CHAPTER 55
Debate on Free Trade
MULTIPLE CHOICE
629. In the 19th century, wool imported to the United States was subject to a 25% tax. This is an
example of
a. a quota
b. free trade
c. a tariff
d. comparative advantage
630. In the 1980s, the number of automobiles that could be imported into the U.S was limited in
order to provide protection to American automobile manufacturers. This is an exmaple of
a. a quota
b. free trade
c. a tariff
d. comparative advantage
631. Until the early 19th century, many economists believed that international trade was a zero
sum game. What is a zero sum game?
a. a game where there are no winners.
b. a game where there are no losers.
c. a game where one country can only gain if another country loses.
d. a game that does not cost anything to play.
632. The classic story of comparative advantage developed by Ricardo is
a. is based on absolute advantage
b. uses the labor theory of value.
c. presents both the supply and demand side of the market for both goods.
Table 55a
Units of output produced by 1 hour of labor input
Commodity
Canada
Mexico
Bread
6 loaves
2 loaves
Cheese
8 pounds
4 pounds
633. In Table 55a, if the trading price of goods is based on labor input, what is the relative price
of 1 loaf of bread in Canada?
a. 1 loaf = 1.33 pounds of cheese
b. 1 loaf = 0.75 pounds of cheese
c. 1 loaf = $4.00
d. 1 loaf = 8 pounds of cheese
634. In Table 55a, if the trading price of goods is based on labor input, what is the relative price
of 1 loaf of bread in Mexico?
a. 1 loaf = 4 pounds of cheese
b. 1 loaf = 2 pounds of cheese
c. 1 loaf = $5.00
d. 1 loaf = 0.5 pound of cheese
635. In Table 55a, if the trading price of goods is based on labor input, what is the relative price
of 1 pound of cheese in Canada?
a. 1 pound = 1.33 loaves of bread
b. 1 pound = 6 loaves of bread
c. 1 pound = 0.75 loaves of bread
d. 1 pound = $6.00
636. In Table 55a, if the trading price of goods is based on labor input, what is the relative price
of 1 pound of cheese in Mexico?
a. 1 pound = 2 loaves of bread
b. 1 pound = 0.5 loaf of bread
c. 1 pound = 4 loaves of bread
d. 1 pound = $8.00
637. In Table 55a, which country has the comparative advantage in the production of bread?
a. Canada
b. Mexico
c. Neither country
d. Both countries
638. In Table 55a, which country has the comparative advantage in the production of cheese?
a. Canada
b. Mexico
c. Neither country
d. Both countries
APPENDIX 55.1
Conservative Defense of Comparative Advantage
MULTIPLE CHOICE
639.
a. it refers to the agreed upon terms in a contract of sale.
b. it refers to the rate of exchange between an export good and an import good.
c. it refers to the level of tariffs imposed on an imported good.
d. it refers to the length of time between the sale and the actual delivery date.
Table 55b
Units of output produced by 1 hour of labor input
Commodity
Canada
Mexico
Bread
3 loaves
1 loaves
Cheese
4 pounds
2 pounds
640. In Table 55b, assume that Canada decides to export bread to Mexico. Canada can sell 1 loaf
of bread for ___________cheese at home in Canada, but it can sell 1 loaf of bread for
_______ in Mexico. (Fill in the blanks)
a. 1.33 pounds of cheese, 2 pounds of cheese.
b. 4 pounds of cheese, 2 pounds of cheese.
c. ¾ pounds of cheese, ½ pounds of cheese.
d. 1 pound of cheese, 1 pound of cheese.
641. In Table 55b, if Mexico buys bread from Canada at the Canadian price, it will pay
___________. If Mexico buys bread from Canada at the Mexican price, it will pay________.
(Fill in the blanks)
a. 1.33 pounds of cheese, 2 pounds of cheese.
b. 4 pounds of cheese, 2 pounds of cheese.
c. ¾ pounds of cheese, ½ pounds of cheese.
d. 1 pound of cheese, 1 pound of cheese.
642. Using Table 55b, Mexico will have the most gain from trade if
a. it can buy imported bread from Canada at the Canadian price.
b. it can buy imported bread from Canada at the Mexican price.
c. it does not buy any bread from Canada.
d. it sells bread to Canada and imports cheese.
643. The assumption that a country engages in no international trade at all is called
a. aristocracy
b. autarky
c. autocracy
d. oligarchy
APPENDIX 55.2
Criticisms of Comparative Advantage
MULTIPLE CHOICE
644. The classic story of comparative advantage demonstrates that
a. everyone gains from free trade.
b. everyone loses from free trade.
c. free trade is a zero sum game.
d. free trade creates winners and losers within countries.
645. The neoclassical theory of comparative advantage (the Heckscher-Ohlin model) differs
from the classical theory (Ricardian model) in that
a. trade is based on absolute advantage in the production of goods.
b.
c.
d.
646. The criticism that both the Heckscher-Ohlin model and the Ricardian models of
com
a. The models are too stationary and do not take into account the cost of transporting goods.
b. Neither model incorporates capital as a factor of production.
c. Neither model recognizes that productive factors are scarce and fixed in each country.
d. Neither model recognizes that production technology is constantly changing.
647. In the mid 1960s, Raymond Vernon developed the idea that products go through a cycle of
different phases while include
a. development, expansion, peak, maturity, and demise.
b. custom, mainstream, mass production, and demise.
c. conception, design, manufacture, service and disposal
d. recession, trough, expansion, peak.
648. Assume Spain determines that it has a comparative advantage in wool and begins to export
wool to Portugal. In turn, Portugal finds it has a comparative advantage in wine and begins to
export wine to Spain. Who are the likely winners and losers in the short run as a result of this
specialization?
a. everyone in both countries will gain from free trade.
b. the winners are producers of wool in Spain, producers of wine in Portugal, and
consumers in both countries; the losers are producers of wine in Spain and producers of
wool in Portugal.
c. the winners are consumers in both countries and producers in both countries; the losers
are the workers in both countries.
d. the winners are producers of wool in Portugal, producers of wine in Spain, and
consumers in both countries; the losers are producers of wine in Portugal and producers
of wool in Spain.