b.
False
55. The Heckscher-Ohlin theory asserts that relative differences in labor productivity underlie comparative advantage.
a.
True
b.
False
False
Easy
56. The factor-endowment theory highlights the relative abundance of a nation’s resources as the key factor underlying
comparative advantage.
a.
True
b.
False
True
Moderate
57. According to the factor-endowment theory, a nation will export that good for which a large amount of the relatively
scarce resource is used.
a.
True
b.
False
False
Moderate
True
Easy
58. According to the factor-endowment theory, a nation will import that good for which a large amount of the relatively
abundant resource is used.
a.
True
b.
False
59. The Heckscher-Ohlin theory suggests that land-abundant nations will export land-intensive goods while labor-
abundant nations will export labor-intensive goods.
a.
True
b.
False
True
Moderate
60. The Heckscher-Ohlin theory contends that over a period of years a country that initially is an exporter of a product
will become an importer of that product.
a.
True
b.
False
False
Moderate
61. The Heckscher-Ohlin theory emphasizes the role that demand plays in the creation of comparative advantage.
a.
True
b.
False
False
Challenging
False
Moderate
62. The factor-endowment theory asserts that with specialization and trade there tends to occur an equalization in the
relative resource prices of trading partners.
a.
True
b.
False
True
Moderate
63. According to the factor-endowment theory, international specialization and trade cause a nation’s cheap resource to
become cheaper and a nation’s expensive resource to become more expensive.
a.
True
b.
False
False
Moderate
64. Fears about the downward pressure that cheap foreign workers place on U.S. wages have led U.S. labor unions to
lobby for import restrictions such as tariffs and quotas.
a.
True
b.
False
True
Challenging
65. According to the factor-price-equalization theory, international trade results in the relative differences in resource
prices between nations being eliminated.
a.
True
b.
False
66. Empirical testing by Wassily Leontief gave support to the Heckscher-Ohlin theory of trade.
a.
True
b.
False
False
Challenging
67. The Leontief Paradox was the first major challenge to the product–life-cycle theory of trade.
a.
True
b.
False
False
Moderate
68. The Leontief Paradox suggested that, in contrast to the predictions of the factor-endowment theory, U.S. exports were
less capital-intensive than U.S. import-competing goods.
a.
True
b.
False
True
Challenging
True
Challenging
69. The specific-factors theory analyzes the income distribution effects of trade in the short run when resources are
immobile among industries.
a.
True
b.
False
70. Owners of resources specific to export industries tend to lose from international trade, while owners of factors specific
to import-competing industries tend to gain.
a.
True
b.
False
False
Challenging
71. The factor-price-equalization theory is a short-run version of the specific-factors theory.
a.
True
b.
False
False
Challenging
72. With economies of scale, specialization in a few products allows a manufacturer to benefit from longer production
runs which lead to decreasing average cost.
a.
True
b.
False
True
Challenging
True
Challenging
73. With decreasing costs, a country has an incentive to partially specialize in the product of its comparative advantage.
a.
True
b.
False
False
Moderate
74. By widening the size of the domestic market, international trade permits companies to take advantage of longer
production runs and increasing efficiencies such as mass production.
a.
True
b.
False
True
Moderate
75. The theory of overlapping demands applies best to trade in manufactured goods.
a.
True
b.
False
True
Challenging
76. Decreasing cost conditions lead to complete specialization in the production of the commodity of comparative
advantage.
a.
True
b.
False
True
77. According to Staffan Linder, the factor endowment theory is useful in explaining trade patterns in manufactured
goods, but not primary products.
a.
True
b.
False
False
Moderate
78. The theory of overlapping demands asserts that trade in manufactured goods is stronger the less similar the demand
structures of two countries.
a.
True
b.
False
False
Moderate
79. The theory of overlapping demands contends that international trade in manufactured products is strongest among
nations with similar income levels.
a.
True
b.
False
True
Moderate
80. According to the theory of overlapping demands, trade in manufactured goods would be greater among two wealthy
Moderate
countries than among a wealthy country and a poor country.
a.
True
b.
False
81. Recent studies of U.S. resource endowments indicate that the United States is most abundant in unskilled labor,
followed by semi-skilled labor and skilled labor.
a.
True
b.
False
False
Moderate
82. Intra-industry trade would occur if computers manufactured in the United States by IBM are exported to Japan while
the United States imports computers manufactured by Hitachi of Japan.
a.
True
b.
