ton and 1/4 ton of coal per bushel of wheat
When there are diminishing marginal returns to factors of production, the PPF is:
bowed out from the origin.
Rent-seeking activities are:
bribery and lobbying activities to obtain quota licenses.
Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. Which specific factor will gain after trade occurs?
capital
Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. Which specific factor(s) will gain the most after trade occurs?
capital
In a two-sector (manufacturing and agriculture) specific-factors model:
capital is specific to the manufacturing sector.
Leontief discovered a "paradox" in his test of the Heckscher-Ohlin model for the United States. He expected the United States to export _____-intensive goods and import _____-intensive goods; but his study indicated the reverse was true.
capital; labor
The Ricardian model focuses on how differences in _________ influence international trade patterns.
comparative costs
Because of the "law of diminishing marginal returns" to a factor, as more labor is employed, its marginal product:
falls
When consumers are able to buy a product at a price lower than its marginal value to them, it is called:
consumer surplus.
The Heckscher-Ohlin Model assumes that:
consumer tastes and technologies are the same in the two countries.
Under rules of the GATT, exporting countries can expect importing countries to impose _______ to offset their export subsidies.
countervailing duties
"Infant industry protection" refers to:
countries' use of short-term protection to protect young industries while they mature.
In the long run, immigration will lead to a rightward shift in the receiving country's production possibilities frontier. This shift will:
favor the labor-intensive good.
(CHAPTER 10 - Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, an export subsidy of $50 per unit results in a(n) ________ of government revenue by the amount of ______.
decrease; $5,000
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.
decrease; decrease
Home produces two goods: computers and wheat. Capital is specific to computers, land is specific to wheat, and labor is mobile between the two industries. Home has 100 workers and 100 units of capital but only 10 units of land. Foreign also produces computers and wheat. Capital is specific to computers; land is specific to wheat; and labor is mobile between the two sectors. Foreign also has 100 workers, but instead has 100 units of land and only 10 units of capital. It has the same production functions as Home. If trade is opened, the relative price of wheat will _____ in Home and _____ in Foreign.
decrease; increase
If a perfectly competitive industry suddenly became a monopolist, equilibrium output would _________, and the equilibrium price would _________.
decrease; increase
What caused the decline in trade during the 2008-09 financial crisis?
decreased demand during the crisis
(CHAPTER 5) In the short-run specific-factors model, examine how a natural disaster that decreases its population affects a small country. Assume that land is specific to agriculture, capital is specific to manufacturing, and labor is free to move between the two sectors. First, draw a diagram similar to Figure 5-2 to illustrate the impact on wages and output in each industry. Labor in manufacturing _____, and labor in agriculture _____.
decreases; decreases
In the specific-factors model, immigration causes __________ in the capital-labor ratio and __________ in the return to capital.
decreases; increases
Economists use game theory to analyze:
different exclusive options whose payoffs depend on the choices and actions of another entity with the same goals.
Products that are very similar and very close substitutes, but that may be of different quality or prices, are called:
differentiated products.
To analyze intra-industry trade, we change our assumptions about our trade models to allow:
differentiated products.
If the index of intra-industry trade is high, products are probably ______, and costs in both nations are ______.
differentiated; similar
What type of spillovers do the United States and the European Union governments believe are associated with their domestic solar panel production?
knowledge spillovers
(CHAPTER 10 - Scenario: Payoff Matrix for Airbus and Boeing)This payoff matrix describes actions in developing so-called superjumbo jets that can carry 600 or more passengers. In each element, the lower-left value gives the outcome for Boeing based on the action of Airbus and the upper-right value gives the outcome for Airbus based on the action of Boeing. For example, in element A, each company will lose $10 million if they both decide to produce superjumbo jets. Now suppose that the U.S. government decides to provide a $50 million subsidy to Boeing to encourage it to produce superjumbo jets. Boeing decides to take the subsidy. Using the payoff matrix, what is Airbus's best strategy?
discontinue producing superjumbo jets because its losses are lower than if it produced superjumbo jets
In the Ricardian model, the marginal product of labor:
does not change as more labor is employed to produce a good.
Who collects quota rents when the government gives quota licenses to domestic firms?
domestic producers
Which of the following transactions is NOT a trade flow?
domestic residents' purchases of foreign stocks and bonds
The Heckscher-Ohlin model assumes that factors of production can move freely _______, but cannot move _______.
domestically; internationally
In a two-firm industry, a Nash equilibrium occurs whenever:
each firm considers all possible actions by other firms and then chooses the best strategy.
