SDSU Econ 475 Test 1
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?
1. Canada is close to a major economy 2. Transportation costs for imports and exports are higher in Australia because the distance goods must travel.
International capital markets
1. have grown significantly since the 1960's 2. link the capital markets of individual countries
In 2013, what percent of all world consumption (private and public, including real investment) was imported?
30%
The fundamental reason why trade potentially benefits a country is that it
Expands the economy's choices
Using the gravity model, explain why East Asian countries do an increasing share of their trade with each other.
Since the GDP of East Asian countries has grown, the product of any two East Asian countries' GDP is now larger. And as the gravity model predicts, the trade volume between them has grown.
What is does the slope of a PPF convey
The opportunity cost
Since the end of WWII, have there been concerns among developed countries regarding the amount of trade?
Yes, by a largely political movement of protectionists and new ideologists.
In the specific factors model, a country's production possibility frontier is ________ because of ________.
a curved line; decreasing marginal returns
Trade gives the possibility of
a mutually beneficial rearrangement of world production
The relative demand for labor function is shaped as
a step function
In the specific factors model, what will increase the quantity of labor used in cloth production?
an increase in the price of cloth relative to food
The GATT was
an international treaty governing trade
The Ricardian model of international trade makes predictions about actual international trade flows that
are supported with qualification by the empirical evidence.
Like the simple Ricardian model, the specific factors model
assumes that a country that produces two goods and can allocate its labor supply between two sectors
A century ago each country's exports were shaped largely by
climate and natural resources.
The sources of modern trade are largely rooted in
country differences in human and human-created resources.
For trade to take place, a country must face a world relative price that is
different from the relative price that would prevail in the absence of trade.
The potential for gains from the rearrangement of production among countries is due to
differing opportunity costs
When opening up to trade, an economy
exports the good with the higher relative price and imports the good with the lower relative price
Immigration into the U.S. over the past century has caused the percentage of immigrants in the U.S. population to
fall steadily until the 1970's and increase thereafter
Cost-benefit analysis of international trade
focuses attention on conflicts of interest within countries
The coordination of international macroeconomic policies among sovereign nations
has only recently been advocated by economists.
What trends promote trade?
historical ties, linguistic/cultural affinity, sizes of economies, mutual membership in trade agreements
Since World War II (the early 1950s), the proportion of most countries' production being used in some other country
increased
Movement of labor from a Foreign country to the domestic (Home) economy
increases the marginal product of labor at foreign
Transactions that involve the physical movement of goods or a tangible commitment of resources are the domain of
international trade analysis
International economics can be divided into two broad subfields:
international trade and international money
The degree of specialization predicted by the basic Ricardian model
is more extreme than in the real world
In the current Post-Industrial economy, international trade in services
is relatively small
The current process of increasing economic integration among national economies, better known as globalization,
is the world's second wave of such integration.
According to international trade theory, when countries engage in trade it
is usually beneficial to both countries
A country has a comparative advantage in producing a good if
its opportunity cost of producing that good is lower than elsewhere.
In the specific factors model, which of the following is treated as a specific factor?
land
In the present, most of the exports from China are in
manufactured goods.
In the specific factors model, labor is defined as a(an)
mobile factor
Trade has ambiguous effects on
mobile factors
In the real world, the dividing line between trade and monetary issues is
neither simple nor clear
The overall welfare effects of trade are ________ if ________.
positive; those who gain can compensate those who lose and still be better off
In the pre-World War I period, the United Kingdom imported primarily
primary products including agricultural.
In the pre-World War I period, the United Kingdom imported primarily
primary products including agriculture
In the multi-good, single-factor Ricardian model the equilibrium relative wage of Home's workers is determined by the
relative demand and relative supply of labor.
Over the past forty years the composition of developing-country exports has
shifted from primary products to manufacturers
Within each country that opens itself to international trade,
some factor owners gain, while other factor owners lose
According to the gravity model, a characteristic that tends to affect the probability of trade existing between any two countries is
the distance between them
In the multi-good, single-factor Ricardian model, the decisive factor in determining which country will produce a particular good is
the identification of the lowest cost producer
As more labor is used, holding capital constant,
the marginal product of labor decreases
Under perfect competition, the equilibrium price of labor used to produce cloth will be equal to
the marginal product of labor in the production of cloth times the price of cloth.
In each sector of a specific factors economy, profit-maximizing employers will demand labor up to the point where
the marginal product of labor times the price of the product equals the wage rate
The gravity model claim "size matters" asserts that there is a strong empirical relationship between the size of a country's economy and
the volume of its imports and exports
Countries will tend to export those goods in which
their relative productivity is high
Over the past forty years the composition of developing-country exports has
undergone a dramatic shift from primary products to manufactures.
When a country's labor market is in equilibrium in the specific factors model, the wage rate
will be the same in both sectors
