Unit II Exam Practice Questions Flashcards
According to Mercantilism, the optimal trade policy is ______________. According to Ricardo’s trade theory, the optimal trade policy is ___________________.
high tariffs; free trade
free trade; high tariffs
low tariffs; high tariffs
high tariffs; low tariffs
high tariffs; free trade
Suppose that Japan and Australia are only two countries in the world. Computers and TVs are the only products. Labor is the only factor of production. According to the table, _________ has a comparative advantage in the production of computers, and ___________ has a comparative advantage in the production of TVs.
Japan; Japan
Australia; Australia
Japan; Australia
Australia; Japan
| Country | Computers | TVs
Country | Computers | TVs |
| Japan | 12 | 2
| Australia | 6 |4
Japan; Australia
Assume a two-country, two-good, and two-input model where the following relationships hold:
(K/L)U > (K/L)R
(K/L)cars > (K/L)shirts
(K/L)U is the capital-labor ratio in Country U, (K/L)R is the capital-labor ratio in Country R, (K/L)cars indicates the capital-labor ratio in the production of cars, and (K/L)shirts indicates the capital-labor ratio in the production of shirts. Assume further that technology and tastes are the same in the Country U and Country R. Which of the following statements is true?
Production of cars is relatively capital-intensive
Production of shirts is relatively capital-intensive.
Production of shirts is relatively cheaper in Country U than in Country R.
The laborers in the Country U are less productive than the laborers in Country R.
Production of cars is relatively capital-intensive
____________ refers to the price a country receives from foreign buyers for exported products relative to the price the country pays foreign sellers for imported products.
Net export price
Free trade
Terms of trade
Trade patterns
Terms of trade
The Ricardo Model and the Hecksher-Ohlin Model make different assumptions about the technology available in each country. How do these different assumptions connect to different predictions between the models?
Ricardo predicts that wages will increase for both countries and Hecksher-Ohlin predicts that wages will only increase in the labor-abundant country.
Ricardo predicts that consumption will decline and Hecksher-Ohlin predicts that consumption will increase.
Ricardo predicts that income will decline and Hecksher-Ohlin predicts that income will increase.
Ricardo predicts that countries will engage in intra-industry trade and Hecksher-Ohlin predicts that countries will engage in inter-industry trade.
Ricardo predicts that wages will increase for both countries and Hecksher-Ohlin predicts that wages will only increase in the labor-abundant country.
Country B is relatively labor abundant. According to the factor price equalization theorem, what will happen to factor prices once trade begins between Country B and Country A?
Wage will rise in Country B and fall in Country A.
Wages will fall in both countries.
Wage will fall in Country B and rise in Country A.
Wages will rise in both countries.
Wage will rise in Country B and fall in Country A.
What theorem predicts that international trade will cause the returns to an abundant factor to increase relative to the returns to a scare factor?
Ricardo Theorem
Leontief Paradox Theorem
Hecksher-Ohlin Theorem
Stolper-Samuelson Theorem
Stolper-Samuelson Theorem
Using 1947 data, Wassily Leontief conducted an empirical analysis of the Heckscher-Ohlin Model and found that the United States was a net-exporter of labor-intensive goods and net-importer of capital-intensive goods. His findings
were consistent with the Stolper-Samuelson Theorem.
were consistent with the predictions of the Heckscher-Ohlin Model.
contradicted the Heckscher-Ohlin Model because the United States was relatively labor-abundant in 1947.
contradicted the Heckscher-Ohlin Model, because the United States was relatively capital-abundant in 1947.
contradicted the Heckscher-Ohlin Model, because the United States was relatively capital-abundant in 1947.
If the market for motorcycles is monopolistically competitive and a country engages in intra-industry trade in motorcycles, such trade is usually based on __________.
constant returns to scale.
factor price equalization.
external economies of scale.
product differentiation.
product differentiation.
After the opening of trade between the bike markets of Pawnee and Eagleton described in the previous question, which of the following statements best describes the outcome predicted by the Imperfect Competition model?
The price of a bike would increase and the variety of bikes available would increase in both countries.
The bike market would become monopolized, decreasing variety and raising prices.
The price of a bike would increase in Pawnee and decrease in Eagleton.
The price of a bike would decrease and the variety of bikes available would increase in both countries.
The price of a bike would decrease and the variety of bikes available would increase in both countries.
Suppose the United States exports of cars to the rest of the world equals $2 million, and its imports of cars equals $8 million. Calculate the Intra-Industry Trade (IIT) Index for cars in the United States and enter the numeric value below (round your answer to one decimal place).
IIT = 1 - (Exports - Imports) / (Exports + Imports)
0.4
The source of trade in the Imperfect Competition Model is based on __________.
cost reductions from monopoly regulations.
comparative advantage from resource endowments.
comparative advantage from productivity differences.
cost reductions from accessing larger consumer markets.
cost reductions from accessing larger consumer markets.
Which of the following data trends in the 1990s and 2000s have created concern that international trade is causing income inequality in the United States?
Increased output in manufacturing.
Increasing capital-labor ratio in manufacturing.
Increased investment in computer technology.
Increased imports from low-wage countries.
Increased imports from low-wage countries.
Which of the following economic models of international trade predict that a country will import goods at a price that is lower than the domestic price of the good in autarky?
Imperfect Competition Model
Hecksher-Ohlin Model
Ricardo Model
All of the above.
All of the above.
The figure above shows the market for computers in a small country, with the price given in dollars. Dd and Sd are the domestic demand and supply curves of computers respectively. After the tariff is imposed, how many computers are imported into the country? (Note the units on the x-axis before answering.)
70,000
The figure shows the market for computers in a small country, with prices in dollar terms. Dd and Sd are the domestic demand and supply curves of computers respectively. If the country imposes a tariff of $400 on computers, what will be the change in producer surplus?
It will fall by $44 million.
It will rise by $44 million.
It will rise by $8 million.
It will rise by $40 million.
It will rise by $44 million.
The figure above shows the market for computers in a small country, with the price given in dollars. Dd and Sd are the domestic demand and supply curves of computers respectively. How much deadweight loss is created by the tariff?
$4 million
$6 million
$28 million
$34 million
6 million
If a small country imposes a tariff on imported motorcycles, the world price of motorcycles will ________ and the domestic price of motorcycles will ________.
rise; fall
fall; rise
remain constant; rise
remain constant; fall
remain constant; rise
Based on your understanding of the concept of effective rate of protection, calculate the effective rate of protection (ERP) for the domestic watch industry in a small country following the imposition of a 20 percent tariff on imported watches. The cost of material inputs used in production of watches in the country is $100 per unit, and there is free trade in these material inputs. The world price of a watch is $175.
20%
46%
90%
72%
ERP = (Value added after tariff - Value added without tariff) / Value added without tariff * 100%
46%
