International Economics: Theory and Policy, 11e (Krugman et al.)
Chapter 4 Specific Factors and Income Distribution
1) The Ricardian model of international trade demonstrates that trade can be mutually beneficial.
Why, then, do governments restrict imports of some goods?
A) The Ricardian model is often incorrect in its prediction that trade can be mutually beneficial.
B) Import restrictions are the result of trade wars between hostile countries.
C) Trade can have substantial effects on a country’s distribution of income.
D) Imports are only restricted when foreign-made goods do not meet domestic standards of
quality.
E) Restrictions on imports are intended to benefit domestic consumers.
2) The Ricardian two-country, two-good model predicts that there are potential benefits from
trade, but NOT
A) when both countries have the same types of technology available.
B) when one country has significantly lower wages than the other country.
C) the mechanism that determines which country will specialize in which good.
D) the effect of trade on income distribution.
E) when one country has an absolute advantage in the production of both goods.
3) International trade can have important effects on the distribution of income because
A) the more powerful country dictates the terms of trade.
B) some resources are immobile in the short run.
C) different countries use different currencies.
D) of government corruption.
E) rich countries take advantage of poor countries.
4) The Ricardian model of international trade demonstrates that trade can be mutually beneficial.
Why, then, do governments restrict imports of some goods?
A) Import restrictions are the result of trade wars between hostile countries.
B) Trade can have significant harmful effects on some segments of a country’s economy.
C) Restrictions on imports can have significant beneficial effects on domestic consumers.
D) The Ricardian model is often incorrect in its prediction that trade can be mutually beneficial.
E) Imports are only restricted when foreign-made goods do not meet domestic standards of
quality.
5) The effect of trade on income distribution
A) implies that there are no real gains from trade.
B) is insignificant in the short run.
C) can be significant in the short run.
D) refutes the model of comparative advantage.
E) is positive for all segments of an economy.
6) International trade can have important effects on the distribution of income because
A) different industries employ different factors of production.
B) rich countries take advantage of poor countries.
C) of government corruption.
D) different countries use different currencies.
E) the more powerful country dictates the terms of trade.
7) Japan’s trade policies with regard to rice reflect the fact that
A) japanese rice farmers have significant political power.
B) Japan imports most of the rice consumed in the country.
C) Japan has a comparative advantage in rice production and therefore exports most of its rice
crop.
D) there would be no gains from trade available to Japan if it engaged in free trade in rice.
E) there are gains from trade that Japan captures by engaging in free trade in rice.
8) The specific factors model was developed by
A) Adam Smith and David Ricardo.
B) C.B. deMille and Gordon Willis.
C) Paul Samuelson and Ronald Jones.
D) Bill Clinton and Monica Lewinsky.
E) Richard Nixon and Robert Kennedy.
9) In the specific factors model, labor is defined as a(an)
A) intensive factor.
B) mobile factor.
C) variable factor.
D) fixed factor.
E) specific factor.
10) In the specific factors model, which of the following is treated as a specific factor?
A) food
B) land
C) labor
D) technology
E) cloth
11) In the specific factors model, which of the following is treated as a specific factor?
A) capital
B) technology
C) cloth
D) food
E) labor
12) A factor of production that cannot be used outside of a particular sector of an economy is
a(an)
A) variable factor.
B) export-competing factor.
C) mobile factor.
D) import-competing factor.
E) specific factor.
13) A factor of production that can be used in any sector of an economy is a(an)
A) import-competing factor.
B) export-competing factor.
C) mobile factor.
D) variable factor.
E) specific factor.
14) The specific factors model assumes that there are ________ goods and ________ factor(s) of
production.
A) two; two
B) two; one
C) three; two
D) four; three
E) two; three
15) The degree of a factor’s specificity is directly related to
A) the cost of the factor as a proportion of the long-run total cost of production.
B) technology differences between two countries, with a more advanced technology resulting in
more factor specificity.
C) the amount of time required to redeploy the factor to a different industry.
D) factor quality, with higher quality factors having a higher level of specificity.
