Question 1

Which of the following statements is true?&#10;A)The combined demand for each commodity by the two nations is negatively sloped&#10;B)the combined supply for each commodity by the two nations is rising stepwise&#10;C)the equilibrium relative commodity price for each commodity with trade is given by the intersection of the demand and supply of each commodity by the two nations&#10;D)all of the above

Accepted Answer

Each statement accurately describes aspects of international trade theory. A) reflects the law of demand at an international level, B) represents how combined supply can increase in increments as more producers enter the market, and C) describes how equilibrium prices are determined by the intersection of international demand and supply curves.

Question 2

If with one hour of labor time nation A can produce either 3X or 3Y while nation B can produce either 1X or 3Y (and labor is the only input):&#10;A)nation A has a comparative disadvantage in commodity X&#10;B)nation B has a comparative disadvantage in commodity Y&#10;C)nation A has a comparative advantage in commodity X&#10;D)nation A has a comparative advantage in neither commodity

Accepted Answer

Nation A has a higher opportunity cost of producing commodity Y (giving up 1X for 1Y) compared to nation B (giving up 1X for only 1/3Y). Therefore, nation A has a comparative advantage in producing commodity X, while nation B has a comparative advantage in producing commodity Y.

Question 3

A difference in relative commodity prices between two nations can be based upon a difference in:&#10;A)factor endowments&#10;B)technology&#10;C)tastes&#10;D)all of the above

Accepted Answer

Relative commodity prices can be affected by all three factors - factor endowments, technology, and tastes. A nation with abundant labor and scarce capital may have a lower relative price for labor-intensive goods. A nation with advanced technology and efficient production methods may have a lower relative price for goods that can be produced more efficiently. And a nation where consumers have different tastes and preferences may have a different demand for certain goods, affecting their relative prices in the global market.

Question 4

According to Adam Smith,international trade was based on:&#10;A)absolute advantage&#10;B)comparative advantage&#10;C)both absolute and comparative advantage&#10;D)neither absolute nor comparative advantage

Accepted Answer

Adam Smith's theory of international trade is based on the concept of absolute advantage, where countries should specialize in producing goods for which they have an absolute cost advantage over other countries.

Question 5

The Mercantilists did not advocate:&#10;A)free trade&#10;B)stimulating the nation's exports&#10;C)restricting the nations' imports&#10;D)the accumulation of gold by the nation

Accepted Answer

Mercantilists believed in trade policies that favored the accumulation of wealth and power for the country, often at the expense of other nations. They believed in stimulating exports and restricting imports in order to create a favorable trade balance and accumulate gold and silver. Free trade, on the other hand, would be seen as contrary to their goals.

Question 6

With reference to the statement in Question 6,if 3X is exchanged for 3Y:&#10;A)nation A gains 2X&#10;B)nation B gains 6Y&#10;C)nation A gains 3Y&#10;D)nation B gains 3Y

Accepted Answer

The answer of With reference to the statement in Question...

Question 7

Ricardo explained the law of comparative advantage on the basis of:&#10;A)the labor theory of value&#10;B)the opportunity cost theory&#10;C)the law of diminishing returns&#10;D)all of the above

Accepted Answer

Ricardo's explanation of the law of comparative advantage is based on the labor theory of value, which suggests that the value of a good is determined by the amount of labor required to produce it.

Question 8

In the trade between a small and a large nation:&#10;A)the large nation is likely to receive all of the gains from trade&#10;B)the small nation is likely to receive all of the gains from trade&#10;C)the gains from trade are likely to be equally shared&#10;D)we cannot say

Accepted Answer

The answer of In the trade between a small and...

Question 9

If in a two-nation (A and B),two-commodity (X and Y)world,it is established that nation A has a comparative advantage in commodity X,then nation B must have:&#10;A)an absolute advantage in commodity Y&#10;B)an absolute disadvantage in commodity Y&#10;C)a comparative disadvantage in commodity Y&#10;D)a comparative advantage in commodity Y

Accepted Answer

According to the principle of comparative advantage, if nation A has a comparative advantage in producing commodity X, then it should specialize in producing X and trade with nation B for commodity Y. This implies that nation B must have a comparative advantage in producing commodity Y. Therefore, the correct choice is D - a comparative advantage in commodity Y.

Question 10

What proportion of international trade is based on absolute advantage?&#10;A)All&#10;B)most&#10;C)some&#10;D)none

Accepted Answer

Some international trade is based on absolute advantage, where countries export goods they can produce more efficiently than others. However, much trade is also based on comparative advantage, where countries trade goods they can produce at a lower opportunity cost.

Question 11

The commodity in which the nation has the smallest absolute disadvantage is the commodity of its:&#10;A)absolute disadvantage&#10;B)absolute advantage&#10;C)comparative disadvantage&#10;D)comparative advantage

Accepted Answer

The answer of The commodity in which the nation has...

Question 12

If domestically 3X=3Y in nation A,while 1X=1Y domestically in nation B:&#10;A)there will be no trade between the two nations&#10;B)the relative price of X is the same in both nations&#10;C)the relative price of Y is the same in both nations&#10;D)all of the above

Accepted Answer

The answer of If domestically 3X=3Y in nation A,while 1X=1Y...

Question 13

The Ricardian trade model has been empirically&#10;A)verified&#10;B)rejected&#10;C)not tested&#10;D)tested but the results were inconclusive

Accepted Answer

The answer of The Ricardian trade model has been empirically&#10;A)verified&#10;B)rejected&#10;C)not...

Deck 2: The Law of Comparative Advantage