False
True
Moderate
83. Because seasons in the Southern Hemisphere are opposite those in the Northern Hemisphere, one would expect intra-
industry trade to occur in agricultural products.
a.
True
b.
False
True
Moderate
True
Moderate
84. Intra-industry trade can be explained by product differentiation, economies of scale, seasons of the year, and
transportation costs.
a.
True
b.
False
True
Challenging
85. According to the theory of intra-industry trade, many manufactured goods undergo a trade cycle in which the home
country initially is an exporter and eventually becomes an importer of a product.
a.
True
b.
False
False
Moderate
86. The product-life-cycle theory applies best to trade in primary products in the short run.
a.
True
b.
False
False
Moderate
87. According to the product-life-cycle theory, the first stage of a product’s trade cycle is when it is introduced to the
home market.
a.
True
b.
False
True
88. According to the product life cycle theory, the last stage of a product’s trade cycle is when it becomes an import-
competing good.
a.
True
b.
False
True
Easy
89. Ricardo’s theory of comparative advantage is a static theory that does not consider changes in international
competitiveness over the long run.
a.
True
b.
False
True
Moderate
90. Dynamic comparative advantage refers to the creation of comparative advantage through the mobilization of skilled
labor, technology, and capital.
a.
True
b.
False
True
Challenging
Easy
91. Industrial policy seeks to direct resources to declining industries in which productivity is low, linkages to the rest of
the economy are weak, and future competitiveness is remote.
a.
True
b.
False
92. Europe’s jumbo-jet manufacturer, Airbus, has justified receiving governmental subsidies on the grounds that the
subsidies prevent the United States from becoming a monopoly in the jumbo-jet market.
a.
True
b.
False
True
Easy
93. The imposition of pollution-control regulations on domestic steel manufacturers leads to decreases in production costs
and an improvement in the steel manufacturers’ competitiveness.
a.
True
b.
False
False
Moderate
94. Empirical studies conclude that U.S. environmental policies are a more important determinant of trade performance
than capital, raw materials, labor skills, and wages.
a.
True
b.
False
False
Moderate
False
Challenging
95. Although the theory of comparative advantage explains trade in manufactured goods, it has no explanatory value for
trade in business services.
a.
True
b.
False
False
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
Factor Endowments as a Source of Comparative Advantage
BLOOM’S: Comprehension
96. Most developing countries have pollution-control laws and enforcement policies that are more stringent than those of
the major industrial countries.
a.
True
b.
False
False
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
Government Regulatory Policies and Comparative Advantage
BLOOM’S: Knowledge
97. When transportation costs are added to our trade model, the low-cost exporting country produces less, consumes more,
and exports less than that which occurs in the absence of transportation costs.
a.
True
b.
False
True
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
Transportation Costs and Comparative Advantage
98. When transportation costs are added to our trade model, the degree of specialization in production between two
countries increases as do the gains from trade.
United States – BPROG: Reflective Thinking – BPROG: Analysis
specialization and trade
Government Regulatory Policies and Comparative Advantage
BLOOM’S: Knowledge
a.
True
b.
False
99. In the absence of transportation costs, free trade results in the equalization of the prices of traded goods, as well as
resource prices, in the trading nations.
a.
True
b.
False
True
Challenging
100. In industries where the final product is much less weighty or bulky than the materials from which it is made, firms
tend to locate production near resource supplies.
a.
True
b.
False
True
Challenging
101. Industrial processes that add weight or bulk to a commodity are likely to be located near the resource market to
minimize transportation costs.
a.
True
b.
False
False
Moderate
False
Moderate
102. A product will be traded only if the cost of transporting it between nations is less than the pretrade difference
between their relative product prices.
a.
True
b.
False
True
Moderate
103. Generally speaking, transportation costs are more important than production costs as a source of comparative
advantage.
a.
True
b.
False
False
Easy
104. According to the product life cycle model, comparative advantage shifts from cheap-labor countries to high-
technology countries after a manufactured good becomes standardized.
a.
True
b.
False
False
Moderate
105. The product-life-cycle model contends that when a new product is introduced to the home market, it generally
requires low-skilled labor to produce it.
a.
True
b.
False
False
106. Does factor price equalization occur in the real world?
107. What is the focus of the product life cycle theory, and where is it applicable?
108. Explain how immigration and trade may worsen wage inequality, and how college education may mitigate against
that.
109. How does Staffan Linder explain world trade patterns?
