115. If Japan loses competitiveness in computers, Japanese computer workers lose jobs to foreign computer workers and
the wages of Japanese computer workers tend to fall relative to the wages of foreign computer workers.
a.
True
b.
False
116. With constant opportunity costs, a nation will achieve the greatest possible gains from trade if it partially specializes
in the production of the commodity of its comparative disadvantage.
a.
True
b.
False
False
Moderate
117. By reducing the overall volume of trade, import restrictions tend to reduce a nation’s gains from trade.
a.
True
b.
False
True
Moderate
118. According to the principle of comparative advantage, an open trading system results in resources being channeled
from uses of low productivity to those of high productivity.
a.
True
b.
False
True
Moderate
True
Challenging
119. With increasing opportunity costs, comparative advantage depends on a nation’s supply conditions and demand
conditions; with constant opportunity costs, comparative advantage depends only on demand conditions.
a.
True
b.
False
False
Moderate
120. The existence of exit barriers tends to delay the closing of inefficient firms that face international competitive
disadvantages.
a.
True
b.
False
True
Moderate
121. MacDougall’s empirical study of comparative advantage was based on the notion that a product’s labor cost is
underlaid by labor productivity and the wage rate.
a.
True
b.
False
True
Moderate
122. The MacDougall study of comparative advantage hypothesized that in those industries in which U.S. labor
productivity was relatively high, U.S. exports to the world should be lower than U.K. exports to the world, after adjusting
for wage differentials.
a.
True
b.
False
123. The basic idea of mercantilism was that wealth consisted of the goods and services produced by a nation.
a.
True
b.
False
False
Easy
124. According to Adam Smith, international trade was a “win-win” situation since all nations could enjoy gains from
trade.
a.
True
b.
False
True
Moderate
125. The price-specie-flow mechanism illustrated why one nation’s gains from trade were accompanied by another
country’s losses.
a.
True
b.
False
False
Easy
False
Easy
126. Complete specialization usually occurs under the assumption of increasing opportunity costs.
a.
True
b.
False
127. Adam Smith contended that gold, silver, and other precious metals constituted the wealth of a nation.
a.
True
b.
False
False
Moderate
128. The price-specie-flow mechanism illustrated why nations could not maintain trade surpluses or trade deficits over the
long run.
a.
True
b.
False
True
Moderate
129. The marginal rate of transformation equals the absolute slope of a country’s production possibilities schedule.
a.
True
b.
False
True
Moderate
False
Moderate
130. Assume that Germany has higher labor productivity and higher wage levels than France. Germany can produce a
commodity more cheaply than France if its productivity differential more than offsets its wage differential.
a.
True
b.
False
True
Challenging
131. Ricardo’s theory of comparative advantage does not take into account demand conditions when determining relative
commodity prices.
a.
True
b.
False
True
Moderate
132. If Canada has a higher wage level and higher labor productivity than Mexico, Canada will necessarily produce a
good at a higher labor cost than Mexico.
a.
True
b.
False
False
Challenging
133. If Argentina has a comparative advantage over Brazil in beef relative to coffee, Argentina will specialize in beef
production.
a.
True
b.
False
True
134. Modern trade theory recognizes that the pattern of world trade is governed by both demand conditions and supply
conditions.
a.
True
b.
False
True
Moderate
135. A nation achieves autarky equilibrium at the point where its community indifference curve is tangent to its
production possibilities schedule.
a.
True
b.
False
True
Challenging
136. In autarky equilibrium, a nation realizes the lowest possible level of satisfaction given the constraint of its production
possibilities schedule.
a.
True
b.
False
False
Moderate
Easy
137. A nation benefits from international trade if it can achieve a higher indifference curve than it can in autarky.
a.
True
b.
False
138. A nation realizes maximum gains from trade at the point where the international terms-of-trade line is tangent to its
community indifference curve.
a.
True
b.
False
True
Moderate
139. The Ricardian theory of comparative advantage could fully explain the distribution of the gains from trade among
trading partners.
a.
True
b.
False
False
Moderate
140. Because the Ricardian theory of comparative advantage was based only on a nation’s demand conditions, it could not
fully explain the distribution of the gains from trade among trading partners.
a.
True
b.
False
False
Moderate
True
Moderate
141. Because the Ricardian theory of comparative advantage was based only on a nation’s supply conditions, it could only
determine the outer limits within which the equilibrium terms of trade would lie.
a.
True
b.
False
True
Moderate
142. The domestic cost ratios of nations set the outer limits to the equilibrium terms of trade.
a.
True
b.
False
True
Moderate
143. Mutually beneficial trade for two countries occurs if the equilibrium terms of trade lies between the two countries’
domestic cost ratios.
a.
True
b.
