Question 1

The marginal rate of substitution (MRS)of X for Y in consumption refers to the:&#10;A)amount of X that a nation must give up for one extra unit of Y and still remain on the same indifference curve&#10;B)amount of Y that a nation must give up for one extra unit of X and still remain on the same indifference curve&#10;C)amount of X that a nation must give up for one extra unit of Y to reach a higher indifference curve&#10;D)amount of Y that a nation must give up for one extra unit of X to reach a higher

Accepted Answer

The marginal rate of substitution (MRS) of X for Y in consumption refers to the amount of Y that a nation must give up for one extra unit of X and still remain on the same indifference curve. This means that the MRS measures the rate at which a consumer is willing to substitute one good (Y) for another (X) while maintaining the same level of satisfaction. Therefore, option B is the correct answer.

Question 2

The marginal rate of transformation (MRT)of X for Y refers to:&#10;A)the amount of Y that a nation must give up to produce each additional unit of X&#10;B)the opportunity cost of X&#10;C)the absolute slope of the production frontier at the point of production&#10;D)all of the above

Accepted Answer

The marginal rate of transformation (MRT) of X for Y indeed encompasses all the given options: it represents the amount of Y that must be given up to produce an additional unit of X (A), which is essentially the opportunity cost of producing more of X instead of Y (B), and is mathematically represented by the absolute slope of the production possibility frontier at any given point of production (C).

Question 3

Which of the following is not a reason for increasing opportunity costs:&#10;A)technology differs among nations&#10;B)factors of production are not homogeneous&#10;C)factors of production are not used in the same fixed proportion in the production of all commodities&#10;D)for the nation to produce more of a commodity,it must use resources that are less and less suited in the production of the commodity

Accepted Answer

Technology differing among nations may lead to different levels of productivity and efficiency, but it does not necessarily result in increasing opportunity costs. Factors B, C, and D can all contribute to increasing opportunity costs.

Question 4

Mutually beneficial trade cannot occur if production frontiers are:&#10;A)equal but tastes are not&#10;B)different but tastes are the same&#10;C)different and tastes are also different&#10;D)the same and tastes are also the same.

Accepted Answer

Mutually beneficial trade is based on the principle of comparative advantage, which requires differences in opportunity costs. If both production frontiers and tastes are the same, there is no basis for trade because neither party has a comparative advantage in producing a good more efficiently than the other, and their demand patterns do not create a need for exchange.

Question 5

The gains from exchange with respect to the gains from specialization are always:&#10;A)greater&#10;B)smaller&#10;C)equal&#10;D)we cannot say without additional information

Accepted Answer

The gains from exchange compared to the gains from specialization depend on various factors such as the nature of the goods or services being exchanged, the relative productivity of the parties involved, and the terms of trade. Therefore, without additional information, it is not possible to definitively say whether the gains from exchange are greater, smaller, or equal to the gains from specialization.

Question 6

Which of the following is not true for a nation that is in equilibrium in isolation?&#10;A)It consumes inside its production frontier&#10;B)it reaches the highest indifference curve possible with its production frontier&#10;C)the indifference curve is tangent to the nation's production frontier&#10;D)MRT of X for Y equals MRS of X for Y,and they are equal to Px/Py

Accepted Answer

In equilibrium, a nation should consume on its production frontier, not inside it, as consuming inside the frontier implies underutilization of resources or inefficiency. Choices B, C, and D describe conditions of an efficient equilibrium where the nation is maximizing utility given its resources.

Question 7

Which of the following statements is false?&#10;A)The gains from trade can be broken down into the gains from exchange and the gains from specialization&#10;B)gains from exchange result even without specialization&#10;C)gains from specialization result even without exchange&#10;D)none of the above

Accepted Answer

Gains from specialization are a result of producing a higher quantity of a good with the same amount of resources, which lowers the per-unit cost of production. However, if there is no exchange, then there would be no way to trade the excess quantity produced for other goods, and therefore no gains from specialization.

Question 8

Which of the following statements is true with respect to the MRS of X for Y?&#10;A)It is given by the absolute slope of the indifference curve&#10;B)declines as the nation moves down an indifference curve&#10;C)rises as the nation moves up an indifference curve&#10;D)all of the above

Accepted Answer

The Marginal Rate of Substitution (MRS) of X for Y is indeed given by the absolute slope of the indifference curve, and it typically declines as one moves down an indifference curve due to diminishing marginal utility. As one moves up an indifference curve, the MRS increases because the consumer is willing to give up more of Y to obtain additional units of X, reflecting the increasing relative value of X.

Question 9

If the internal Px/Py is lower in nation 1 than in nation 2 without trade:&#10;A)nation 1 has a comparative advantage in commodity Y&#10;B)nation 2 has a comparative advantage in commodity X&#10;C)nation 2 has a comparative advantage in commodity Y&#10;D)none of the above

Accepted Answer

The internal Px/Py being lower in nation 1 than in nation 2 indicates that nation 1 has a comparative advantage in producing commodity X, while nation 2 has a comparative advantage in producing commodity Y. Therefore, the correct choice is C, which states that nation 2 has a comparative advantage in commodity Y.

Question 10

A production frontier that is concave from the origin indicates that the nation incurs increasing opportunity costs in the production of:&#10;A)commodity X only&#10;B)commodity Y only&#10;C)both commodities&#10;D)neither commodity

Accepted Answer

A concave production frontier implies that the nation incurs increasing opportunity costs. This means that as the production of one commodity increases, the production of the other commodity will decrease at an increasing rate. Therefore, the nation incurs increasing opportunity costs in the production of both commodities.

Question 11

Nation 1's share of the gains from trade will be greater:&#10;A)the greater is nation 1's demand for nation 2's exports&#10;B)the closer Px/Py with trade settles to nation 2's pretrade Px/Py&#10;C)the weaker is nation 2's demand for nation 1's exports&#10;D)the closer Px/Py with trade settles to nation 1's pretrade Px/Py

Accepted Answer

The answer of Nation 1's share of the gains from...

Question 12

With free trade under increasing costs:&#10;A)neither nation will specialize completely in production&#10;B)at least one nation will consume above its production frontier&#10;C)a small nation will always gain from trade&#10;D)all of the above

Accepted Answer

The answer of With free trade under increasing costs:&#10;A)neither nation...

Question 13

Which of the following statements about community indifference curves is true?&#10;A)They are entirely unrelated to individuals' community indifference curves&#10;B)they cross,they cannot be used in the analysis&#10;C)the problems arising from intersecting community indifference curves can be overcome by the application of the compensation principle&#10;D)all of the above.

Accepted Answer

The answer of Which of the following statements about community...

Question 14

If Px/Py exceeds the equilibrium relative Px/Py with trade&#10;A)the nation exporting commodity X will want to export more of X than at equilibrium&#10;B)the nation importing commodity X will want to import less of X than at equilibrium&#10;C)Px/Py will fall toward the equilibrium Px/Py&#10;D)all of the above

Accepted Answer

The answer of If Px/Py exceeds the equilibrium relative Px/Py...

Question 15

Community indifference curves:&#10;A)are negatively sloped&#10;B)are convex to the origin&#10;C)should not cross&#10;D)all of the above

Accepted Answer

The answer of Community indifference curves:&#10;A)are negatively sloped&#10;B)are convex to...

Deck 3: The Standard Theory of International Trade