41) 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 f.
B) point d.
C) point e.
D) point h.
E) point b.
42) 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 h.
B) point f.
C) point d.
D) point e.
E) point b.
43) 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 b.
B) point h.
C) point f.
D) point d.
E) point e.
4.2 International Trade in the Specific Factors Model
1) A country that does not engage in trade can benefit from trade only if
A) pre-trade and free-trade relative prices are not identical.
B) it employs a unique technology.
C) it has an absolute advantage in at least one good.
D) its wage rate is below the world average.
E) pre-trade and free-trade relative prices are identical.
2) The relative price of a unit of cloth in the small isolated country of Moribundia is 5 units of food.
When then 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) food; immobile; food
B) food; mobile; food
C) cloth; immobile; cloth
D) cloth; mobile; cloth
E) food; immobile; cloth
3) The relative price of a unit of cloth in the small isolated country of Moribundia is 5 units of food.
When then 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; cloth
B) food; immobile; food
C) food; mobile; food
D) cloth; mobile; cloth
E) cloth; immobile; food
4.3 Income Distribution and the Gains from Trade
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) ambiguous; negative; positive
C) positive; ambiguous; ambiguous
D) negative; ambiguous; ambiguous
E) positive; positive; positive
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) negative; positive
C) positive; negative
D) ambiguous; positive
E) positive; ambiguous
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) positive; negative
B) positive; positive
C) negative; positive
D) ambiguous; positive
E) positive; ambiguous
4) The overall welfare effects of trade are ________ if ________.
A) positive; those who gain can compensate those who lose and still be better off
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; the domestic economy grows faster than do foreign economies
5) The effect of trade on income distribution
A) can be significant in the sort run.
B) is positive for all segments of an economy.
C) is insignificant in the short run.
D) implies that there are no real gains from trade.
E) refutes the model of comparative advantage.
6) A country’s budget constraint states that
A) the value of exports must be equal to the value of imports.
B) real income in the exporting country must be equal to real income in the importing country.
C) unless a country engages in trade, the value of exports cannot exceed the value of goods produced.
D) a country will engage in trade only if the value of imports exceed the value of exports.
E) a country will engage in trade only if the value of exports exceeds the value of imports.
7) A country’s budget constraint states that
A) whether or not a country engages in trade, the value of goods consumed must be equal to the value of
goods produced.
B) real income in the exporting country must be equal to real income in the importing country.
C) unless a country engages in trade, the value of goods consumed cannot exceed the value of goods
produced.
D) a country will engage in trade only if the value of goods consumed exceeds the value of goods
produced.
E) a country will engage in trade only if the value of goods produced exceeds the value of goods
consumed.
8) A country will realize no gains from trade if
A) pre-trade and free-trade relative prices are identical.
B) all countries employ the same technology.
C) it does not have an absolute advantage in at least one good.
D) its wage exceeds the world average.
E) pre-trade and free-trade relative prices are not identical.
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) immobile; also imported
B) mobile; also imported
C) immobile; exported
D) mobile; exported
E) mobile; untraded
2) Those who will unambiguously gain from free trade are ________ factors in sectors that produce
goods that are ________.
A) immobile; exported
B) immobile; also imported
C) mobile; also imported
D) mobile; exported
E) mobile; untraded
3) The effect of trade on specialized employees of import-competing industries will be ________ jobs
and ________ pay because they are relatively ________.
A) fewer; lower; immobile
B) fewer; lower; mobile
C) more; lower; immobile
D) more; higher; mobile
E) more; higher; immobile
4) The effect of trade on specialized employees of exporting industries will be ________ jobs and
________ pay because they are relatively ________.
A) more; higher; immobile
B) fewer; lower; immobile
C) fewer; lower; mobile
D) more; lower; immobile
E) more; higher; mobile
5) Economists consider the effects of free trade on income distribution to be ________ important than
the effects on overall welfare because ________.
A) less; those who are harmed can be compensated by those who gain
B) more; those who are harmed are not compensated by those who gain
C) less; the effects on income distribution are minor and inconsequential
D) more; the effects on income distribution are major and consequential
E) less; the wealthy benefit and only the poor lose
6) Economists consider the effects of free trade on income distribution to be ________ important than
the effects on overall welfare because ________.
A) less; many factors besides trade affect income distribution
B) more; those who are harmed are not compensated by those who gain
C) less; the effects on income distribution are minor and inconsequential
D) more; the effects on income distribution are major and consequential
E) less; the wealthy benefit and only the poor lose
7) There is a bias in the political process against free trade because
A) those who lose from free trade are better organized than those who gain.
B) the gains from free trade cannot be measured.
C) those who gain from free trade can’t compensate those who lose.
D) foreign governments make large donations to U.S. political campaigns.
E) there is a high correlation between the volume of imports and the unemployment rate.
8) U.S. imports of sugar are limited by an import quota that, in 2006, imposed an average cost of
________ per consumer, which is an average of ________ per American job saved in the sugar industry.
A) $7; $860,000
B) $105; $56,000
C) $2; $1.3 million
D) $2; $22,000
E) $370; $980
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 capital.
C) restrictions on international labor mobility are rare.
D) labor is far more mobile internationally than it is intra-nationally.
E) outsourcing increases international labor mobility.
2) Refer to the graph above. Points A, B, and C represent ________, ________, and ________,
respectively.
A) 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
B) 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
C) the wage rate in home before migration; the wage rate in home after migration; the wage rate in
foreign after migration
D) the global wage rate before migration; the wage rate in foreign after migration; the wage rate in home
after migration
E) the global wage rate 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 converge.
B) the effect of migration is to cause real wages in the two countries to diverge.
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 long-run equilibrium global real wage is equal to the greater of the pre-migration wages in the
two countries.
4) In the two-country model of international labor mobility,
A) the long-run equilibrium assumes that desired and actual migration are equal.
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 assumes countries’ policies place significant restrictions on migration.
E) the long-run equilibrium is the result of a divergence of the real wages in the two countries.
5) In the two-country model of international labor mobility,
A) migration results in increased global output, although some groups are made worse off.
B) migration results in increased global output, and all groups are made better off.
C) migration has no effect on global output, although some groups are made worse off.
D) migration has no effect on global output, although some groups are made better off.
E) migration may reduce global output, although some groups are made better 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 until the 1970s and increase thereafter.
B) remain relatively constant over the time period.
C) fall steadily over the entire century.
D) rise steadily over the entire century.
E) rise steadily until the 1970s and fall thereafter.