False
True
Moderate
144. Assume that the United States and Canada engage in trade. If the international terms of trade coincides with the U.S.
cost ratio, the United States realizes all of the gains from trade with Canada.
a.
True
b.
False
False
145. Assume that the United States and Canada engage in trade. If the international terms of trade coincides with the
Canadian cost ratio, the United States realizes all of the gains from trade with Canada.
a.
True
b.
False
True
Moderate
146. If the international terms of trade lies beneath (inside) the Mexican cost ratio, Mexico is worse off with trade than
without trade.
a.
True
b.
False
True
Moderate
147. Although J. S. Mill recognized that the region of mutually beneficial trade is bounded by the cost ratios of two
countries, it was not until David Ricardo developed the theory of reciprocal demand that the equilibrium terms of trade
could be determined.
a.
True
b.
False
False
Moderate
Moderate
148. According to J. S. Mill, if we know the domestic demand expressed by both trading partners for both products, the
equilibrium terms of trade can be defined.
a.
True
b.
False
149. The theory of reciprocal demand asserts that as the U.S. demand for Canadian wheat rises, the equilibrium terms of
trade improve for the United States.
a.
True
b.
False
False
Moderate
150. Assume that Canada has a comparative advantage in wheat and a comparative disadvantage in autos. As the
Canadian demand for wheat increases, Canada’s equilibrium terms of trade improves.
a.
True
b.
False
False
Challenging
151. The theory of reciprocal demand best applies when two countries are of equal economic size, so that the demand
conditions of each nation have a noticeable impact on market prices.
a.
True
b.
False
True
Challenging
True
Moderate
152. The theory of reciprocal demand best applies when one country has a “large” economy and the other country has a
“small” economy.
a.
True
b.
False
False
Challenging
United States – BPROG: Reflective Thinking – BPROG: Analysis
Distributing the Gains From Trade
BLOOM’S: Comprehension
153. If two nations of approximately the same size and with similar taste patterns participate in international trade, the
gains from trade tend to be shared about equally between them.
a.
True
b.
False
True
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
Distributing the Gains From Trade
BLOOM’S: Comprehension
154. The expression “importance of being unimportant” suggests that if one nation is much larger than the other, the larger
nation realizes most of the gains from trade while the smaller nation realizes fewer gains from trade.
a.
True
b.
False
False
Challenging
United States – BPROG: Reflective Thinking – BPROG: Analysis
Equilibrium Terms of Trade
155. An improvement in a nation’s terms of trade occurs if the prices of its exports rise relative to the prices of its imports
over a given time period.
United States – BPROG: Reflective Thinking – BPROG: Analysis
specialization and trade
Distributing the Gains From Trade
BLOOM’S: Comprehension
a.
True
b.
False
156. If a country’s terms of trade worsen, it must exchange fewer exports for a given amount of imports.
a.
True
b.
False
False
Moderate
157. If a country’s terms of trade improve, it must exchange more exports for a given amount of imports.
a.
True
b.
False
False
Moderate
158. The terms of trade represents the rate of exchange between a country’s exports and imports.
a.
True
b.
False
True
Moderate
True
Challenging
159. Assume 1990 to be the base year. If by the end of 2004 a country’s export price index rose from 100 to 130 while its
import price index rose from 100 to 115, its terms of trade would equal 113.
a.
True
b.
False
160. Assume 1990 to be the base year. If by the end of 2004 a country’s export price index rose from 100 to 140 while its
import price index rose from 100 to 160, its terms of trade would equal 120.
a.
True
b.
False
False
Challenging
Terms-of-Trade Estimates
161. Assume 1990 to be the base year. If by the end of 2004 a country’s export price index rose from 100 to 125 while its
import price index rose from 100 to 125, its terms of trade would equal 100.
a.
True
b.
False
True
Challenging
Terms-of-Trade Estimates
162. The commodity terms of trade are found by dividing a country’s import price index by its export price index.
a.
True
b.
False
False
Moderate
True
Challenging
Terms-of-Trade Estimates
163. For the commodity terms of trade to improve, a country’s export price index must rise relative to its import price
index over a given time period.
a.
True
b.
False
True
Moderate
Terms-of-Trade Estimates
164. For the commodity terms of trade to improve, a country’s import price index must rise relative to its export price
index over a given time period.
a.
True
b.
False
False
Moderate
Terms-of-Trade Estimates
165. Is it possible to add up the preferences of all consumers in an entire nation?
Challenging
166. Who gains more from trade, when nations are of unequal economic size?
Moderate
Terms-of-Trade Estimates
167. Is it possible for comparative advantage to change, thus changing the direction of trade?
168. Explain the Law of Comparative Advantage.
169. Discuss the pitfalls of outsourcing, especially as experienced by Boeing.
170. Is it possible to estimate the gains from trade?
