Question 1

An improvement in a nation's terms of trade occurs if the prices of its exports rise relative to the prices of its imports over a given time period.

Accepted Answer

A) True 
 B)False

Question 2

The equilibrium prices and quantities established after trade are $\underline {  \text { fully }  }$determinate if we know:

Accepted Answer

A)  The location of all countries' indifference curves 
B)  The shape of each country's production possibilities curve 
C)  The comparative costs of each trading partner 
D)  The strength of world supply and demand for each good

Question 3

According to Adam Smith, international trade was a "win-win" situation since all nations could enjoy gains from trade.

Accepted Answer

A) True 
 B)False

Question 4

When a nation requires fewer resources than another nation to produce a product, the nation is said to have a:

Accepted Answer

A)  Absolute advantage in the production of the product 
B)  Comparative advantage in the production of the product 
C)  Lower marginal rate of transformation for the product 
D)  Lower opportunity cost of producing the product

Question 5

The use of indifference curves helps us determine the point:

Accepted Answer

A)  Along the terms-of-trade line a country will choose 
B)  Where a country maximizes its resource productivity 
C)  At which a country ceases to become competitive 
D)  Where the marginal rate of transformation approaches zero

Question 6

Given free trade, small nations tend to benefit the most from trade since they:

Accepted Answer

A)  Are more productive than their large trading partners 
B)  Are less productive than their large trading partners 
C)  Have demand preferences and income levels lower than their large trading partners 
D)  Enjoy terms of trade lying near the opportunity costs of their large trading partners

Question 7

When a nation is in autarky and maximizes its living standard, its consumption and production points are:

Accepted Answer

A)  Along the production possibilities schedule 
B)  Above the production possibilities schedule 
C)  Beneath the production possibilities schedule 
D)  Any of the above

Question 8

If Japan and France have identical production possibilities curves and identical community indifference curves:

Accepted Answer

A)  Japan will enjoy all the gains from trade 
B)  France will enjoy all the gains from trade 
C)  Japan and France share equally in the gains from trade 
D)  Gainful specialization and trade are not possible

Question 9

The mercantilists maintained that a free-trade policy best enhances a nation's welfare.

Accepted Answer

A) True 
 B)False

Question 10

If a production possibilities curve is $\underline { \text {  bowed out }   }$ (i.e., concave) in appearance, production occurs under conditions of:

Accepted Answer

A)  Constant opportunity costs 
B)  Increasing opportunity costs 
C)  Decreasing opportunity costs 
D)  Zero opportunity costs

Question 11

Table 2.2. Output possibilities for South Korea and Japan
 $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Output per Worker per day }$
$\begin{array} { l c c } 
\text { Caunty } & \text { Tons of Steel} &\text { VCR.s  } \
\hline \text { South Korea }&80&40\
\text { Japan } & 20 & 20
\end{array}$
-Refer to Table 2.2. According to the principle of absolute advantage, Japan should:

Accepted Answer

A)  Export steel 
B)  Export VCRs 
C)  Export steel and VCRs 
D)  None of the above; there is no basis for gainful trade

Question 12

In autarky equilibrium, a nation realizes the lowest possible level of satisfaction given the constraint of its production possibilities schedule.

Accepted Answer

A) True 
 B)False

Question 13

The trading principle formulated by Adam Smith maintained that:

Accepted Answer

A)  International prices are determined from the demand side of the market 
B)  Differences in resource endowments determine comparative advantage 
C)  Differences in income levels govern world trade patterns 
D)  Absolute cost differences determine the immediate basis for trade

Question 14

Figure 2.2 illustrates trade data for Canada. The figure assumes that Canada attains international trade equilibrium at point $\underline {   C . }$
Figure 2.2. Canadian Trade Possibilities
 
-Consider Figure 2.2. With trade, Canada $\underline {  \text { consumes }  }$:

Accepted Answer

A)  12 televisions and 8 refrigerators 
B)  12 televisions and 16 refrigerators 
C)  8 televisions and 16 refrigerators 
D)  24 refrigerators

Question 15

Constant opportunity costs suggest that the relative cost of producing one product in terms of the other will remain the same no matter where a nation chooses to locate on its production-possibilities schedule.

Accepted Answer

A) True 
 B)False

Question 16

Figure 2.1. Production Possibilities Schedule
 
-Referring to Figure 2.1, the relative cost of steel in terms of aluminum is:

Accepted Answer

A)  4.0 tons 
B)  2.0 tons 
C)  0.5 tons 
D)  0.25 tons

Question 17

Assume that the United States and Canada engage in trade. If the international terms of trade coincides with the Canadian cost ratio, the United States realizes all of the gains from trade with Canada.

