Contents
Chapter 3 Labor Productivity and Comparative Advantage: The Ricardian Model 2 Chapter 4 Specific Factors and Income Distribution 13 Chapter 5 Resources and Trade: The Heckscher-Ohlin Model 22
Chapter 6 The Standard Trade Model
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Chapter 7 Economies of Scale, imperfect Competition, and International Trade 41 Chapter 8 International Factor Movements 50 Chapter 9 The Instruments of Trade Policy 60
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Chapter 3: Labor Productivity and Comparative Advantage - The Ricardian Model
Multiple Choice Questions 1. Countries trade with each other because they are _______ and because of
______. A. different, costs B. similar, scale economies C. different, scale economies D. similar, costs E. None of the above.
2. Trade between two countries can benefit both countries if
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 supplied goods. E. Both C and D.
3. The Ricardian theory of comparative advantage states that a country has a
comparative advantage in widgets if A. output per worker of widgets is higher in that country. B. that country's exchange rate is low. C. wage rates in that country are high. D. the output per worker of widgets as compared to the output of some other
product is higher in that country.
E. Both B and C.
4. 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
A. one B. two C. three D. four E. five
5. A country engaging in trade according to the principles of comparative
advantage gains from trade because it 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.
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D. E. is producing imports indirectly using fewer labor units. None of the above.
6. Given the following information:
Unit Labor Requirements Cloth Widgets Home 10 20 Foreign 60 30
A. Neither country has a comparative advantage. B. Home has a comparative advantage in cloth. C. Foreign has a comparative advantage in cloth. D. Home has a comparative advantage in widgets. E. Home has a comparative advantage in both products.
7. If it is ascertained that Foreign uses prison-slave labor to produce its exports,
then home should A. export cloth. B. export widgets. C. export both and import nothing. D. export and import nothing. E. All of the above.
8. If the Home economy suffered a meltdown, and the Unit Labor Requirements in
each of the products quadrupled (that is, doubled to 30 for cloth and 60 for widgets) then home should A. export cloth. B. export widgets. C. export both and import nothing. D. export and import nothing. E. All of the above.
9. If wages were to double in Home, then Home should:
A. export cloth. B. export widgets. C. export both and import nothing. D. export and import nothing. E. All of the above.
10. If the world equilibrium price of widgets were 4 Cloths, then
A. both countries could benefit from trade with each other. B. neither country could benefit from trade with each other. C. each country will want to export the good in which it enjoys comparative
advantage.
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D.
11.
Number of Units Produced by one Unit of Labor Cloth Widgets
Home 10 20 Foreign 60 30
A. Neither country has a comparative advantage. B. Home has a comparative advantage in cloth. C. Foreign has a comparative advantage in cloth. D. Foreign has a comparative advantage in widgets. E. Home has a comparative advantage in both products.
12. The opportunity cost of cloth in terms of widgets in Foreign is if it is ascertained
that Foreign uses prison-slave labor to produce its exports, then home should A. export cloth. B. export widgets. C. export both and import nothing. D. export and import nothing. E. All of the above.
13. If wages were to double in Home ,then Home should
A. export cloth. B. export widgets. C. export both and import nothing. D. export and import nothing. E. All of the above.
14. If the world equilibrium price of widgets were 4 Cloths, then
A. both countries could benefit from trade with each other. B. neither country could benefit from trade with each other. C. each country will want to export the good in which it enjoys comparative
advantage.
D. neither country will want to export the good in which it enjoys
comparative advantage.
E. both countries will want to specialize in cloth.
15. If the world equilibrium price of widgets were 40 cloths, then
A. both countries could benefit from trade with each other. B. neither country could benefit from trade with each other.
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E.
Given the following information:
neither country will want to export the good in which it enjoys comparative advantage.
both countries will want to specialize in cloth.
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