Question 1

In autarky equilibrium, a nation realizes the lowest possible level of satisfaction given the constraint of its production possibilities frontier.

Accepted Answer

A) True 
 B)False

Question 2

The United States has an absolute disadvantage to Spain on wine production.According to David Ricardo, specialization can be more efficient only in the following circumstances:

Accepted Answer

A)   Spain intentionally slows its production.
B)   The United States grows its own grapes, thereby reducing transport costs.
C)   In this case, specialization will not have an impact on either country.
D)   Specialization can lead to more efficient allocation of resources with free trade.E) B) and D)
F) B) and C)

Question 3

The trade theories of Adam Smith and David Ricardo viewed the determination of competitiveness from the demand side of the market.

Accepted Answer

A) True 
 B)False

Question 4

If productivity in the German computer industry grows faster than it does in the Japanese computer industry, the opportunity cost of each computer produced in Japan increases relative to the opportunity cost of a computer produced in Germany.

Accepted Answer

A) True 
 B)False

Question 5

International trade is based on the notion that

Accepted Answer

A)   different currencies are an obstacle to international trade.
B)   goods are more mobile internationally than are resources.
C)   resources are more mobile internationally than are goods.
D)   a country's exports should always exceed its imports.E) A) and D)
F) None of the above

Question 6

Advocates of outsourcing by American firms maintain that its advantages consist of

Accepted Answer

A)   enabling American firms to remain profitable by increasing the cost of production.
B)   decreasing the demand for American workers in complementary jobs.
C)   holding down prices for American consumers.
D)   building efficiency by decreasing the number of plants.E) C) and D)
F) None of the above

Question 7

Autarky is defined as

Accepted Answer

A)   the relative cost to produce and consume.
B)   the absence of trade.
C)   the amount of labor required to produce 1 unit of a product.
D)   the slope of the production possibilities frontier.E) A) and D)
F) None of the above

Question 8

When nations are of similar size and have similar taste patterns, the gains from trade

Accepted Answer

A)   are shared equally between them.
B)   are impossible to determine.
C)   are too small, so that trading is not beneficial.
D)   are determined by the nation that has comparative advantage in the more essential product.E) A) and B)
F) B) and C)

Question 9

Unlike Adam Smith, David Ricardo's trading principle emphasizes the

Accepted Answer

A)   demand side of the market.
B)   supply side of the market.
C)   role of comparative costs.
D)   role of absolute costs.E) A) and D)
F) A) and B)

Question 10

According to the principle of absolute advantage, international trade is beneficial to the world if one nation has an absolute cost advantage in the production of one good while the other nation has an absolute cost advantage in the other good.

Accepted Answer

A) True 
 B)False

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

Figure 2.2. Canadian Trade Possibilities
​  ​
-Consider Figure 2.2.In the absence of trade, Canada would produce and consume

Accepted Answer

A)   8 televisions and 16 refrigerators.
B)   12 televisions and 16 refrigerators.
C)   8 televisions and 12 refrigerators.
D)   12 televisions and 8 refrigerators.E) B) and C)
F) None of the above

Question 13

According to the mercantilists, a nation's welfare would improve if it maintained a surplus of exports over imports.

Accepted Answer

A) True 
 B)False

Question 14

If a production possibilities frontier appears as a downward sloping straight line, which of the following occurs?

Accepted Answer

A)   increasing opportunity cost
B)   decreasing opportunity cost
C)   constant opportunity cost
D)   negative opportunity costE) A) and B)
F) None of the above

Question 15

Ricardo's theory of comparative advantage was of limited real-world validity because it was founded on the

Accepted Answer

A)   labor theory of value.
B)   capital theory of value.
C)   land theory of value.
D)   entrepreneur theory of value.E) A) and C)
F) All of the above

Question 16

There are two explanations of constant opportunity costs: (1) factors of production are imperfect substitutes for each other; (2) all units of a given factor have different qualities.

Accepted Answer

A) True 
 B)False

Question 17

The equilibrium prices and quantities established after trade are fully determinate if we know

Accepted Answer

A)   the location of all countries' indifference curves.
B)   the shape of each country's production possibilities frontier.
C)   the comparative costs of each trading partner.
D)   the strength of world supply and demand for each good.E) A) and B)
F) None of the above

Question 18

The best explanation of the gains from trade that David Ricardo could provide was to describe only the outer limits within which the equilibrium terms of trade would fall.This is because Ricardo's theory did NOT recognize how market prices are influenced by

Accepted Answer

A)   demand conditions.
B)   supply conditions.
C)   business expectations.
D)   profit patterns.E) A) and B)
F) A) and C)

Question 19

If the U.S.post-trade consumption point lies along its production possibilities frontier, the United States achieves a higher level of welfare with trade than without trade.

Accepted Answer

A) True 
 B)False

Question 20

Assume that a mid-sized company is launching an online store.It has to transform

Accepted Answer

A)   why trade is conducted.
B)   how trade is conducted.
C)   where trade is conducted.
D)   the "what" of international trade.E) B) and C)
F) None of the above

Exam 2: Foundations of Modern Trade Theory Comparative Advantage

If productivity in the German computer industry grows faster than it does in the Japanese computer industry, the opportunity cost of each computer produced in Japan increases relative to the opportunity cost of a computer produced in Germany.

Correct AnswerverifiedShow Answer

Advocates of outsourcing by American firms maintain that its advantages consist of

Correct AnswerverifiedShow Answer

Autarky is defined as

Correct AnswerverifiedShow Answer

In autarky equilibrium, a nation realizes the lowest possible level of satisfaction given the constraint of its production possibilities frontier.

Correct AnswerverifiedShow Answer

According to the mercantilists, a nation's welfare would improve if it maintained a surplus of exports over imports.

Correct AnswerverifiedShow Answer

Assume that a mid-sized company is launching an online store.It has to transform

Correct AnswerverifiedShow Answer

The best explanation of the gains from trade that David Ricardo could provide was to describe only the outer limits within which the equilibrium terms of trade would fall.This is because Ricardo's theory did NOT recognize how market prices are influenced by

Correct AnswerverifiedShow Answer

According to the principle of absolute advantage, international trade is beneficial to the world if one nation has an absolute cost advantage in the production of one good while the other nation has an absolute cost advantage in the other good.

Correct AnswerverifiedShow Answer

The trade theories of Adam Smith and David Ricardo viewed the determination of competitiveness from the demand side of the market.

Correct AnswerverifiedShow Answer

Unlike Adam Smith, David Ricardo's trading principle emphasizes the

Correct AnswerverifiedShow Answer

When nations are of similar size and have similar taste patterns, the gains from trade

Correct AnswerverifiedShow Answer

Ricardo's theory of comparative advantage was of limited real-world validity because it was founded on the

Correct AnswerverifiedShow Answer

The equilibrium prices and quantities established after trade are fully determinate if we know

Correct AnswerverifiedShow Answer

If a production possibilities frontier appears as a downward sloping straight line, which of the following occurs?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

If the U.S.post-trade consumption point lies along its production possibilities frontier, the United States achieves a higher level of welfare with trade than without trade.

Correct AnswerverifiedShow Answer

The United States has an absolute disadvantage to Spain on wine production.According to David Ricardo, specialization can be more efficient only in the following circumstances:

Correct AnswerverifiedShow Answer

There are two explanations of constant opportunity costs: (1) factors of production are imperfect substitutes for each other; (2) all units of a given factor have different qualities.

Correct AnswerverifiedShow Answer

Figure 2.2. Canadian Trade Possibilities ​ ​ -Consider Figure 2.2.In the absence of trade, Canada would produce and consume

Correct AnswerverifiedShow Answer

International trade is based on the notion that

Correct AnswerverifiedShow Answer

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Figure 2.2. Canadian Trade Possibilities -Consider Figure 2.2.In the absence of trade, Canada would produce and consume

Correct Answer
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Correct Answer
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