Reference no: EM131131501

1. If country X has higher labor productivity in the production of umbrellas than the rest of the world, we would say that country X has a(n) in the production of umbrellas.

a. comparative advantage
b. absolute advantage
c. absolute disadvantage
d. comparative disadvantage

Table 1

Productivity	Country A	Country B
Good X	1.00	0.50
Good Y	0.20	0.70

Consider a two-country, two-commodity model. The table given above shows the units of good X and good Y produced in country A and country B per labor hour.

2. Refer to Table 1. The number of labor hours required to produce 1 unit of good X in country A is:

a. 0.5
b. 1
c. 1.43
d. 2

3. Refer to Table 1. The number of labor hours required to produce 1 unit of good Y in country B is:

a. 0.5
b. 1
c. 1.43
d. 2

4. If a country exports the good that it can produce at a low opportunity cost and imports those goods that it would otherwise produce at a high opportunity cost, we say that such trade is based on:

a. the theory of absolute advantage
b. the arbitrage pricing theory
c. the theory of factor endowments
d. the theory of comparative advantage

Table 2

Labor hours to make:	In the United Kingdom	In the Rest of the World
I umbrella	3.00	2.00
I bushel of corn	1.00	0.25

The table given above shows the number of labor hours required to produce 1 umbrella and 1 bushel of corn in the U.K. and the Rest of the World.

5. Refer to Table 2. The United Kingdom has an absolute advantage in the production of .

a. neither corn nor umbrella
b. both corn and umbrella
c. only corn
d. only umbrella

6. Refer to Table 2. The Rest of the World has an absolute advantage in the production of .

a. both corn and umbrella
b. only umbrella
c. only corn
d. neither corn nor umbrella

7. Refer to Table 2. What is the opportunity cost of producing a bushel of corn in the United Kingdom?

a. 1/8 of an umbrella
b. 1/3 of an umbrella
c. 3 umbrellas
d. 8 umbrellas

8. Refer to Table 2. What is the opportunity cost of producing an umbrella in the Rest of the World?

a. 1/8 of a bushel of corn
b. 1/3 of a bushel of corn
c. 3 bushels of corn
d. 8 bushels of corn

9. Refer to Table 2. If the U.K. and the Rest of the World begin to trade with each other, the international price of umbrellas will lie between and .

a. 1/3 of a bushel of corn per umbrella; 3 bushels of corn per umbrella
b. 3 bushels of corn per umbrella; 8 bushels of corn per umbrella
c. 1/8 of a bushel of corn per umbrella; 1/3 of a bushel of corn per umbrella
d. 1/8 of a bushel of corn per umbrella; 8 bushels of corn per umbrella

10. Refer to Table 2. If the U.K. and the Rest of the World begin to trade with each other, the international price of corn will lie between and .

a. 1/3 of an umbrella per bushel of corn; 3 umbrellas per bushel of corn
b. 3 umbrellas per bushel of corn; 8 umbrellas per bushel of corn
c. 1/8 of an umbrella per bushel of corn; 1/3 of an umbrella per bushel of corn
d. 1/8 of an umbrella per bushel of corn; 8 umbrellas per bushel of corn

11. In a two-country two-good model, if a country has a comparative advantage in the production of a certain good, it implies that this country:

a. also has an absolute advantage in the production of this good
b. will start importing this good from the other country
c. can produce this good at a lower opportunity cost than the other country
d. uses most of its resources in the production of this good

12. Which of the following theories predicts that a country will export those goods that use the country's abundant factor(s) intensively and import those goods that use the country's scarce factor(s)?

a. The theory of absolute advantage
b. The theory of comparative advantage
c. The Heckscher-Ohlin theory
d. The theory of purchasing power parity

13. Suppose country A is labor-abundant and capital-scarce and country B is labor-scarce and capital-abundant. Good X is produced using a labor-intensive activities and good Y is produced using a capital-intensive technology. Which of the following can most reasonably be inferred from the given information?

a. Country A would export good X
b. Country B would import good Y
c. Country A would import good X
d. Country B would import both good X and good Y

14. Which of the following can be concluded from the relationships given below? (U.K. capital stock) < (Rest of the World's capital stock)
(U.K. labor supply) > (Rest of the World's labor supply)

a. The U.K is relatively labor-abundant compared to the Rest of the World
b. The U.K. is relatively capital-abundant compared to the Rest of the World
c. The Rest of the World would export labor-intensive goods
d. The Rest of the World would export both the commodities

Scenario 4.1

Assume a two-country two-good two-input model where the following relationships hold: (K/L)U.S. > (K/L)ROW
(K/L)automobiles > (K/L)shoes

Where (K/L)U.S. is the capital-labor ratio in the United States, (K/L)ROW is the capital-labor ratio in the Rest of the World, (K/L)automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World.

15. The information given in Scenario 4.1 indicates that the United States:

a. is a relatively capital-scarce country
b. has a scarcity of land
c. is a relatively land-abundant country
d. is a relatively capital-abundant country

16. Refer to Scenario 4.1. Which of the following statements is true?

a. Production of automobiles is relatively labor-intensive
b. Production of shoes is relatively labor-intensive
c. Production of shoes is relatively cheaper in the U.S than the rest of the world
d. The laborers in the United States are less productive than the laborers in the Rest of the World

17. The relationships shown in Scenario 4.1 indicate that the United States has a comparative advantage in the production of while the Rest of the World has a comparative advantage in the production of .

a. both the goods; neither shoes nor automobiles
b. shoes; automobiles
c. automobiles; shoes
d. neither shoes nor automobiles; both of the goods

18. The Heckscher-Ohlin theory predicts that the opening of trade between a land-abundant country and a labor- abundant country should result in:

a. higher rents and wages in both countries
b. lower rents and wages in both countries
c. higher rents in the labor-abundant country and higher wages in the land-abundant country
d. higher wages in the labor-abundant country and higher rents in the land-abundant country

