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54. Australia is a major producer of agricultural and dairy products and exports coffee, tea, spices, and milk
products to the United States. United States is the world's third largest supplier of machinery and exports heavy
machinery to Australia. What explains the trade equation between Australia and the United States?
55. Cadmia and Rhodia specialize in the production of textiles and agricultural products respectively. They are
the best at their respective specializations. Cadmia trades textiles with Rhodia in exchange for agricultural
products. Which of the following is illustrated by this form of trade between Cadmia and Rhodia?
56. Palladia specializes in the production of beef and produces beef more efficiently than any other country. It
buys wheat, which it produces less efficiently than beef, from Rhodia, even though it produces wheat more
efficiently than Rhodia. Which of the following theories of international trade supports Palladia's decision to
buy wheat from Rhodia?
57. Which of the following suggests that consumers in all nations can consume more if there are no restrictions
on trade?
58. Which of the following suggests that trade is a positive-sum game in which all participating countries fetch
economic gains?
59. Argonia and Selenia have specialized in the production of industrial equipment and pharmaceuticals
respectively. Argonia exports industrial equipment to Selenia, which in turn exports chemicals and medicines to
Argonia. According to the theory of comparative advantage, this mutually beneficial trade relationship best
illustrates:
60. Consider two countries Daria and Atlantis. Daria is a major producer of wheat and rice while Atlantis
specializes in the production of fertilizers and manufacturing equipment. Engaging in free trade benefits both
countries since Daria is an agrarian nation and Atlantis lacks arable land. This follows the theory of comparative
advantage, and we can say that engaging in free trade benefits all countries that participate in it. Which of the
following is an inaccurate assumption on which this conclusion is based?
61. Diminishing returns to specialization occur when:
62. Which of the following is a reason for diminishing rather than constant returns to specialization?
63. Which of the following statements best indicates Samuelson's criticism of free trade?
64. One of the rebuttals to Samuelson's critique of the free trade model is that:
65. Which of the following is true of the relationship between trade and economic growth?
66. According to the Heckscher-Ohlin theory, the pattern of international trade is determined by differences in:
67. Meitneria and Seaboria specialize in the production of heavy machinery and textiles respectively. While
Meitneria doesn't produce textiles, Seaboria is not as technologically advanced as Meitneria. In this situation,
according to the Heckscher-Ohlin theory:
68. The difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin
theory:
69. Which of the following predicts that countries will export those goods that make intensive use of factors that
are locally abundant, while importing goods that make intensive use of factors that are locally scarce?
70. U.S. exports are less capital-intensive than U.S. imports, despite the relative abundance of capital in the
country. What is this phenomenon that runs contrary to the prediction of the Heckscher-Ohlin theory called?
71. Which of the following is most likely an explanation for the Leontief paradox observed in the case of the
United States?
72. On which of the following observations was Raymond Vernon's product life-cycle theory based?
73. According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to:
74. Vernon argues that pioneering firms in the United States kept production facilities closer to the market and
centers of decision making because:
75. According to Vernon, which of the following factors obviates the need for pioneering U.S. firms to look for
low-cost production sites in other countries?
76. Vernon argues that early in the life cycle of a typical new product, while demand is starting to grow rapidly
in the United States, demand in other advanced countries:
77. Vernon predicts that as the demand for a new product starts to grow in other advanced countries, in the long
run:
78. Vernon theorizes that as the market in the United States and other advanced nations matures:
79. According to Vernon, which of the following influences the movement of the locus of global production
from advanced countries to developing countries?
80. According to the product life-cycle theory, the locus of global production initially switches from the United
States to other advanced nations and then from those nations to developing countries. Which of the following is
most likely to be a consequence of these trends?
81. Which of the following is a drawback of the product life-cycle theory?
82. Which of the following theories began to emerge when economists pointed out that the ability of firms to
attain economies of scale might have important implications for international trade?
83. Which of the following are unit cost reductions associated with a large scale of output?
84. New trade theory argues that, through its impact on economies of scale, trade can:
85. Which of the following theories states that in those industries where the output required to attain economies
of scale represents a significant proportion of total world demand, the global market may be able to support
only a small number of enterprises?
86. The new trade theory states that:
87. According to the new trade theory, trade, through its impact on economies of scale, is most likely to:
88. Which of the following is a result of certain products having small national markets, in the absence of
trade?
89. According to the new trade theory, which of the following is most likely to be a result of market expansion
due to trade?
90. According to the new trade theory, how does trade offer an opportunity for mutual gain when countries do
not differ in their resource endowments or technology?
