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 partners
65. A terms-of-trade index that equals 150 indicates that compared to the base year:
a.
It requires a greater output of domestic goods to obtain the same amount of foreign goods
b.
It requires a lesser amount of domestic goods to obtain the same amount of foreign goods
c.
The price of exports has risen from $100 to $150
d.
The price of imports has risen from $100 to $150
United States – BPROG: Reflective Thinking – BPROG: Analysis
specialization and trade
Equilibrium Terms of Trade
66. A term-of-trade index that equals 90 indicates that compared to the base year:
a.
It requires a greater output of domestic goods to obtain the same amount of foreign goods
b.
It requires a lesser amount of domestic goods to obtain the same amount of foreign goods
c.
The price of exports has fallen from $100 to $90
d.
The price of imports has fallen from $100 to $90
United States – BPROG: Reflective Thinking – BPROG: Analysis
Equilibrium Terms of Trade
BLOOM’S: Comprehension
67. The theory of reciprocal demand does not well apply when one country:
a.
Produces under constant cost conditions
b.
Produces along its production possibilities curve
c.
Is of minor economic importance in the world marketplace
d.
Partially specializes the production of its export good
United States – BPROG: Reflective Thinking – BPROG: Analysis
specialization and trade
Equilibrium Terms of Trade
BLOOM’S: Comprehension
68. The terms of trade is given by:
a.
(Price of exports/price of imports) − 100
b.
(Price of exports/price of imports) + 100
c.
(Price of exports/price of imports) ÷ 100
d.
(Price of exports/price of imports) × 100
United States – BPROG: Reflective Thinking – BPROG: Analysis
Equilibrium Terms of Trade
BLOOM’S: Knowledge
69. If Japan and France have identical production possibilities curves and identical community indifference curves:
a.
b.
c.
d.
United States – BPROG: Reflective Thinking – BPROG: Analysis
Trading Under Increasing-Cost Conditions
BLOOM’S: Comprehension
70. A rise in the price of imports or a fall in the price of exports will:
a.
Improve the terms of trade
b.
Worsen the terms of trade
c.
Expand the production possibilities curve
d.
Contract the production possibilities curve
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – PA – DISC: Gains from trade, speciali – DISC: Gains from trade,
United States – BPROG: Reflective Thinking – BPROG: Analysis
Equilibrium Terms of Trade
71. A fall in the price of imports or a rise in the price of exports will:
a.
Improve the terms of trade
b.
Worsen the terms of trade
c.
Expand the production possibilities curve
d.
Contract the production possibilities curve
United States – BPROG: Reflective Thinking – BPROG: Analysis
Equilibrium Terms of Trade
BLOOM’S: Comprehension
72. Under free trade, Canada would not enjoy any gains from trade with Sweden if Canada:
a.
Trades at the Canadian rate of transformation
b.
Trades at Sweden’s rate of transformation
c.
Specializes completely in the production of its export good
d.
Specializes partially in the production of its export good
United States – BPROG: Reflective Thinking – BPROG: Analysis
Equilibrium Terms of Trade
BLOOM’S: Comprehension
Figure 2.2 illustrates trade data for Canada. The figure assumes that Canada attains international trade equilibrium at
point C.
Figure 2.2. Canadian Trade Possibilities
specialization and trade
Equilibrium Terms of Trade
BLOOM’S: Comprehension
73. Consider Figure 2.2. In the absence of trade, Canada would produce and consume:
a.
8 televisions and 16 refrigerators
b.
12 televisions and 16 refrigerators
c.
8 televisions and 12 refrigerators
d.
12 televisions and 8 refrigerators
74. Referring to Figure 2.2, Canada has a comparative advantage in:
a.
Televisions
b.
Refrigerators
c.
Televisions and refrigerators
d.
Neither televisions nor refrigerators
Challenging
United States – BPROG: Analysis
graphs
Production Possibilities Schedules
BLOOM’S: Analysis
75. Consider Figure 2.2. With specialization, Canada produces:
a.
16 televisions
b.
12 televisions and 8 refrigerators
c.
8 televisions and 16 refrigerators
c
Moderate
United States – BPROG: Analysis
Production Possibilities Schedules
BLOOM’S: Analysis
d.
24 refrigerators
76. Consider Figure 2.2. With trade, Canada consumes:
a.
12 televisions and 8 refrigerators
b.
12 televisions and 16 refrigerators
c.
8 televisions and 16 refrigerators
d.