In the long run, a monopolistically competitive firm will:
earn no monopoly profits.
The term used to describe a tax on exports is an:
export tariff.
Mercantilists believed that:
exports are good and imports are bad for the economy.
The Heckscher-Ohlin model of international trade uses _____ and ______ to explain trade patterns.
factor abundance; factor intensity
After accounting for differing _________ as well as _________, evidence for many countries is broadly consistent with the Heckscher-Ohlin model.
factor productivities; factor endowments
If a country imposes a $10 tariff on a foreign monopolist, the price set by the monopolist will:
fall by less than $10.
If capital is specific to manufacturing and land is specific to agriculture, then migration of labor from low-income to high-income countries will cause the wage to:
fall in the high-income country and the wage to rise in the low-income country.
Suppose that the world price of sugar is $100 per ton. If a small country gives its sugar exporters a subsidy of $50 per ton, then domestic consumption of sugar will:
fall.
(CHAPTER 5) Consider a decrease in the stock of land in the context of the short-run specific-factors model. Specifically, suppose a natural disaster decreases the quantity of arable land used for planting crops. Redraw panel (a), starting from the initial equilibrium at point A. Wages _____; the amount of labor used in manufacturing _____.
fall; increases (A decrease in the available stock of land decreases the marginal product of labor used in agriculture. The decrease in MPLA shifts the PA · MPLA curve down (to the right), so the new equilibrium occurs at lower wages and more labor is used in manufacturing.)
In a small country, an export tariff will cause exports to ___________ and domestic consumption to ________.
fall; rise
Suppose Canada and Mexico produce two goods: timber and televisions. Assume that land is specific to timber, capital is specific to televisions, and labor is free to move between the two industries. When Canada and Mexico engage in free trade, the relative price of televisions falls in Canada, and the relative price of timber falls in Mexico. In Canada, the rental on capital will _____, and the rental on land will _____.
fall; rise
Suppose Canada and Mexico produce two goods: timber and televisions. Assume that land is specific to timber, capital is specific to televisions, and labor is free to move between the two industries. When Canada and Mexico engage in free trade, the relative price of televisions falls in Canada, and the relative price of timber falls in Mexico. In Canada, the rental on capital will _____, and the rental on land will _____.
fall; rise (Because capital is specific to the television sector, the drop in the relative price of televisions will lead to a fall in the rental on capital. With Canada exporting timber, rental on land will rise because land is specific to the timber industry.)
Whenever a firm's marginal costs are less than its average costs, its average costs must be:
falling.
Imports are:
goods or services purchased from a foreign resident.
As a general rule, when there are specific factors, owners of factors specific to the importing industry are ______________, whereas owners of factors specific to export industries are ______________.
harmed; benefited
A worker's "real" wage is related to:
her productivity in the workplace, the value of her production to her employer, and the nation's absolute advantage in production of that product.
To analyze offshoring by firms, economists line up activities that a firm must undertake to produce a product in the order of the ratio of:
high-skilled labor to low-skilled labor required for the activity.
Which of the following is a "trade cost" that firms need to consider when making offshoring decisions?
higher costs associated with poor communication and transportation
Most foreign direct investment between industrial countries is:
horizontal FDI.
Intra-industry trade refers to:
imports and exports within the same industry.
It can be shown that the Nash equilibrium would indicate that without any agreements, the best outcome for each large nation would be to:
impose a tariff.
In a large-country case, an optimal tariff would be one:
in which the terms-of-trade gain exceeds the deadweight loss.
In the two-sector (manufacturing and agriculture) specific-factors model, an increase in the price of manufactured goods will cause a(n):
increase in the real rental of capital.
(CHAPTER 10 - Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, an export subsidy of $50 results in a(n) ________ in producer surplus by the amount of ______.
increase; $5,500
In a capital-abundant country, free trade will cause a(n) __________ in the rental of capital and a(n) ____________ in the marginal product of capital.
increase; increase
In the short-run (specific-factors) model, foreign direct investment is expected to ________the marginal product of labor and ________wages in the receiving country.
increase; increase
When there is an increase in firms' offshoring to foreign nations, we can expect the demand for higher-skilled labor in the home market will _____ and its relative wage will _____.
increase; increase
In the specific-factors model, emigration causes __________ in the capital-labor ratio and __________ in the return to capital.
increases; decreases
If we use the short-run (specific-factors) model to model FDI movement from one nation to another, then wages in the recipient nation:
rise as a result of an increase in the marginal product of labor.