E) the mobility of the factor, with more mobile factors having more specificity.
16) The degree of a factor’s specificity is inversely related to
A) the amount of time required to redeploy the factor to a different industry.
B) factor quality, with lower quality factors having a lower level of specificity.
C) the cost of the factor as a proportion of the long-run total cost of production.
D) the mobility of the factor, with more mobile factors having less specificity.
E) technology differences between two countries, with a less advanced technology resulting in
less factor specificity.
17) A worker who has invested in ________ skills will be ________ mobile than would
otherwise be the case.
A) occupation-specific; less
B) occupation-nominal; less
C) occupation-specific; more
D) ethical; less
E) ethical; more
18) In the specific factors model, a country’s production possibility frontier is ________ because
of ________.
A) a straight line; diminishing marginal returns
B) a curved line; diminishing marginal returns
C) a straight line; constant marginal returns
D) a curved line; constant marginal returns
E) a curved line; a limited supply of labor
19) In the four-quadrant diagram of the specific factors model, the graph in the upper right
quadrant is a country’s
A) production possibility frontier.
B) production function for food.
C) labor allocation constraint.
D) labor supply curve.
E) production function for cloth.
20) In the four-quadrant diagram of the specific factors model, the graph in the lower right
quadrant is a country’s
A) production function for food.
B) production possibility frontier.
C) labor supply curve.
D) labor allocation constraint.
E) production function for cloth.
21) In the four-quadrant diagram of the specific factors model, the graph in the upper left
quadrant is a country’s
A) production possibility frontier.
B) labor allocation constraint.
C) production function for food.
D) production function for cloth.
E) labor supply curve.
22) The slope of a country’s production possibility frontier with cloth measured on the horizontal
and food measured on the vertical axis in the specific factors model is equal to ________ and it
________ as more cloth is produced.
A) -MPLC/MPLF; becomes steeper
B) -MPLF/MPLC; becomes steeper
C) -MPLC/MPLF; is constant
D) -MPLF/MPLC; becomes flatter
E) -MPLF/MPLC; is constant
23) The slope of a country’s production possibility frontier with cloth measured on the horizontal
and food measured on the vertical axis in the Ricardian model is equal to ________ and it
________ as more cloth is produced.
A) -MPLF/MPLC; becomes steeper
B) -MPLF/MPLC; becomes flatter
C) -MPLC/MPLF; is constant
D) -MPLF/MPLC; is constant
E) -MPLC/MPLF; becomes steeper
24) Under perfect competition, the equilibrium price of labor used to produce cloth will be equal
to
A) the marginal product of labor in the production of cloth times the price of cloth.
B) the ratio of the marginal product of labor in the production of cloth to the marginal product of
labor in the production of food times the ratio of the price of cloth to the price of food.
C) the slope of the production possibility frontier.
D) the average product of labor in the production of cloth times the price of cloth.
E) the price of cloth divided by the marginal product of labor in the production of cloth.
25) When a country’s labor market is in equilibrium in the specific factors model, the wage rate
A) will be higher in the sector where product price is lower.
B) will be the same in both sectors.
C) will be higher in the sector where product price is higher.
D) will be higher in the export-competing sector.
E) will be higher in the import-competing sector.
26) In the specific factors model, which of the following will increase the quantity of labor used
in food production?
A) an increase in the price of cloth relative to that of food
B) an increase in the price of food relative to that of cloth
C) a decrease in the price of labor
D) an equal percentage increase in the price of food and cloth
E) an equal percentage decrease in the price of food and cloth
27) In the specific factors model, which of the following will increase the quantity of labor used
in cloth production?
A) a decrease in the price of labor
B) an increase in the price of cloth relative to that of food
C) an equal percentage decrease in the price of food and cloth
D) an equal percentage increase in the price of food and cloth
E) an increase in the price of food relative to that of cloth
28) The slope of a country’s production possibility frontier is equal to ________ and the optimal
production point is located where the slope is equal to ________. Assume that output of good Y
is measured on the vertical axis, output of good X is measured on the horizontal axis, MPL is the
marginal product of labor with a subscript indicating which good, P is the price of a good, and w
is the wage rate.
A) -PX/PY; -MPLY/MPLX;
B) -MPLY/MPLX; -PX/PY
C) -MPLX/MPLY; -PX/PY
D) -MPLY/w; -MPLF/w
E) -PX/w; -PY/w
29) In the specific factors model, a 5% increase in the price of food accompanied by a 5%
increase in the price of cloth will cause wages to ________, the production of cloth to ________,
and the production of food to ________.
A) increase by more then 5%; increase; remain unchanged
B) increase by 5%; remain unchanged; remain unchanged
C) remain constant; decrease; decrease
D) remain constant; increase; increase
E) increase by less then 5%; decrease; increase
30) In the specific factors model, a 5% increase in the price of food accompanied by a 0%
increase in the price of cloth will cause wages to ________, the production of cloth to ________,
and the production of food to ________.
A) remain constant; decrease; decrease
B) increase by less then 5%; decrease; increase
C) remain constant; increase; increase
D) increase by more then 5%; increase; remain unchanged
E) increase by 5%; remain unchanged; remain unchanged
31) In the specific factors model, a 0% increase in the price of food accompanied by a 5%
increase in the price of cloth will cause wages to ________, the production of cloth to ________,
and the production of food to ________.
A) increase by more then 5%; increase; remain unchanged
B) increase by less then 5%; increase; decrease
C) remain constant; decrease; decrease
D) increase by 5%; remain unchanged; remain unchanged
E) remain constant; increase; increase
32) In the specific factors model, a 5% increase in the price of food accompanied by a 5%
increase in the price of cloth will cause ________ in the welfare of labor, ________ in the
welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed
factor in the production of cloth.
A) a decrease; an increase; an increase
B) a decrease; a decrease; a decrease
C) no change; no change; no change
D) an increase; a decrease; a decrease
E) an increase; an increase; an increase
33) In the specific factors model, a 5% decrease in the price of food accompanied by a 5%
decrease in the price of cloth will cause ________ in the welfare of labor, ________ in the
welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed
factor in the production of cloth.
A) an increase; an increase; an increase
B) a decrease; a decrease; a decrease
C) no change; no change; no change
D) a decrease; an increase; an increase
E) an increase; a decrease; a decrease
34) In the specific factors model, a 5% increase in the price of food accompanied by a 10%
increase in the price of cloth will cause ________ in the welfare of labor, ________ in the
welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed
factor in the production of cloth.
A) an ambiguous change; an increase; a decrease
B) a decrease; an ambiguous change; an ambiguous change
C) an ambiguous change; an ambiguous change; an ambiguous change
D) an ambiguous change; a decrease; an increase
E) an increase; a decrease; an increase
35) In the specific factors model, a 5% increase in the price of food accompanied by a 1%
increase in the price of cloth will cause ________ in the welfare of labor, ________ in the
welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed
factor in the production of cloth.
A) an increase; a decrease; an increase
B) an ambiguous change; an increase; a decrease
C) an ambiguous change; an ambiguous change; an ambiguous change
D) a decrease; an ambiguous change; an ambiguous change
E) an ambiguous change; a decrease; an increase
36) Refer to the production possibility graph above. Assume that the economy is in equilibrium
at point e. If there is an increase in the wage rate, the new equilibrium is most likely to be
A) point e.
B) point d.
C) point b.
D) point h.
E) point f.
37) Refer to the production possibility graph above. Assume that the economy is in equilibrium
at point e. If the price of good A increases, the new equilibrium is most likely to be
A) point h.
B) point f.
C) point e.
D) point d.
E) point b.
38) Refer to the production possibility graph above. Assume that the economy is in equilibrium
at point e. If the price of good B increases, the new equilibrium is most likely to be
A) point b.
B) point h.
C) point f.
D) point d.
E) point e.
39) Refer to the production possibility graph above. Assume that the economy is in equilibrium
at point e. If the labor supply increases due to immigration, the new equilibrium is most likely to
be
A) point f.
B) point d.
C) point b.
D) point e.
E) point h.
40) Refer to the production possibility graph above. Assume that the economy is in equilibrium
at point e. If a war reduces the country’s capital stock by 40%, the new equilibrium is most likely
to be
A) point f.
B) point h.
C) point e.
D) point b.
E) point d.
1) The relative price of a unit of cloth in the small isolated country of Moribundia is 5 units of
food. When the central city, Mudhole, puts in an airstrip, the country is able to engage in trade. If
the relative price of cloth in the outside world is 3 units of food, then Moribundia will export
________ and ________ factors used in the production of ________ will benefit.
A) cloth; mobile; cloth
B) food; mobile; food
C) food; immobile; cloth
D) food; immobile; food
E) cloth; immobile; cloth
2) The relative price of a unit of cloth in the small isolated country of Moribundia is 5 units of
food. When the central city, Mudhole, puts in an airstrip, the country is able to engage in trade. If
the relative price of cloth in the outside world is 8 units of food, then Moribundia will export
________ and ________ factors used in the production of ________ will benefit.
A) cloth; immobile; food
B) food; mobile; food
C) food; immobile; food
D) cloth; immobile; cloth
E) cloth; mobile; cloth
1) In the specific factors model, the effects of trade on welfare are ________ for mobile factors,
________ for fixed factors used to produce the exported good, and ________ for fixed factors
used to produce the imported good.
A) ambiguous; positive; negative
B) positive; positive; positive
C) ambiguous; negative; positive
D) positive; ambiguous; ambiguous
E) negative; ambiguous; ambiguous
2) In the specific factors model, the effects of trade on welfare overall are ________ and for
fixed factors used to produce the exported good they are ________.
A) positive; positive
B) positive; ambiguous
C) negative; positive
D) positive; negative
E) ambiguous; positive
3) In the specific factors model, the effects of trade on welfare overall are ________ and for
fixed factors used to produce the imported good they are ________.
A) ambiguous; positive
B) positive; negative
C) positive; positive
D) positive; ambiguous
E) negative; positive
4) The overall welfare effects of trade are ________ if ________.
A) positive; the domestic economy grows faster than do foreign economies
B) positive; more people gain from trade than lose from it
C) negative; some people are made worse off by trade
D) negative; those who lose can compel those who gain to compensate them for their losses
E) positive; those who gain can compensate those who lose and still be better off
5) A country’s budget constraint states that
A) real income in the exporting country must be equal to real income in the importing country.
B) the value of exports must be equal to the value of imports.
C) a country will engage in trade only if the value of imports exceed the value of exports.
D) unless a country engages in trade, the value of exports cannot exceed the value of goods
produced.
E) a country will engage in trade only if the value of exports exceeds the value of imports.
6) A country’s budget constraint states that
A) real income in the exporting country must be equal to real income in the importing country.
B) unless a country engages in trade, the value of goods consumed cannot exceed the value of
goods produced.
C) a country will engage in trade only if the value of goods consumed exceeds the value of goods
produced.
D) a country will engage in trade only if the value of goods produced exceeds the value of goods
consumed.
E) whether or not a country engages in trade, the value of goods consumed must be equal to the
value of goods produced.
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4.4 The Political Economy of Trade: A Preliminary View
1) Those who will lose from free trade are ________ factors in sectors that produce goods that
are ________.
A) mobile; also imported
B) mobile; exported
C) immobile; exported
D) mobile; untraded
E) immobile; also imported
2) The effect of trade on specialized employees of import-competing industries will be ________
jobs and ________ pay because they are relatively ________.
A) more; lower; immobile
B) more; higher; immobile
C) fewer; lower; immobile
D) more; higher; mobile
E) fewer; lower; mobile
3) Economists consider the effects of free trade on income distribution to be ________ important
than the effects on overall welfare because ________.
A) more; the effects on income distribution are major and consequential
B) less; the effects on income distribution are minor and inconsequential
C) more; those who are harmed are not compensated by those who gain
D) less; the wealthy benefit and only the poor lose
E) less; those who are harmed can be compensated by those who gain
4) Economists consider the effects of free trade on income distribution to be ________ important
than the effects on overall welfare because ________.
A) more; the effects on income distribution are major and consequential
B) less; the wealthy benefit and only the poor lose
C) less; many factors besides trade affect income distribution
D) more; those who are harmed are not compensated by those who gain
E) less; the effects on income distribution are minor and inconsequential
5) There is a bias in the political process against free trade because
A) those who gain from free trade can’t compensate those who lose.
B) the gains from free trade cannot be measured.
C) those who lose from free trade are better organized than those who gain.
D) there is a high correlation between the volume of imports and the unemployment rate.
E) foreign governments make large donations to U.S. political campaigns.
6) U.S. imports of sugar are limited by an import quota that, according to a study updated in
2015, imposed annual losses on American consumers of
A) $2,000,000.
B) $1,500,000.
C) $1,000,000,000.
D) $370,000.
E) $200,000.
7) U.S. imports of sugar are limited by an import quota that, according to a study updated in
2015, imposed a total cost on American consumers close to $________, or an average cost of
________ per year for every U.S. household.
A) $2 billion; $110
B) $3 billion; $2,000
C) $3 .5 billion; $30
D) $105 million; $3
E) $370 million; $2,000
8) U.S. imports of sugar are limited by an import quota that, according to a study updated in
2015, imposed a total cost on American consumers close to $________, or an average consumer
cost of over ________ per year for every job saved in the U.S sugar industry.
A) $3 billion; $10
B) $105 million; $3
C) $2 billion; $110
D) $3.5 billion; $3,000,000
E) $370 million; $20
4.5 International Labor Mobility
1) In modern economies,
A) restrictions on international labor mobility are common.
B) labor is far more mobile internationally than it is intra-nationally.
C) outsourcing increases international labor mobility.
D) restrictions on international labor mobility are rare.
E) labor is far more mobile internationally than capital.
2) Refer to the graph above. Points A, B, and C represent ________, ________, and ________,
respectively.
A) the global wage rate before migration; the wage rate in foreign after migration; the wage rate
in home after migration
B) the global wage rate before migration; the wage rate in home after migration; the wage rate in
foreign after migration
C) equilibrium wage rate after migration from foreign to home has occurred; the wage rate in
home before migration; the wage rate in foreign before migration
D) equilibrium wage rate after migration from home to foreign has occurred; the wage rate in
foreign before migration; the wage rate in home before migration
E) the wage rate in home before migration; the wage rate in home after migration; the wage rate
in foreign after migration
3) In the two-country model of international labor mobility
A) the effect of migration is to cause real wages in the two countries to diverge.
B) the long-run equilibrium global real wage is equal to the greater of the pre-migration wages in
the two countries.
C) labor has only limited international mobility.
D) the long-run equilibrium global real wage is equal to the lesser of the pre-migration wages in
the two countries.
E) the effect of migration is to cause real wages in the two countries to converge.
4) In the two-country model of international labor mobility
A) the long-run equilibrium assumes countries’ policies place significant restrictions on
migration.
B) the long-run equilibrium assumes that desired migration exceeds actual migration.
C) the long-run equilibrium assumes that actual migration exceeds desired migration.
D) the long-run equilibrium is the result of a divergence of the real wages in the two countries.
E) the long-run equilibrium assumes that desired and actual migration are equal.
5) In the two-country model of international labor mobility
A) migration has no effect on global output, although some groups are made better off.
B) migration has no effect on global output, although some groups are made worse off.
C) migration results in increased global output, and all groups are made better off.
D) migration may reduce global output, although some groups are made better off.
E) migration results in increased global output, although some groups are made worse off.
6) Immigration into the U.S. over the past century has caused the percentage of immigrants in the
U.S. population to
A) fall steadily over the entire century.
B) rise steadily until the 1970s and fall thereafter.
C) rise steadily over the entire century.
D) fall steadily until the 1970s and increase thereafter.
E) remain relatively constant over the time period.