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International Economics, 10e (Krugman/Obstfeld/Melitz)
Chapter 2 World Trade: An Overview
2.1 Who Trades with Whom?
1) Approximately what percent of all world production of goods and services is exported to other
countries?
A) 10%
B) 30%
C) 50%
D) 100%
E) 90%
2) The gravity model offers a logical explanation for the fact that
A) trade between Asia and the U.S. has grown faster than NAFTA trade.
B) trade in services has grown faster than trade in goods.
C) trade in manufactures has grown faster than in agricultural products.
D) Intra-European Union trade exceeds international trade by the European Union.
E) the U.S. trades more with Western Europe than it does with Canada.
3) The gravity model suggests that over time
A) trade between neighboring countries will increase.
B) trade between all countries will increase.
C) world trade will eventually be swallowed by a black hole.
D) trade between Earth and other planets will become important.
E) the value of trade between two countries will be proportional to the product of the two
countries' GDP.
4) The gravity model explains why
A) trade between Sweden and Germany exceeds that between Sweden and Spain.
B) countries with oil reserves tend to export oil.
C) capital rich countries export capital intensive products.
D) intra-industry trade is relatively more important than other forms of trade between
neighboring countries.
E) European countries rely most often on natural resources.
5) According to the gravity model, a characteristic that tends to affect the probability of trade
existing between any two countries is
A) their cultural affinity.
B) the average weight/value of their traded goods.
C) their colonial-historical ties.
D) the distance between them.
E) the number of different product varieties produced by their industries.
6) In general, which of the following do NOT tend to increase trade between two countries?
A) linguistic and/or cultural affinity
B) historical ties
C) larger economies
D) mutual membership in preferential trade agreements
E) the existence of well controlled borders between countries
7) Why does the gravity model work?
A) Large economies became large because they were engaged in international trade.
B) Large economies have relatively large incomes, and hence spend more on government
promotion of trade and investment.
C) Large economies have relatively larger areas which raises the probability that a productive
activity will take place within the borders of that country.
D) Large economies tend to have large incomes and tend to spend more on imports.
E) Large economies tend to avoid trading with small economies.
8) We see that the Netherlands, Belgium, and Ireland trade considerably more with the United
States than with many other countries.
A) This is explained by the gravity model, since these are all large countries.
B) This is explained by the gravity model, since these are all small countries.
C) This fails to be consistent with the gravity model, since these are small countries.
D) This fails to be consistent with the gravity model, since these are large countries.
E) This is explained by the gravity model, since they do not share borders.
9) The two neighbors of the United States do a lot more trade with the United States than
European economies of equal size.
A) This contradicts predictions from gravity models.
B) This is consistent with predictions from gravity models.
C) This is irrelevant to any inferences that may be drawn from gravity models.
D) This is because these neighboring countries have exceptionally large GDPs.
E) This relates to Belgium's trade record with the U.S.
2.2 The Changing Pattern of World Trade
1) Since the period following World War II (the early 1950s), the proportion of most countries'
production being used in some other country
A) remained constant.
B) increased.
C) decreased.
D) fluctuated widely with no clear trend.
E) increased slightly before dropping off.
2) Since World War II, the likelihood that foreign markets would gain importance to average
exporters as a source of profits has
A) remained constant.
B) increased.
C) decreased.
D) fluctuated widely with no clear trend.
E) increased slightly before dropping off.
3) Since World War II, the likelihood that any single item in the typical consumption basket of a
consumer in the U.S. originated outside of the U.S.
A) remained constant.
B) increased.
C) decreased.
D) fluctuated widely with no clear trend.
E) increased slightly before dropping off.
4) Since World War II, the likelihood that the job of a new college graduate will be directly or
indirectly affected by world trade
A) remained constant.
B) increased.
C) decreased.
D) fluctuated widely with no clear trend.
E) increased slightly before dropping off.
5) Since World War II, the relative importance of raw materials, including oil, in total world
trade
A) remained constant.
B) increased.
C) decreased.
D) fluctuated widely with no clear trend
E) increased slightly before dropping off.
6) In the current Post-Industrial economy, international trade in services (including banking and
financial services)
A) dominates world trade.
B) does not exist.
C) is an increasingly important component of global trade.
D) is relatively stagnant.
E) far surpasses the predictions of economist Alan Blinder.
7) In the pre-World War I period, the U.S. exported mainly
A) manufactured goods.
B) services.
C) primary products including agricultural.
D) technology intensive products.
E) weapons.
8) In the pre-World War I period, the United Kingdom exported mainly
A) manufactured goods.
B) services.
C) primary products including agricultural.
D) technology intensive products.
E) livestock.
9) In the pre-World War I period, the United Kingdom imported mainly
A) manufactured goods.
B) services.
C) primary products including agricultural.
D) technology intensive products.
E) from the United States.
10) In the present, most of the exports from China are
A) manufactured goods.
B) services.
C) primary products including agricultural.
D) technology intensive products.
E) overpriced by world market standards.
11) Which of the following does NOT explain the extent of trade between Ireland and the U.S.?
A) historical ties
B) cultural Linguistic ties
C) Gravity Model
D) multinational corporations
E) large numbers of Irish-Americans
12) When comparing the composition of world trade in the early 20th century to the early 21st
century, we find major compositional changes. These include a relative decline in trade in
agricultural and primary-products (including raw materials). How would you explain this in
terms of broad historical developments during this period?
13) In the past half century, the developing countries have experienced major compositional
shifts from exports of primary products (including agricultural and raw materials) to exports of
manufactures. How might you explain this in terms of broad historical developments during this
period?
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2.3 Do Old Rules Still Apply?
1) The Neoclassical Heckscher-Ohlin model assumes that all producers of any industrial product
has knowledge of, and may avail itself of the same production technology available to producers
in any other country. Many have flagged this identical technology assumption as unrealistic.
During the past half century, the relative importance of Multinational Corporations (MNCs) in
world trade has steadily increased. How would this trend affect the realism of the "identical
technology" assumption?
2) One of the major political developments of the past several decades is the growing size and
economic/monetary integration of the European Union. What effect do you think this will have
on international trade between countries?
3) The Services sector has been steadily rising in relative importance in GDP of the United
States, as well as elsewhere around the world. Since "services" have been identified as "non-
tradable" (e.g., it is difficult to export haircuts), it may be argued that this trend will likely slow
the rapid growth in international trade. Discuss.