Accepted Answer

A) True 
 B)False

Question 18

Table 2.1. Output Possibilities of the U.S. and the U.K.
 $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Output per Worker per day }$
$\begin{array} { l c c } 
\text { Caunty } & \text { Tons of Steel} &\text { Televisians } \
\hline \text { United States }&5&45\
\text { United Kingdom } & 5 & 20
\end{array}$
-Referring to Table 2.1, the United States has the absolute advantage in the production of:

Accepted Answer

A)  Steel 
B)  Televisions 
C)  Both steel and televisions 
D)  Neither steel nor televisions

Question 19

The marginal rate of transformation equals the absolute slope of a country's production possibilities schedule.

Accepted Answer

A) True 
 B)False

Question 20

The price-specie-flow mechanism illustrated why one nation's gains from trade were accompanied by another country's losses.

Accepted Answer

A) True 
 B)False

Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

An improvement in a nation's terms of trade occurs if the prices of its exports rise relative to the prices of its imports over a given time period.

The equilibrium prices and quantities established after trade are $\underline { \text { fully } }$ determinate if we know:

According to Adam Smith, international trade was a "win-win" situation since all nations could enjoy gains from trade.

When a nation requires fewer resources than another nation to produce a product, the nation is said to have a:

The use of indifference curves helps us determine the point:

Given free trade, small nations tend to benefit the most from trade since they:

When a nation is in autarky and maximizes its living standard, its consumption and production points are:

If Japan and France have identical production possibilities curves and identical community indifference curves:

The mercantilists maintained that a free-trade policy best enhances a nation's welfare.

If a production possibilities curve is $\underline { \text { bowed out } }$ (i.e., concave) in appearance, production occurs under conditions of:

In autarky equilibrium, a nation realizes the lowest possible level of satisfaction given the constraint of its production possibilities schedule.

The trading principle formulated by Adam Smith maintained that:

Constant opportunity costs suggest that the relative cost of producing one product in terms of the other will remain the same no matter where a nation chooses to locate on its production-possibilities schedule.

Figure 2.1. Production Possibilities Schedule -Referring to Figure 2.1, the relative cost of steel in terms of aluminum is:

Assume that the United States and Canada engage in trade. If the international terms of trade coincides with the Canadian cost ratio, the United States realizes all of the gains from trade with Canada.

The marginal rate of transformation equals the absolute slope of a country's production possibilities schedule.

The price-specie-flow mechanism illustrated why one nation's gains from trade were accompanied by another country's losses.

Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

An improvement in a nation's terms of trade occurs if the prices of its exports rise relative to the prices of its imports over a given time period.

The equilibrium prices and quantities established after trade are fully ‾\underline { \text { fully } } fully ​ determinate if we know:

According to Adam Smith, international trade was a "win-win" situation since all nations could enjoy gains from trade.

When a nation requires fewer resources than another nation to produce a product, the nation is said to have a:

The use of indifference curves helps us determine the point:

Given free trade, small nations tend to benefit the most from trade since they:

When a nation is in autarky and maximizes its living standard, its consumption and production points are:

If Japan and France have identical production possibilities curves and identical community indifference curves:

The mercantilists maintained that a free-trade policy best enhances a nation's welfare.

If a production possibilities curve is bowed out ‾\underline { \text { bowed out } } bowed out ​ (i.e., concave) in appearance, production occurs under conditions of:

In autarky equilibrium, a nation realizes the lowest possible level of satisfaction given the constraint of its production possibilities schedule.

The trading principle formulated by Adam Smith maintained that:

Figure 2.2 illustrates trade data for Canada. The figure assumes that Canada attains international trade equilibrium at point C.‾\underline { C . }C.​ Figure 2.2. Canadian Trade Possibilities -Consider Figure 2.2. With trade, Canada consumes ‾\underline { \text { consumes } } consumes ​ :

Constant opportunity costs suggest that the relative cost of producing one product in terms of the other will remain the same no matter where a nation chooses to locate on its production-possibilities schedule.

Figure 2.1. Production Possibilities Schedule -Referring to Figure 2.1, the relative cost of steel in terms of aluminum is:

Assume that the United States and Canada engage in trade. If the international terms of trade coincides with the Canadian cost ratio, the United States realizes all of the gains from trade with Canada.

The marginal rate of transformation equals the absolute slope of a country's production possibilities schedule.

The price-specie-flow mechanism illustrated why one nation's gains from trade were accompanied by another country's losses.

The equilibrium prices and quantities established after trade are $\underline { \text { fully } }$ determinate if we know:

If a production possibilities curve is $\underline { \text { bowed out } }$ (i.e., concave) in appearance, production occurs under conditions of: