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InternationalTrade(Chapter1-6)

Chapter1:InternationalEconomicsisDifferent

MultipleChoiceQuestions

Sovereignnations:

AresubjecttolawspassedbytheUnitedNations.

Mustbeconcernedwiththeinterestsofforeignerswhendevelopingeconomicpolicy.

Oftenignoretheinterestsofforeigners.

MustcoordinatetheirmonetarypolicywiththeWorldBank.

ANSWER: C

Sincetheearly2000s,avarietyofserviceshasbeensubjecttooutsourcingintheUnitedStatesEXCEPTfor:

Dataentry.

Telephonecallcenters.

Softwaredevelopment.

Haircuts.

ANSWER: D

OnJuly21st,2005,theChinesegovernmentchangedthevalueoftheyuanfrom8.28yuanperU.S.dollarto8.11yuanperU.S.dollar.Thisimpliesa__________dollaranda__________yuan.

Weaker;weaker

Weaker;stronger

Stronger;stronger

Stronger;weaker

ANSWER: B

True/FalseQuestions

Politiciansdonoterectbarrierstotradewithothercountriesbecausetheyarealsoconcernedwiththewell-beingofforeigners.

ANSWER: FALSE

Labormaybeinternationallymobile,butcapitalandlanddonotmigratefromonecountrytoanother.

ANSWER: FALSE

IndiaandChinaareamongthemainprovidersofoutsourcingservices.

ANSWER: TRUE

Chapter2:TheBasicTheoryUsingDemandandSupply

MultipleChoiceQuestions

1.Allofthefollowingcanleadtoanincreaseinthedemandforicecream,anormalgood,EXCEPT:

A.Adecreaseinincome.

B.Anincreaseinthepriceofpopsicles.

C.Anewscientificstudythatfindseatingicecreamdoesnotcauseweightgain.

D.A10%increaseinpopulation.

ANSWER: A

2.Anincreaseindemandwillleadto:

A.Anincreaseinsupply.

B.Afallinquantity.

C.Anincreaseinprice.

D.Adecreaseinproducersurplus.

ANSWER: C

3.Referringtothefollowingfigure,atapriceof$70,theamountofconsumersurplusis:

A.$6,000,000.

B.$8,000,000.

C.$15,000,000.

D.$30,000,000.

ANSWER: B

4.Referringtothefollowingfigure,atapriceof$70,theamountofproducersurplusis:

A.$6,000,000.

B.$8,000,000.

C.$15,000,000.

D.$30,000,000.

ANSWER:A

Price($/unit)

Quantity(thousands)

Supply

Demand

150

120

70

40

100

200

300

10

5.ChinaproducesshoesatalowercostthantheUnitedStates.Asaresult,mostoftheshoespurchasedintheUnitedStatesaremadeinChina.ShouldthisbeaconcerntoanyoneintheUnitedStates?Ifso,whoshouldbeconcernedandwhy?Ifnot,whynot?

POSSIBLERESPONSE:AsaresultofthefreetradebetweenChinaandtheU.S.,thepriceofshoesintheU.S.willbeequaltotheinternationalprice.WhataretheeffectsoffreetradeonproducersandconsumersofshoesintheUnitedStates?AsaresultoftheimportsofshoesfromChina,thepriceofshoeswillbelower(comparedtothesituationofnotrade).Consumerswillgainadditionalconsumersurplusduetothelowerpriceandtheincreasedpurchasesofshoes(consumers’totalsurplusismeasuredbytheareabelowthedemandcurveforshoesandabovetheinternationalprice).Facingalowerprice(theinternationalprice),thedomesticproducersofshoesintheUnitedStateswillreactbydecreasingtheirproductionofshoes.Hence,thereislossofsurplustoproducersassociatedwiththeopeningoftrade.Someoftheshoeproducersmightgooutofbusiness,whichmightcreatetemporaryunemploymentinthisindustrywhichwilllastuntiltheworkersproducingshoesfindemploymentinanothersectoroftheeconomy.Ingeneral,consumersgainmorethanproducerslose,sothereisanetgainfortheU.S.ofopeningtotrade.

Chapter3

MultipleChoice

1.TheauthoroftheWealthofNationswas:

a.DavidRicardo.

b.PaulSamuelson.

c. AdamSmith.

d.KarlMarx.

ANSWER: C

2.RefertoTable1,Thenumberoflaborhourstomake1umbrellaintheUnitedKingdomis:

a.0.5.

b. 1.

c. 1.43.

d. 2.

ANSWER: B

Table1

IntheUnitedKingdom

IntheRestoftheWorld

Productivity

Umbrellasperlaborhour

1.00

0.50

Unitsofcornperlaborhour

0.20

0.70

3.RefertotheTable2,TheUnitedKingdomhasacomparativeadvantageintheproductionof__________andtheRestoftheWorldhasacomparativeadvantageintheproductionof__________.

Bothgoods;neithergood

Neithergood;bothgoods

Umbrellas;corn

Corn;umbrellas

ANSWER: C

Table2

IntheUnitedKingdom

IntheRestoftheWorld

Laborhourstomake:

1umbrella

3.00

2.00

1unitofcorn

1.00

0.25

True/FalseQuestions

4.InRicardo’smodel,iflaborproductivityisconstant,theproductionpossibilitiescurvewilllooklikeastraightline.

ANSWER: TRUE

5.IfCountryXhasahigherleveloflaborproductivitythantherestoftheworldintheproductionofagood,thenCountryXhasacomparativeadvantageintheproductionofthegood.

ANSWER: FALSE

EssayQuestions

SupposelaborproductivityinFranceissuchthatonehouroflaborisrequiredtoproduceonegallonofwinewhiletwohoursoflaborarerequiredtoproduceonepoundofcheese.Assumingtheavailabilityof1millionlaborhours,drawaconstantcostproductionpossibilitiescurveforFrancewithcheeseontheverticalaxisandwineonthehorizontalaxis.

IfFrancehasacomparativeadvantageintheproductionofwine,showwhere,withfreetrade,Francewillproduceonitsproductionpossibilitiescurve.Ifthefreetradepriceofwineistwopoundsofcheesepergallon,drawatradelineanduseittoillustratehowFrancecangainfromtrade.

Chapter4

MultipleChoice

1.Constantcostproductionpossibilitycurvesleadto__________specialization.Increasingcostproductionpossibilitycurvesleadto__________specialization.

a. no;partial

plete;no

c. complete;partial

d.partial;complete

ANSWER: C

2、Whichofthefollowingarereasonswhyincreasingmarginalcostsofproductionarise?

I.Differentproductsuseinputstoproductionindifferentproportions.

II.Differentinputsarebetterutilizedintheproductionofdifferentproducts.

III.Differentcountrieshavedifferentendowmentsofthedifferentfactorsofproduction.

a. III

b. IIandIII

c. IandIIandIII

d. IandII

ANSWER: D

3.IfCountryAislabor-abundantandcapital-scarce,CountryBislabor-scarceandcapital-abundant,GoodXisproducedinalabor-intensiveprocess,andGoodYisproducedinacapital-intensiveprocess,wewouldexpectthat:

a.CountryAwouldexportGoodX.

b. CountryBwouldimportGoodY.

c. CountryAwouldimportGoodX.

d. CountryBwouldimportbothGoodXandGoodY.

Answer:A

4.Chinahas20%oftheworld’spopulationbutonly10%oftheworld’sfarmableland.TheHeckscher-OhlintheoryoftradewouldpredictwhichofthefollowingforChinafollowingtheopeningoftrade?

A.Chinawillexportland-intensivegoodslikewheatandimportlabor-intensivegoodslikeclothing.

B.Chinawillshiftresourcesintotheproductionofagriculturalgoodsandawayfrommanufacturedgoods.

C.Chinawillshiftresourcesoutoftheproductionofagriculturalgoodsandintotheproductionoflabor-intensivegoods.

D.Chinawillexportcapital-intensivegoodslikeautomobilesandimportlabor-intensivegoodslikeclothing.

ANSWER: C

5.InPainduvin,breadis__________andcheeseis__________.

a.Labor-intensive;land-intensive

b.Land-intensive;labor-intensive

c.Labor-abundant;land-abundant

d.Land-abundant;labor-abundant

1unitofBread 1unitofCheese

LaborInput 5dollars 20dollars

LandInput 4dollars 10dollars

ANSWER: B

True/FalseQuestions

TheHeckscher-OhlintheoryoftradediffersfromtheRicardianmodelbyassumingthatthereareonlytwogoods.

ANSWER: FALSE

Chapter5

MultipleChoice

Accordingtothefactor-price-equalizationtheorem,freetradeequalizes:

a. Productpricesaswellasthepricesofindividualfactorsofproductionbetweentwocountries.

b. Productpricesbetweentwocountriesbutnotthepricesofindividualfactorsofproduction.

c. Productpricesbetweentwocountriesandfactorpriceswithineachcountrybutnotbetweencountries.

d. Productpricesandfactorpriceswithineachcountrybutnotbetweencountries.

ANSWER: A

EssayQuestion

Thefollowingequationsdescribethelong-runsituationforpricesandcosts,wherethenumbersindicatetheamountsoflaborandlandneededtoproduceaunitofcornandtoys.

Pcorn=80w+40r

Ptoys=100w+30r

Questions:

1.Ifthepriceofcornisinitially200andthepriceoftoysisinitially200,whatarethevaluesforthewageratewandtherentalrater?Whatisthelaborcostperunitofcornoutput?Perunitoftoys?Whatistherentalcostperunitofcorn?Perunitoftoys?

200=80w+40r

200=100w+30r

Thesolutionisw=1.25andr=2.5.

Thelaborcostperunitofcornoutputis

80x1.25=100;thelaborcostperunitoftoysis100x1.25=125.

Therentalcostperunitofcornis40x2.5=100,andtherentalcostperunitoftoysis30X2.5=75.

2.Thepriceofcornnowincreasesto240.Thepriceoftoysstaysthesame.Whatarethenewvaluesforwandrafteradjustmenttothenewlong-runsituation?

240=80w+40r

240=100w+30r

Thesolutionisw=0.5andr=5.

Chapter6

MultipleChoice

1.TheproductionofoneunitofgoodXrequiresoneunitoflaborandoneunitofcapital.When2unitsoflaborand2unitsofcapitalareemployedintheproductionprocess,3unitsofgoodXareproduced.Thisphenomenoniscalled:

a.monopolisticcompetition

b.biasedgrowth

c.economiesofscale

d.productdifferentiation

ANSWER: C

2.Internalscaleeconomiesoccurwhen:

A.Firmgrowthleadstomorespecializationbyworkers.

B.Industrygrowthgivesrisetobetterinputmarkets.

C.Industrygrowthleadstoagreaterdiffusionofknowledgeamongfirms.

D.Firmgrowthdrivesuppricesofsomeofthefirm’sinputs.

ANSWER: A

Theclusteringofsomeindustries,suchasbankingandfinanceinNewYorkCityandhigh-technologycomp