19. Country A is relatively land-abundant and wheat is relatively land-intensive. Given the assumptions of the Heckscher-Ohlin model, trade will cause the domestic price of wheat to:

a. fall
b. rise
c. remain unaffected
d. at first rise but then fall back to its original level

20. According to the factor-price-equalization theorem, free trade between any two countries equalizes:

a. product prices as well as the prices of individual factors of production between the countries
b. product prices between the countries but not the prices of individual factors of production
c. product prices between the countries and factor prices within each country but not between the countries
d. product prices and factor prices within each country but not between the countries

21. Suppose small country A imposes a tariff on the imports of good X, the world price of good X will:

a. fall
b. rise
c. remain unaffected
d. become equal to the tariff-inclusive price in country A

22. Which of the following has overseen the global rules of government policy toward international trade since 1995?

a. WTO
b. GATT
c. IMF
d. World Bank

23. Country A is a large country that imports good-quality processed chicken from country B. Suddenly, country A's government decides to impose a tariff on this import. Who among the following will be adversely affected by this policy?

a. Government in country B
b. Consumers of ham in country B
c. Producers of chicken in country B
d. Suppliers of chicken in Country A

The figure given above shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. Dd and Sd are the domestic demand and supply curves of computers respectively.

24. Refer to Figure 1. Under free-trade the U.S. imported computers, but following the imposition of the tariff the U.S. began to import computers.

a. 100,000; 70,000
b. 70,000; 100,000
c. 200,000; 190,000
d. 90,000; 100,000

25. Which of the following mandates that an import distributor must buy a certain percentage of the product locally?

a. An import quota
b. A mixing requirement
c. A voluntary export restraint
d. A domestic content requirement

26. Restricting imports into a small country by the government:

a. protects domestic producers from foreign competition
b. increases consumer welfare in the country
c. increases the general welfare of the exporting nation
d. increases well-being of the global economy

27. When a large country imposes a tariff:

a. the product's world price rises
b. the product's world price falls
c. the product's domestic price falls
d. domestic production of the product falls

28. Suppose that the domestic production of computer games creates enjoyment for those who play the games. Domestic production of computer games also results in knowledge spillovers that positively impact many other industries. One possible policy that could be employed to encourage increased production of computer games by domestic firms is:

a. to impose tariffs on computer game imports
b. to tax the production of computer games
c. to tax the consumption of computer games
d. to eliminate all restrictions on the importation of computer games

29. Tariffs are more likely to be imposed when:

a. the lobbying efforts of the consumer advocacy groups are much stronger than those of the producers
b. domestic producers are successful competing in their own market
c. the number of people who are hurt by protectionist measures exceeds the number of people who gain from protectionist measures
d. domestic producers have strong influence with the current government

30. NAFTA is an example of a(n):

a. free-trade area
b. customs union
c. common market
d. economic union

31. Which of the following allows member countries to import from other member countries freely, but imposes trade barriers against imports from outside countries?

a. A trade embargo
b. A trade bloc
c. A cultural union
d. A trade union

32. Which of the following features does a free trade area necessarily have?

a. Absence of any trade barriers among the member nations
b. Equal tariffs rates
c. Free movement of factors of production across the member nations
d. Harmonization of all economic policies

33. Which of the following is true of a common market?

a. The member countries export similar products to the non-member countries
b. The member countries do not import any good from the non-member countries
c. The member countries have identical monetary and fiscal policies
d. There is free movement of capital and labor among the member countries

34. Which of the following is the major existential issue concerning the European Union (EU)?

a. Trade barriers between EU nations
b. Dealing with threats in the Middle East (e.g., Syria)
c. Disagreement among member nations with regard to trade policy with non-member nations
d. Lack of economic coordination and harmonization between EU nations

35. Which of the following is not a benefit of joining a trade bloc?

a. For industries within the trade bloc, protection from competitors of non-member nations
b. For consumers within the trade bloc, less consumer choice
c. For companies within the trade bloc, larger markets to compete in
d. For industries and governments within the trade bloc, more investment

36. The net value of flows of goods, services, income, and unilateral transfers is described as the:

a. capital account balance
b. current account balance
c. trade balance
d. official reserve balance

37. The net value of flows of financial assets and similar claims (excluding official international reserve asset flows) is called the:

a. financial account balance
b. current account balance
c. trade balance
d. official reserve balance

38. With a(n) , the government allows the market to determine the exchange rate of a currency.

a. adjustable peg
b. peg
c. crawling peg
d. clean float

39. Which of the following terms is used to describe an exchange rate regime in which the rate is fixed to a currency or commodity?

a. Exchange controls
b. Pegged exchange rate
c. Managed float
d. Fully convertible

40. Everything else remaining unchanged, an increase in interest rates in the United States is most likely to result in:

a. depreciation of the dollar
b. outflows of capital from the United States
c. capital inflows into the United States
d. a decrease in the demand for dollar-denominated financial assets

41. Which of the following is not a benefit of devaluing currency?

a. It increases export opportunities for domestic companies
b. Greater consumer choice
c. It may reduce the size of debt owed to foreign sources
d. More domestic jobs

42. Why doesn't the US devalue its currency aggressively?

a. The US hopes to increase export opportunities for domestic companies
b. The US does not believe that it will result in job creation
c. Consumers will punish politicians for rising prices
d. The US believes that free trade serves its best interests

43. Why are politicians more concerned than economists when it comes to trade deficits?

a. Economists are just as concerned
b. Politicians are more understanding of the hardships of the common man
c. The issue is useful in winning the popular support needed to get elected
d. Economists support free markets regardless of their outcomes.