ch 3

Question 1

What philosophy believed that a nation’s wealth and power were determined by its accumulation of gold and silver?

a) Capitalism
b) Mercantilism
c) Socialism
d) Communism

Answer 1

B

Question 2

In the view of Mercantilists, why are exports beneficial?

a) They lead to increased industrialization.
b) They promote cultural exchange.
c) They result in a surplus of gold and silver for the home country.
d) They strengthen diplomatic relations.

Answer 2

C

Question 3

Why do Mercantilists view imports of finished goods unfavorably?

a) Imports lead to economic diversification.
b) Imports stimulate domestic production.
c) Imports result in a loss of gold and silver for the home country.
d) Imports facilitate cultural exchange.

Answer 3

C

Question 4

Which of the following is a tool used to promote exports in trade policy?

a) Taxes
b) Tariffs
c) Subsidies
d) Legal barriers

Answer 4

C

Question 5

In the context of trade policy, which method is commonly employed to restrict imports?

a) Export subsidies
b) Tariffs
c) Import quotas
d) Free trade agreements

Answer 5

B

Question 6

Which of the following is a form of taxation specifically imposed on imported goods, often utilized to limit imports in trade policy?

a) Export tax
b) Excise duty
c) Tariff
d) Sales tax

Answer 6

C

Question 7

What does the theory of absolute advantage suggest about a country’s production capabilities?

a) It implies that a country can produce all goods more efficiently than any other country.
b) It indicates that a country can produce a specific product faster than any other country.
c) It means that a country can produce goods using fewer resources than any other country.
d) It suggests that a country can produce a product without any input from other countries.

Answer 7

B

Question 8

Which of the following best describes the concept of “faster” in the context of absolute advantage?

a) Higher productivity, measured in units per hour of production
b) Lower productivity, measured in units per hour of production
c) More time needed per unit of production
d) No correlation with productivity or time per unit of production

Answer 8

A. Less time needed per unit of production

Question 9

According to the principle of comparative advantage, which of the following statements best describes the export behavior of a country with an absolute advantage in producing a particular product?

a) It should import the product to maximize its domestic resources.
b) It should produce a variety of products and avoid specializing in any one product.
c) It should specialize in producing that product and export it to other countries.
d) It should impose tariffs to protect its domestic market from foreign competition.

Answer 9

C

Question 10

According to the principle outlined in the theory of absolute advantage, which of the following best explains the import behavior of countries?

a) Countries import products they are capable of producing more efficiently than other countries.
b) Countries import products to maintain a diverse domestic production base.
c) Countries import products they cannot produce as efficiently as other countries.
d) Countries import products only when they have exhausted all domestic production options.

Answer 10

C

Question 11

What criticism does the theory of absolute advantage face based on the statement provided?

a) It assumes that countries are capable of producing all goods efficiently.
b) It neglects the role of comparative advantage in determining trade patterns.
c) It fails to account for the diversity of resources and capabilities across countries.
d) It overlooks the reality that countries specialize and trade even if they do not possess an absolute advantage in all products.

Answer 11

D

Question 12

According to the theory of comparative advantage, when does a country possess a comparative advantage in producing a product?

a) When it can produce the product using fewer resources than other countries.
b) When it can produce the product at the same cost as other countries.
c) When it can produce the product at a relatively lower cost compared to other countries.
d) When it can produce the product more quickly than other countries.

Answer 12

C

Question 13

According to the theory of comparative advantage, when does a country possess a comparative advantage in producing a product?

a) When it can produce the product using fewer resources than other countries.
b) When it can produce the product at the same cost as other countries.
c) When it can produce the product at a relatively lower cost compared to other countries, measured using the opportunity cost of the product.
d) When it can produce the product more quickly than other countries.

Answer 13

C

Question 14

According to the theory of comparative advantage, which of the following best describes the export behavior of countries?

a) Countries with a diverse range of industries should export all products they produce.
b) Countries with a large domestic market should export products to maintain a favorable trade balance.
c) Countries with a comparative advantage at producing a product should import that product.
d) Countries with a comparative advantage at producing a product should export that product.

Answer 14

D

Question 15

What effect does trade opening up between countries have on the production of goods?

a) The country that imports the product will produce more of that product.
b) Both countries will increase production of the products they export.
c) The country that exports the product will produce more of that product, while producing fewer of the products that are imported.
d) The country that exports the product will reduce production of that product, focusing on importing it instead.

Answer 15

C

Question 16

According to the theory of comparative advantage, which countries are likely to import a product?

a) Countries that have an absolute advantage in producing the product.
b) Countries that have a diverse economy with a wide range of industries.
c) Countries that do not have a comparative advantage at producing the product.
d) Countries that have a surplus of the product in their domestic market.

Answer 16

C

Question 17

What is a key assumption of the comparative advantage model in its constant costs form?

a) Markets are monopolistically competitive.
b) Markets are perfectly competitive.
c) Markets are oligopolistic.
d) Markets are characterized by monopolies

Answer 17

B

Question 18

What is a characteristic of the product sold by all sellers in a market assumed to be perfectly competitive according to the comparative advantage model?

a) The product is customized according to individual seller preferences.
b) The product is unique to each seller, varying in quality and features.
c) The product is homogeneous, identical across all sellers.
d) The product is scarce, leading to high prices.

Answer 18

C

Question 19

In a market assumed to be perfectly competitive, what role do individual buyers and sellers play in determining market prices according to the comparative advantage model?

a) They collectively set prices through negotiation and bargaining.
b) They influence market prices significantly through their actions.
c) They are too small to affect market prices and therefore take prices as given.
d) They have exclusive control over setting prices, leading to monopolistic competition.

Answer 19

C

Question 20

In a perfectly competitive market, what term is used to describe the behavior of individual buyers and sellers who accept market prices as given and have no influence on them?

a) Price influencers
b) Price negotiators
c) Price setters
d) Price takers

Answer 20

D

Question 21

According to the comparative advantage model’s constant costs form, what assumption is made regarding businesses in the market?

a) Businesses have limited control over market prices.
b) Businesses have exclusive control over market prices.
c) Businesses can freely enter or exit the market.
d) Businesses are regulated by the government.

Answer 21

C

Question 22

What does the assumption that businesses can freely enter or exit the market imply about their long-run profits, according to the comparative advantage model?

a) Businesses will always earn supernormal profits in the long run.
b) Businesses will incur losses in the long run.
c) Businesses will maximize profits in the long run.
d) Businesses’ profits will tend towards zero in the long run, with market price equaling average total cost.

Answer 22

D

Question 23

What is a characteristic of the information available to buyers and sellers in a market assumed to be perfectly competitive, according to the comparative advantage model?

a) Buyers and sellers have limited access to information about prices and products.
b) Producers have knowledge of their own production methods, while buyers and sellers know only the prices of nearby sellers.
c) Producers have knowledge of their own and other producers’ production methods, and buyers and sellers are aware of the prices charged by all sellers.
d) Buyers and sellers have access to information only about their immediate transactions.

Answer 23

C

Question 24

In the comparative advantage model’s constant costs form, what does the “2 x 2 x 2 model” typically refer to?

a) Two countries trading two products with two different quality levels.
b) Two countries specializing in two different industries with two distinct production methods.
c) Two countries involved in the production of two identical products using two unique factors of production.
d) Two countries engaged in the exchange of two products utilizing two factors of production each.

Answer 24

D

Question 25

What does the production possibility curve illustrate in the context of the comparative advantage model’s constant costs?

a) The maximum level of production a country can achieve.
b) The trade-offs between the production of different goods given limited resources.
c) The optimal allocation of resources across various industries.
d) The combination of products that the economy could potentially consume using all available resources.

Answer 25

D

Question 26

What is the relationship between production and consumption in a country without trade, according to the concept of equilibrium without trade?

a) Production is greater than consumption.
b) Consumption exceeds production.
c) Production equals consumption.
d) Production and consumption are unrelated.

Answer 26

C

Question 27

What is the relationship between the relative price of a product and the opportunity cost of producing another unit of it in the context of equilibrium without trade?

a) The relative price of a product is always higher than the opportunity cost of producing another unit of it.
b) The relative price of a product is always lower than the opportunity cost of producing another unit of it.
c) The relative price of a product is equal to the opportunity cost of producing another unit of it.
d) The relative price of a product is unrelated to the opportunity cost of producing another unit of it.

Answer 27

C

Question 28

What can be inferred about a country’s trade behavior from the comparative relative price of a product in the context of equilibrium without trade?

a) A country with a lower relative price for a product compared to another country will import that product.
b) A country with a lower relative price for a product compared to another country will export that product.
c) A country with a higher relative price for a product compared to another country will import that product.
d) A country with a higher relative price for a product compared to another country will export that product.

