Question 1

If productivity in the German computer industry grows faster than it does in the Japanese computer industry,the opportunity cost of each computer produced in Japan increases relative to the opportunity cost of a computer produced in Germany.

Accepted Answer

A) True 
 B)False

Question 2

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 zeroE) A) and B)
F) All of the above

Question 3

Ricardo's model of comparative advantage assumed all of the following except:

Accepted Answer

A)   Trade is balanced,thus ruling out flows of money between nations
B)   Firms make production decisions in an attempt to maximize profits
C)   Free trade occurs between nations
D)   Labor is immobile within a country,but is incapable of moving between countriesE) A) and C)
F) All of the above D

Question 4

-Referring to Table 2.3,which countries' terms of trade improved between 1990 and 2004?

Accepted Answer

A)   Mexico and Denmark
B)   Sweden and Denmark
C)   Sweden and Spain
D)   Mexico and SwedenE) None of the above
F) A) and C)

Question 5

With increasing opportunity costs,a nation totally specializes in the production of the commodity of its comparative advantage; with constant opportunity costs,a nation partially specializes in the production of the commodity of its comparative advantage.

Accepted Answer

A) True 
 B)False

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 partnersE) A) and B)
F) A) and C)

Question 7

The equilibrium prices and quantities established after trade are 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 goodE) A) and B)
F) None of the above

Question 8

The basis for trade is explained by the principle of absolute advantage according to David Ricardo and the principle of comparative advantage according to Adam Smith.

Accepted Answer

A) True 
 B)False  False

Question 9

The theory of reciprocal demand best applies when two countries are of equal economic size,so that the demand conditions of each nation have a noticeable impact on market prices.

Accepted Answer

A) True 
 B)False

Question 10

International trade leads to increased welfare if a nation can achieve a post-trade consumption point lying inside of its production-possibilities schedule.

Accepted Answer

A) True 
 B)False

Question 11

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 televisionsE) C) and D)
F) None of the above

Question 12

Unlike Adam Smith,David Ricardo's trading principle emphasizes the:

Accepted Answer

A)   Demand side of the market
B)   Supply side of the market
C)   Role of comparative costs
D)   Role of absolute costsE) All of the above
F) B) and C)

Question 13

The domestic cost ratios of nations set the outer limits to the equilibrium terms of trade.

Accepted Answer

A) True 
 B)False

Question 14

The terms of trade is given by the prices:

Accepted Answer

A)   Paid for all goods imported by the home country
B)   Received for all goods exported by the home country
C)   Received for exports and paid for imports
D)   Of primary products as opposed to manufactured productsE) B) and C)
F) All of the above

Question 15

Assume 1990 to be the base year.If by the end of 2004 a country's export price index rose from 100 to 130 while its import price index rose from 100 to 115,its terms of trade would equal 113.

Accepted Answer

A) True 
 B)False

Question 16

-Referring to Table 2.3,which countries' terms of trade worsened between 1990 and 2004?

Accepted Answer

A)   Spain and Mexico
B)   Mexico and France
C)   France and Denmark
D)   Denmark and SwedenE) A) and D)
F) B) and C)

Question 17

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 productE) A) and B)
F) All of the above A

Question 18

For the commodity terms of trade to improve,a country's export price index must rise relative to its import price index over a given time period.

Accepted Answer

A) True 
 B)False

Question 19

Because the Ricardian trade theory recognized only how supply conditions influence international prices,it could determine:

Accepted Answer

A)   The equilibrium terms of trade
B)   The outer limits for the terms of trade
C)   Where a country chooses to locate along its production possibilities curve
D)   Where a country chooses to locate along its trade triangleE) B) and C)
F) A) and D)

Question 20

All of the following may be exit barriers except

Accepted Answer

A)   Employee health benefit costs
B)   Treatment,storage and disposal costs
C)   Penalties for terminating contracts with raw material suppliers
D)   Increasing opportunity cost of productionE) B) and C)
F) A) and D)

Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

If productivity in the German computer industry grows faster than it does in the Japanese computer industry,the opportunity cost of each computer produced in Japan increases relative to the opportunity cost of a computer produced in Germany.

Correct AnswerverifiedShow Answer

The use of indifference curves helps us determine the point:

Correct AnswerverifiedShow Answer

Ricardo's model of comparative advantage assumed all of the following except:

Correct AnswerverifiedD

-Referring to Table 2.3,which countries' terms of trade improved between 1990 and 2004?

Correct AnswerverifiedShow Answer

With increasing opportunity costs,a nation totally specializes in the production of the commodity of its comparative advantage; with constant opportunity costs,a nation partially specializes in the production of the commodity of its comparative advantage.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The equilibrium prices and quantities established after trade are fully determinate if we know:

Correct AnswerverifiedShow Answer

The basis for trade is explained by the principle of absolute advantage according to David Ricardo and the principle of comparative advantage according to Adam Smith.

Correct AnswerverifiedFalse

The theory of reciprocal demand best applies when two countries are of equal economic size,so that the demand conditions of each nation have a noticeable impact on market prices.

Correct AnswerverifiedShow Answer

International trade leads to increased welfare if a nation can achieve a post-trade consumption point lying inside of its production-possibilities schedule.

Correct AnswerverifiedShow Answer

Referring to Table 2.1,the United States has the absolute advantage in the production of:

Correct AnswerverifiedShow Answer

Unlike Adam Smith,David Ricardo's trading principle emphasizes the:

Correct AnswerverifiedShow Answer

The domestic cost ratios of nations set the outer limits to the equilibrium terms of trade.

Correct AnswerverifiedShow Answer

The terms of trade is given by the prices:

Correct AnswerverifiedShow Answer

Assume 1990 to be the base year.If by the end of 2004 a country's export price index rose from 100 to 130 while its import price index rose from 100 to 115,its terms of trade would equal 113.

Correct AnswerverifiedShow Answer

-Referring to Table 2.3,which countries' terms of trade worsened between 1990 and 2004?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedA

For the commodity terms of trade to improve,a country's export price index must rise relative to its import price index over a given time period.

Correct AnswerverifiedShow Answer

Because the Ricardian trade theory recognized only how supply conditions influence international prices,it could determine:

Correct AnswerverifiedShow Answer

All of the following may be exit barriers except

Correct AnswerverifiedShow Answer

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