24 refrigerators
United States – BPROG: Reflective Thinking – BPROG: Analysis
Production Possibilities Schedules
BLOOM’S: Analysis
77. According to Figure 2.2, exports for Canada total:
a.
16 refrigerators
b.
8 refrigerators
c.
12 refrigerators
d.
16 refrigerators
United States – BPROG: Reflective Thinking – BPROG: Analysis
Production Possibilities Schedules
BLOOM’S: Analysis
78. According to Figure 2.2, imports for Canada total:
a.
6 televisions
b.
8 televisions
c.
12 televisions
d.
16 televisions
United States – BPROG: Analysis
Production Possibilities Schedules
BLOOM’S: Analysis
79. Concerning possible determinants of international trade, which are sources of comparative advantage? Differences in:
a.
Methods of production
b.
Tastes and preferences
c.
Technological know–how
d.
All of the above
United States – BPROG: Reflective Thinking – BPROG: Analysis
Historical Development of Modern Trade Theory
BLOOM’S: Comprehension
80. Ricardo’s model of comparative advantage assumed all of the following except:
a.
In each nation, labor is the only input
b.
Costs do not vary with the level of production
c.
Perfect competition prevails in all markets
d.
Transportation costs rise as distance increases between countries
United States – BPROG: Reflective Thinking – BPROG: Analysis
Historical Development of Modern Trade Theory
BLOOM’S: Comprehension
81. Ricardo’s model of comparative advantage assumed all of the following except:
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 countries
United States – BPROG: Analysis
specialization and trade
Historical Development of Modern Trade Theory
United States – BPROG: Reflective Thinking – BPROG: Analysis
Production Possibilities Schedules
BLOOM’S: Analysis
82. The dynamic gains from trade include all of the following except:
a.
Economies of large-scale production resulting in decreasing unit cost
b.
Increased saving and investment resulting in economic growth
c.
Increased competition resulting in lower prices and wider range of output
d.
Increasing comparative advantage leading to specialization
United States – BPROG: Reflective Thinking – BPROG: Analysis
Dynamic Gains from Trade
BLOOM’S: Comprehension
83. All of the following may be exit barriers except
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 production
specialization and trade
Exit Barriers
BLOOM’S: Comprehension
84. Incomplete specialization may be caused by
a.
Increasing opportunity cost
b.
Unrestricted trade
c.
Constant opportunity cost
d.
Decreasing opportunity cost
United States – BPROG: Analysis
specialization and trade
Trading Under Increasing-Cost Conditions
BLOOM’S: Comprehension
85. Improvements in productivity may lead to decreasing comparative costs if
a.
The assumption of fixed technologies under constant costs is relaxed
BLOOM’S: Comprehension
b.
Technologies available to each nation is allowed to differ
c.
Resource endowments are allowed to vary
d.
All of the above
86. Adam Smith
a.
Was a leading advocate of free trade
b.
Developed the concept of absolute advantage
c.
Maintained that labor costs represent the major determinant of production cost
d.
All of the above
United States – BPROG: Reflective Thinking – BPROG: Analysis
specialization and trade
Historical Development of Modern Trade Theory
87. Modern trade theory contends that the pattern of world trade is governed by
a.
Differences in supply conditions and demand conditions
b.
Supply conditions only
c.
Demand conditions only
d.
None of the above
United States – BPROG: Reflective Thinking – BPROG: Analysis
Trading Under Constant-Cost Conditions
BLOOM’S: Comprehension
88. When nations are of similar size, and have similar taste patterns, the gains from trade
a.
Are shared equally between them
b.
Are impossible to determine
c.
Are too small, so that trading is not beneficial
d.
Are determined by the nation that has comparative advantage in the more essential product
United States – BPROG: Analysis
specialization and trade
Productions Gains From Specialization
BLOOM’S: Comprehension
89. The commodity terms of trade measures
a.
The rate at which exports exchange for imports
b.
The influence trade has on productivity levels
c.
The effect on income of the trading nation
d.
The improvement in a nation’s welfare
United States – BPROG: Reflective Thinking – BPROG: Analysis
Equilibrium Terms of Trade
BLOOM’S: Comprehension
Figure 2.4 Production Possibilities Frontier
90. In Figure 2.4 the marginal rate of transformation of wheat into autos is
a.
one and two-thirds
United States – BPROG: Reflective Thinking – BPROG: Analysis
Equilibrium Terms of Trade
b.
two and one-third
c.
three fifths
d.
three sevenths
91. In Figure 2.4 the marginal rate of transformation of autos into wheat is
a.
one and two-thirds
b.
two and one-third
c.
three fifths
d.
three sevenths
United States – BPROG: Analytic
Trading Under Constant-Cost Conditions
92. In Figure 2.4 one car can be produced at a cost of
a.
one and two-thirds tons of wheat
b.
two and one-third tons of wheat
c.
three fifths tons of wheat
d.
three sevenths tons of wheat
United States – BPROG: Analytic
Trading Under Constant-Cost Conditions
BLOOM’S: Analysis
93. In Figure 2.4 one ton of wheat can be produced at a cost of
a.
one and two-thirds cars
b.
two and one-third cars
c.
three fifths of a car
d.
three sevenths of a car
United States – BPROG: Analytic
Trading Under Constant-Cost Conditions
BLOOM’S: Analysis
94. According to the mercantilists, a nation’s welfare would improve if it maintained a surplus of exports over imports.
a.
True
b.
False
True
Easy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Historical Development of Modern Trade Theory
BLOOM’S: Knowledge
95. The mercantilists maintained that a free-trade policy best enhances a nation’s welfare.
a.
True
b.
False
False
Easy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Historical Development of Modern Trade Theory
BLOOM’S: Knowledge
96. The mercantilists contended that because one nation’s gains from trade come the expense of its trading partners, not all
nations could simultaneously realize gains from trade.
a.
True
b.
False
True
Easy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Historical Development of Modern Trade Theory
BLOOM’S: Knowledge
97. According to the price-specie-flow-doctrine, a trade-surplus nation would experience gold outflows, a decrease in its
money supply, and a fall in its price level.
Moderate
United States – BPROG: Analytic
Trading Under Constant-Cost Conditions
a.
True
b.
False
98. The trade theories of Adam Smith and David Ricardo viewed the determination of competitiveness from the demand
side of the market.
a.
True
b.
False
False
Easy
99. According to the principle of absolute advantage, international trade is beneficial to the world if one nation has an
absolute cost advantage in the production of one good while the other nation has an absolute cost advantage in the other
good.
a.
True
b.
False
True
Easy
100. The principle of absolute advantage asserts that mutually beneficial trade can occur even if one nation is absolutely
more efficient in the production of all goods.
a.
True
b.
False
False
Easy
False
Easy
101. 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.
a.
True
b.
False
False
Easy
102. The principle of comparative advantage contends that a nation should specialize in and export the good in which its
absolute advantage is smallest or its absolute disadvantage is greatest.
a.
True
b.
False
False
Easy
103. The Ricardian theory of comparative advantage assumes only two nations and two products, labor can move freely
within a nation, and perfect competition exists in all markets.
a.
True
b.
False
True
Moderate
104. Assume that the United States is more efficient than the United Kingdom in the production of all goods. Mutually
beneficial trade is possible according to the principle of absolute advantage, but is impossible according to the principle of
comparative advantage.
a.
True
b.
False
105. It is possible for a nation not to have an absolute advantage in anything; but it is not possible for one nation to have a
comparative advantage in everything and the other nation to have a comparative advantage in nothing.
a.
True
b.
False
False
Moderate
106. Ricardo’s theory of comparative advantage was of limited relevance to the real world since it assumed that labor was
only one of several factors of production.
a.
True
b.
False
False
Easy
107. Compared to Ricardian trade theory, modern trade theory provides a more general view of comparative advantage
since it is based on all factors of production rather than just labor.
a.
True
b.
False
True
Moderate
False
Moderate
108. Constant opportunity costs suggest that the relative cost of producing one product in terms of the other will remain
the same no matter where a nation chooses to locate on its production-possibilities schedule.
a.
True
b.
False
Easy
109. There are two explanations of constant opportunity costs: (1) factors of production are imperfect substitutes for each
other; (2) all units of a given factor have different qualities.
a.
True
b.
False
False
Moderate
110. 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.
a.
True
b.
False
False
Moderate
111. A nation’s trade triangle denotes its exports, imports, and terms of trade.
a.
True
b.
False
True
112. International trade leads to increased welfare if a nation can achieve a post-trade consumption point lying inside of
its production-possibilities schedule.
a.
True
b.
False
False
Moderate
113. If the U.S. post-trade consumption point lies along its production possibilities schedule, the United States achieves a
higher level of welfare with trade than without trade.
a.
True
b.
False
False
Moderate
114. 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.
a.
True
b.
False
True
Moderate
Easy