Answer 28

B,C

Question 29

What is the typical outcome for a country regarding specialization once trade opens, according to the concept of equilibrium once trade opens?

a) Countries will partially specialize in the products they have a comparative advantage in producing.
b) Countries will specialize in producing all products, regardless of their comparative advantage.
c) Countries will diversify their production to reduce dependency on specific products.
d) Generally, a country will specialize completely in producing the product it has a comparative advantage in.

Answer 29

D

Question 30

What is the characteristic of the equilibrium relative price of a product, as per the concept of equilibrium once trade opens?

a) The price of a product will be higher in exporting countries and lower in importing countries.
b) The price of a product will vary depending on the demand and supply conditions in each country.
c) The price of a product will be set by international agreements and treaties.
d) The price of a product will be the same in each country, often referred to as the “international price.”

Answer 30

D

Question 31

What relationship exists between the price of a product in an exporting country, the international price, and the price in an importing country before trade, according to the equilibrium relative price concept?

a) Price in exporting country before trade < International price of a product < Price in importing country before trade
b) Price in exporting country before trade > International price of a product > Price in importing country before trade
c) Price in exporting country before trade = International price of a product = Price in importing country before trade
d) Price in exporting country before trade ≠ International price of a product ≠ Price in importing country before trade

Answer 31

A

Question 32

What does the trade line represent in the context of international trade?

a) It indicates the maximum level of production a country can achieve.
b) It shows the combination of products that a country can produce without trade.
c) It illustrates the combination of products that a country can trade for and consume with trade.
d) It represents the optimal allocation of resources across various industries

Answer 32

C

Question 33

Why does the economy consume at points A and C on the trade line?

a) Points A and C represent the most efficient allocation of resources across all industries.
b) Points A and C reflect the maximum level of production achievable given the available resources.
c) Points A and C are determined by the community preferences and indifferences regarding consumption.
d) Points A and C indicate the combination of products that a country can trade for and consume with trade.

Answer 33

C

Question 34

According to the Mercantilists, governments should:
a. subsidize and encourage imports.
b. subsidize and encourage exports.
c. allow for free trade unencumbered by government regulations and restrictions.
d. not spend much on national defense

Answer 34

B

Question 35

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

Answer 35

B

Question 36

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

Answer 36

C

Question 37

In a two-country two-good model, if a country has an absolute advantage in the production of
a certain good, it implies that:
a. it is not possible that this country can gain by importing this good from the other country.
b. this country also has a comparative advantage in the production of this good.
c. it has greater resources than the other country.
d. this country has higher labor productivity in the production of this good

Answer 37

D

Question 38

Which of the following is true of a constant cost production-possibility curve?
a. A constant cost production possibilities curve is drawn as a positively sloped straight line.
b. Along a constant cost production possibilities curve, the opportunity cost of producing
more of a good is constant.
c. When a country engages in free trade, the constant cost production-possibility curve
shifts to the right.
d. A country with a constant cost production-possibility curve partially specializes in the
production of goods when it engages in free trade with other nations.

Answer 38

B. Constant cost production-possibility curve implies that as a country increases the production of one good, the opportunity cost in terms of the other good remains constant. This means that resources are perfectly adaptable between the production of both goods without any increase in cost. Therefore, the opportunity cost of producing more of a good remains constant along the curve.

Question 39

Which of the following is NOT true of a nation’s production-possibility curve?
a. The production-possibility curve shows all combinations of amounts of different products
that an economy can produce when its resources are fully employed.
b. Points inside the production-possibility curve are feasible, but may represent
unemployment of some of the economy’s resources.
c. Points outside the production-possibility curve are not feasible production points given
the resources in the economy.
d. The negative slope of the production-possibility curve indicates declining productivity

Answer 39

D

Question 40

Which of the following statements is true about production-possibility curves?
a. Constant cost production-possibility curves are straight lines and usually lead to complete
specialization under free trade.
b. Under free trade, bowed-out production-possibility curves are associated with partial
specialization, because the opportunity cost of producing each good is constant along the
curve.
c. Increasing cost production-possibility curves provide us with information about the
preferences of the consumers.
d. Constant cost production-possibility curves are convex to the origin.

Answer 40

A