Question 1

-Given the information in the table above, Home's opportunity cost of widgets is

Accepted Answer

A)  0.5. 
B)  2.0. 
C)  6.0. 
D)  1.5. 
E)  3.0. 
A)  0.5. 
B)  2.0. 
C)  6.0. 
D)  1.5. 
E)  3.0. B

Question 2

How does the two-good, two-country version of the Ricardian model differ from the two-country, many-good model in terms of the determination which goods are produced and exported by each country?

Accepted Answer

In the two-good-two-country version of the Ricardian model, comparative advantage is totally determined by physical productivity ratios. Changes in wage rates in either country do not change physically determined comparative advantages, and therefore cannot affect which product will be exported by which country.
However, when there are more than two goods in the two-country model, changes in wage rates in one or the other country can in fact determine which good or goods each of the countries will export. The physical productivity definition of comparative advantage employed in the two-good model becomes ambiguous. Instead, changes in relative wage rates will alter international competitiveness along the "chain of comparative advantage."

Question 3

The earliest statement of the principle of comparative advantage is associated with

Accepted Answer

A)  David Hume. 
B)  David Ricardo. 
C)  Adam Smith. 
D)  Eli Heckscher. 
E)  Bertil Ohlin. 
A)  David Hume. 
B)  David Ricardo. 
C)  Adam Smith. 
D)  Eli Heckscher. 
E)  Bertil Ohlin. B

Question 4

Assume that labor is the only factor of production and that wages in the United States equal $20 per hour while wages in Japan are $10 per hour. Production costs would be lower in the United States as compared to Japan if

Accepted Answer

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

Question 5

According to Ricardo, a country will have a comparative advantage in the product in which its

Accepted Answer

A)  labor productivity is relatively low. 
B)  labor productivity is relatively high. 
C)  labor mobility is relatively low. 
D)  labor mobility is relatively high. 
E)  labor is outsourced to neighboring countries. 
A)  labor productivity is relatively low. 
B)  labor productivity is relatively high. 
C)  labor mobility is relatively low. 
D)  labor mobility is relatively high. 
E)  labor is outsourced to neighboring countries.

Question 6

-Given the information in the table above, Foreign's opportunity cost of widgets is

Accepted Answer

A)  0.5. 
B)  2.0. 
C)  6.0. 
D)  1.5. 
E)  3.0. 
A)  0.5. 
B)  2.0. 
C)  6.0. 
D)  1.5. 
E)  3.0.

Question 7

The pauper labor and the exploitation arguments

Accepted Answer

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

Question 8

We know that in antiquity, China exported silk because no one in any other country knew how to produce this product. From this information we know that

Accepted Answer

A)  China had a comparative advantage in silk. 
B)  China had an absolute advantage, but not a comparative advantage in silk. 
C)  no comparative advantage could exist because the technology was not diffused. 
D)  China exported silk for political reasons even though it had no comparative advantage. 
E)  China was unable to profit by exporting silk because it was unknown in the rest of the world. 
A)  China had a comparative advantage in silk. 
B)  China had an absolute advantage, but not a comparative advantage in silk. 
C)  no comparative advantage could exist because the technology was not diffused. 
D)  China exported silk for political reasons even though it had no comparative advantage. 
E)  China was unable to profit by exporting silk because it was unknown in the rest of the world.

Question 9

In the Ricardian model, comparative advantage is likely to be due to

Accepted Answer

A)  scale economies. 
B)  home product taste bias. 
C)  greater capital availability per worker. 
D)  labor productivity differences. 
E)  political pressure. 
A)  scale economies. 
B)  home product taste bias. 
C)  greater capital availability per worker. 
D)  labor productivity differences. 
E)  political pressure.

Question 10

The growth of clothing exports originating in Bangladesh is the result of the

Accepted Answer

A)  high productivity of workers in Bangladesh. 
B)  low wages in Bangladesh. 
C)  low productivity of workers in other countries. 
D)  low productivity of workers in Bangladesh in industries other than those that produce clothing for export. 
E)  high wages in other countries. 
A)  high productivity of workers in Bangladesh. 
B)  low wages in Bangladesh. 
C)  low productivity of workers in other countries. 
D)  low productivity of workers in Bangladesh in industries other than those that produce clothing for export. 
E)  high wages in other countries.

Question 11

In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ________ unit labor requirements.

Accepted Answer

A)  one 
B)  two 
C)  three 
D)  four 
E)  five 
A)  one 
B)  two 
C)  three 
D)  four 
E)  five

Question 12

Trade between two countries can benefit both countries if

Accepted Answer

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

Question 13

-Given the information in the table above

Accepted Answer

A)  neither country has a comparative advantage in cloth. 
B)  Home has a comparative advantage in widgets. 
C)  Foreign has a comparative advantage in widgets. 
D)  Home has a comparative advantage in both cloth and widgets. 
E)  neither country has a comparative advantage in widgets. 
A)  neither country has a comparative advantage in cloth. 
B)  Home has a comparative advantage in widgets. 
C)  Foreign has a comparative advantage in widgets. 
D)  Home has a comparative advantage in both cloth and widgets. 
E)  neither country has a comparative advantage in widgets.

Question 14

In 1975, wage levels in South Korea were roughly 5% of those in the United States. It is obvious that if the United States had allowed Korean goods to be freely imported into the United States at that time, this would have caused devastation to the standard of living in the United States, because no producer in this country could possibly compete with such low wages. Discuss this assertion in the context of the Ricardian model of comparative advantage.

Accepted Answer

Regardless of relative wage levels, the

Question 15

-Given the information in the table above

Accepted Answer

A)  neither country has a comparative advantage in cloth. 
B)  Home has a comparative advantage in cloth. 
C)  Foreign has a comparative advantage in cloth. 
D)  Home has a comparative advantage in both cloth and widgets. 
E)  neither country has a comparative advantage in widgets. 
A)  neither country has a comparative advantage in cloth. 
B)  Home has a comparative advantage in cloth. 
C)  Foreign has a comparative advantage in cloth. 
D)  Home has a comparative advantage in both cloth and widgets. 
E)  neither country has a comparative advantage in widgets.

Question 16

Mahatma Gandhi exhorted his followers in India to promote economic welfare by decreasing imports. This approach

Accepted Answer

A)  makes no sense. 
B)  makes no economic sense. 
C)  is consistent with the the Ricardian model of comparative advantage. 
D)  is not consistent with the Ricardian model of comparative advantage. 
E)  guarantees benefits for Indian workers. 
A)  makes no sense. 
B)  makes no economic sense. 
C)  is consistent with the the Ricardian model of comparative advantage. 
D)  is not consistent with the Ricardian model of comparative advantage. 
E)  guarantees benefits for Indian workers.

Question 17

A nation engaging in trade according to the Ricardian model will find its consumption bundle

Accepted Answer

A)  inside its production possibilities frontier. 
B)  on its production possibilities frontier. 
C)  outside its production possibilities frontier. 
D)  inside its trade-partner's production possibilities frontier. 
E)  on its trade-partner's production possibilities frontier. 
A)  inside its production possibilities frontier. 
B)  on its production possibilities frontier. 
C)  outside its production possibilities frontier. 
D)  inside its trade-partner's production possibilities frontier. 
E)  on its trade-partner's production possibilities frontier.

Question 18

The Country of Rhozundia is blessed with rich copper deposits. The cost of copper produced (relative to the cost of widgets produced) is therefore very low. From this information we know that

Accepted Answer

A)  Rhozundia has a comparative advantage in copper. 
B)  Rhozundia should import copper and export widgets. 
C)  Rhozundia should export both widgets and copper. 
D)  Rhozundia should invest in more widget production. 
E)  Rhozundia may or may not have a comparative advantage in copper. 
A)  Rhozundia has a comparative advantage in copper. 
B)  Rhozundia should import copper and export widgets. 
C)  Rhozundia should export both widgets and copper. 
D)  Rhozundia should invest in more widget production. 
E)  Rhozundia may or may not have a comparative advantage in copper.

Question 19

A country engaging in trade according to the principles of comparative advantage gains from trade because it

Accepted Answer

A)  is producing exports indirectly more efficiently than it could alternatively. 
B)  is producing imports indirectly more efficiently than it could domestically. 
C)  is producing exports using fewer labor units. 
D)  is producing imports indirectly using fewer labor units. 
E)  is producing exports while outsourcing services. 
A)  is producing exports indirectly more efficiently than it could alternatively. 
B)  is producing imports indirectly more efficiently than it could domestically. 
C)  is producing exports using fewer labor units. 
D)  is producing imports indirectly using fewer labor units. 
E)  is producing exports while outsourcing services.

Question 20

Which of the following statements is TRUE?

Accepted Answer

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

Exam 3: Labor Productivity and Comparative Advantage: the Ricardian Model

-Given the information in the table above, Home's opportunity cost of widgets is

How does the two-good, two-country version of the Ricardian model differ from the two-country, many-good model in terms of the determination which goods are produced and exported by each country?

The earliest statement of the principle of comparative advantage is associated with

Assume that labor is the only factor of production and that wages in the United States equal $20 per hour while wages in Japan are $10 per hour. Production costs would be lower in the United States as compared to Japan if

According to Ricardo, a country will have a comparative advantage in the product in which its

-Given the information in the table above, Foreign's opportunity cost of widgets is

The pauper labor and the exploitation arguments

We know that in antiquity, China exported silk because no one in any other country knew how to produce this product. From this information we know that

In the Ricardian model, comparative advantage is likely to be due to

The growth of clothing exports originating in Bangladesh is the result of the

In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ________ unit labor requirements.

Trade between two countries can benefit both countries if

-Given the information in the table above

-Given the information in the table above

Mahatma Gandhi exhorted his followers in India to promote economic welfare by decreasing imports. This approach

A nation engaging in trade according to the Ricardian model will find its consumption bundle

The Country of Rhozundia is blessed with rich copper deposits. The cost of copper produced (relative to the cost of widgets produced) is therefore very low. From this information we know that

A country engaging in trade according to the principles of comparative advantage gains from trade because it

Which of the following statements is TRUE?

Introduction

World Trade: an Overview

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

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