(CHAPTER 5) Consider a decrease in the stock of land in the context of the short-run specific-factors model. Specifically, suppose a natural disaster decreases the quantity of arable land used for planting crops. Redraw panel (a), starting from the initial equilibrium at point A. The rental on capital _____, and the rental on land _____.
increases; increases (In manufacturing, the quantity of labor increases, while the quantity of capital remains the same, so the labor-capital ratio increases. This causes an increase in the marginal product of capital, so the rent on capital, PM · MPK, increases. In agriculture, the result may seem ambiguous at first: the natural disaster decreases the stock of land, which should increase the marginal product of land; but labor moves to manufacturing, which decreases the marginal product of land. However, it can be shown that PA · MPT increases overall: as labor moves from agriculture to manufacturing, the wage rate falls, so the rental on land increases.)
The case study of wages and productivity in the textbook demonstrates that:
internationally, worker productivity varies directly with real wages.
Which of the following is the term describing very similar products being exported and imported by trading partners?
intra-industry trade
(CHAPTER 7 - Figure: A Firm's Production With and Without Offshoring II) According to the combination of output shown by the isoquant, Y1:
is beyond the firm's capabilities to produce domestically but could be achieved by trading with another country.
(CHAPTER 7 - Figure: A Firm's Production With and Without Offshoring II) If the relative price of components is cheaper in a foreign country than the home country, then:
it is likely that the home country will offshore components to the foreign country.
The difference in value between a nation's exports and imports is called:
its trade balance.
In a capital-intensive industry, the labor-capital ratio will:
rise as the wage-rental ratio falls.
International dumping occurs when:
monopolistic firms charge a higher price in the domestic market and a lower price in the foreign market.
In a duopoly where products are differentiated and firms charge different prices, their demand curves are _______________ than if the firms sell identical products at the same price.
more elastic
One feature of the GATT and now the WTO is that all member nations get the same treatment from their trading partners in terms of trade rules and restrictions. This provision is:
most favored nation status.
When factors of production are not fixed (as in the long run) and labor immigrates, capital will:
move to the higher productivity use in the labor-intensive industry until returns are again equalized.
The WTO is a _____, involving many countries, with an agreement to lower tariffs between all members.
multilateral trade organization
Immigration issues are usually more intense in:
nations where wages are higher than world averages.
Which is a better outcome for income and standard of living levels for large nations?
no tariffs
Which types of jobs in the United States have experienced the highest growth rates?
nonroutine manual and nonroutine cognitive jobs
A "specific" factor of production is:
not transferable to other types of production and can only be used for the product in question.
The escape clause in U.S. trade law:
permits the U.S. government to impose trade barriers if fairly traded imports are the cause of significant injury to a U.S. industry and its workers.
When firms are able to sell units of a good at a price higher than the marginal cost of production, they are getting:
producer surplus.
As a general rule, the return to (or rental price of) a specific factor used in a product tends to:
rise disproportionally when the product is exported.
The main purpose of an export tariff is to:
raise revenue for the government.
An export subsidy works to _______________ the price of exported products for producers to encourage _______________ production.
raise; more
NAFTA is believed to have __________ manufacturing productivity, especially in the maquiladora plants.
raised
A foreign firm that is selling below cost and is accused of dumping often:
raises its export prices to avoid the antidumping tariff completely.
Most favored nation status requires that a WTO member:
reduces a tariff on imports from one WTO trading partner and applies the lower tariff to imports from all other WTO members.
Suppose that the world price of sugar is $100 per ton. If a small country gives its sugar exporters a subsidy of $50 per ton, then the world price of sugar will:
remain at $100 per ton.
If prices of a nation's exported products rise in comparison with prices paid for imports, that nation experiences a:
rise in its international terms of trade.
Because most immigrants into the United States are either highly skilled or unskilled, the majority of workers:
see very little impact on their wages as a result of immigration.
In the large-country case, when a tariff is imposed, the country:
sees a terms-of-trade gain.
A regional trade agreement involves:
several nations, usually trading partners, with a common agenda or geographically linked.
Consider an economy that only produces steel and shoes; steel is capital intensive and shoes are labor intensive. Which industry has a lower capital-labor ratio?
shoes
The gravity equation uses a calculation to predict the level of bilateral trade based directly on ________ and inversely on ________.
size of the countries' GDP; the geographic distance between the countries
The United States-China bilateral trade balance may overstate the trade gap if:
some of the inputs used to produce Chinese exports are imported.
The Ricardian model (with constant opportunity costs) predicts that a nation will ______________ in the production of the good it exports.
specialize completely
The short-run model that allows labor to move between industries while keeping other factors fixed is called the ____________ model.
specific-factors
Countervailing duties are used to offset any advantages that foreign exporters might gain over domestic producers because of foreign:
subsidies.
(CHAPTER 10 - Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, at the world price of $125 there is a ________ of ____ in the home market, which is ____.
surplus; 60; exported
If we assume only one factor (labor), we can demonstrate on the PPF the opportunity cost of producing less of one good and more of the other good by:
taking the ratio of the marginal products of labor for the two goods.
Which of the following is an exception to the most favored nation principle?
tariff concessions negotiated within a free-trade area or a customs union
Border effects can result from:
tariffs.
Import tariffs are ___________ on imports, and import quotas are ____________ on imports.
taxes; quantity limits
David Ricardo's model explains trade based on:
technology.
Diminishing returns to labor means:
that the marginal product of labor declines as the amount of labor used in a sector increases.
The two-sector (manufacturing and agriculture) specific-factors model assumes:
that there are diminishing returns to labor.
Poland requires 4 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The Czech Republic requires 6 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. Which country has a comparative advantage in the production of wheat?
the Czech Republic
GATT is the acronym (or abbreviation) for:
the General Agreement on Tariffs and Trade.
The conclusion that a labor-abundant country exports the good using labor intensively in production and a capital-abundant country exports the good using capital intensively in production is known as:
the Heckscher-Ohlin theorem.
In his test of the Heckscher-Ohlin model for the United States, Leontief found that:
the U.S. capital-labor ratio for imported goods was larger than that for the exported goods.
The United States requires 20 hours of labor to produce 1 ton of steel and 30 hours of labor to produce 1,000 board feet of lumber. In Canada, 20 hours of labor are required to produce 1 ton of steel and 25 hours of labor to produce 1,000 board feet of lumber. Which country has a comparative advantage in the production of steel?
the United States
Which organization acts as a forum for countries to come to agreement on trade policies and to resolve trade policy disputes?
the World Trade Organization
In the long run, when there is immigration of labor and all domestic factors of production are mobile:
the additional labor in the economy is fully employed and the capital-labor ratio in each industry is unchanged
We can measure producer and consumer surplus by looking at a graph of supply and demand. Consumer surplus is:
the area below the demand curve but greater than the equilibrium price.
We can measure producer and consumer gains by looking at a graph of supply and demand. Total welfare in the economy would be:
the combined triangular area below the demand curve and above the supply curve.
Using game theory as an analytical tool, if one large nation imposes tariffs, the total cost is small; however, when several trading partners do the same:
the costs are the same but the potential gains are much smaller.
"Value-added" in the context of international trade refers to:
the difference between the value of exports and the value of imported inputs used in producing exports.
The negative effects of trade diversion are reduced when:
trade creation more than offsets trade diversion.
(CHAPTER 2 - Figure: Home Production and Consumption) The figure gives Home's international trading pattern. Point P (60,20) is production with trade, and point C (40,60) is consumption with trade. What is the international price of chemicals according to the figure?
two units of clothing per unit of chemicals
The PPF of a country will be skewed toward the good that:
uses its abundant factor intensively.
Suppose a nation agrees to limit its own exports by imposing quotas on its own firms in order to keep their revenues high, keep from breaking WTO rules, and pacify protectionist interests in the import nation. Which of the following terms describes this practice?
voluntary export restraints
The specific-factors model concludes that if there is an increase in the relative price (and an expansion) of one industry, the factor specific to that industry:
will experience an increase in its marginal product.
In the case of global pollution, a nation that pollutes gets benefit from production but:
will not suffer the full costs of its own pollution and so has little incentive to control it.
Which of the following terms is used to describe payments made by foreign resident workers to families in their home nations or in the form of taxes paid to their home nations?
worker remittances