Deck 3: The Classical Model of International Trade

Question 1

Refer to the table above.Country A has absolute advantage in

A)Good X.
B)Good Y.
C)Neither X nor Y.
D)Both X and Y.

Answer 1

A

Question 2

The classical theory predicts that

A)countries will completely specialize in the production of export goods.
B)considerable trade will occur between countries with different levels of technology.
C)small countries could obtain all of the gains from trade when trading with large countries.
D)All of the above.

Answer 2

D

Question 3

Refer to the table above.Country A has a comparative advantage in

A)beer.
B)wine.
C)both beer and wine.
D)neither beer nor wine.

Answer 3

A

Question 4

Refer to the figure above.This country has comparative advantage in good

A)S.
B)T.
C)Y.
D)Z.

Question 5

Refer to the figure above.In equilibrium,this country consumes at point

A)B.
B)C.
C)D.
D)E.

Question 6

Refer to the figure above.Imports for this country equal

A)OA units of Z.
B)AB units of Z.
C)AC units of Y.
D)AD units of Y.

Question 7

Refer to the table above.If countries were to trade along the lines of comparative advantage

A)B would export Y to A.
B)A would import X from A.
C)neither country would want to trade.
D)More information is needed to determine the pattern.

Question 8

Refer to the table above.Country B has absolute advantage in

A)Good X.
B)Good Y.
C)Neither X nor Y.
D)Both X and Y.

Question 9

Refer to the table above.If each country were to reduce production of its comparative disadvantage good by 1 unit,world output of wine would rise by

A)1.5 units.
B)2 units.
C)3 units.
D)3.5 units.

Question 10

Refer to the table above.Country A has an absolute advantage in

A)beer.
B)wine.
C)both beer and wine.
D)neither beer nor wine.

Question 11

Refer to the table above.In autarky the relative price of X (in terms of
Y)in A would be

A)3/4.
B)4/3.
C)3/9.
D)$3.

Question 12

Mercantilism

A)is the philosophy of free international trade.
B)was a system of export promotion and barriers to imports practiced by governments, especially in the 17th and 18th centuries.
C)was praised by Adam Smith in The Wealth of Nations.
D)Both A and C.

Question 13

If factors of production cannot flow between countries

A)there is no reason to expect that wages should be equal worldwide.
B)multinational corporations would not exist.
C)trade in goods could still occur.
D)All of the above.

Question 14

Refer to the table above.For trade to occur along the lines of comparative advantage,wages in A relative to wages in B (measured in the same currency)

A)must be at least twice but less than 3 times as great.
B)must be less than three times as small.
C)must be greater than $2 but less than $3.
D)Need more information to answer.

Question 15

Refer to the table above.The relative price of beer in terms of wine in B is

A)$4.50.
B)2.
C)4.5.
D)$2.00.

Question 16

Given constant returns to scale between labor and output,if it takes 1 hour to make 10 yards of cloth,then 100 yards of cloth can be made in

A)10 hours.
B)100 hours.
C)1000 hours.
D)Can't tell without knowing how much capital is used.

Question 17

The labor theory of value

A)is what economists believe determines prices today.
B)says that wages must always be greater than prices.
C)says that the price of a good is determined by the amount of labor required to produce it.
D)All of the above.

Question 18

Refer to the table above.If countries were to trade along the lines of absolute advantage

A)A would export X to B.
B)B would import Y from A.
C)neither country would want to trade.
D)More information is needed to determine the pattern.

Question 19

Refer to the figure above.In equilibrium,this country produces at point

A)B.
B)C.
C)D.
D)E.

Question 20

Refer to the figure above.Exports for this country equal

A)OA units of Z.
B)AB units of Z.
C)AC units of Y.
D)AD units of Y.

Question 21

Refer to the table above.If complete specialization occurs,and France has a labor force of 30,000 hours of labor,then after trade begins it will produce

A)2000 units of grapes.
B)15,000 units of textiles.
C)2000 units of grapes and 6000 units of textiles.
D)None of the above.

Question 22

The notion that in a world with n markets,if n - 1 are in equilibrium,so must the nth,is known as

A)the uncertainty principle.
B)the first law of international trade.
C)Walras Law.
D)Friedman Law.

Question 23

A country must have comparative advantage in a good in order to have absolute advantage in that good.

Question 24

A country must have absolute advantage in a good in order to have comparative advantage in that good.

Question 25

According to the classical theory of international trade

A)only countries with low wages will export.
B)only countries with high wages will import.
C)countries with high wages will have higher relative prices of all goods.
D)All the above are false.

Question 26

Comparative advantage is determined by

A)actual differences in labor productivity between countries.
B)relative differences in labor productivity between countries.
C)Both A and B.
D)Neither A nor B.

Question 27

Countries with high wages cannot export to low wage countries.

Question 28

Comparative advantage is determined by the relative levels of autarky prices.

Question 29

If country A has a larger trade triangle than country B,reciprocal demand will lead to an increase in the relative price of A's imports.

Question 30

Refer to the table above.Once trade begins,a possible international price (i.e.terms of trade)for textiles in terms of grapes is

A)$5.
B)2/5.
C)2.
D)4/5.

Question 31

In the classical model,the direction of trade is determined by

A)comparative advantage.
B)absolute advantage.
C)physical advantage.
D)which way the wind blows.

Question 32

The various bundles of goods that a country can obtain by taking advantage of international trade is known as

A)the non-indifference curve.
B)the consumption possibility frontier.
C)the production possibility frontier.
D)the trade possibility frontier.

Question 33

Absolute advantage is determined by

A)actual differences in labor productivity between countries.
B)relative differences in labor productivity between countries.
C)Both A and B.
D)Neither A nor B.

Question 34

An international division of labor will have no effect on total world output because resources are limited.

Question 35

Which of the following statements about international trade is true?

A)Potentially, a country can have absolute advantage in all goods.
B)Potentially, a country can have relative advantage in all goods.
C)After trade, countries tend to specialize in the production of those goods in which they enjoy absolute advantage.
D)None of the above is true.

Question 36

Refer to the table above.France has absolute advantage in

A)grapes.
B)textiles.
C)both grapes and textiles.
D)neither grapes nor textiles.

Question 37

The gains from international trade are closely related to

A)the labor theory of value.
B)how much the autarky price differs from the international price (i.e. the terms of trade).
C)the fact that one country must lose from trade.
D)All of the above.

Question 38

Countries with low wages will always be able to export to countries with high wages.

Question 39

Refer to the table above.France will gain from trade so long as the international price of grapes measured in terms of textiles is below

A)$15.
B)3.
C)5.
D)8.

Question 40

Refer to the table above.Spain has comparative advantage in

A)grapes.
B)textiles.
C)both grapes and textiles.
D)neither grapes nor textiles.

Question 41

Can a country have comparative advantage in all products?

Question 42

Given the input-output relationships in the table below:
Countries
A B
Goods
X 8 4
Y 4 1
(a) Which country has absolute advantage in which good and why?
(b) Which country has comparative advantage in which good and why?
(c) If A is endowed with 8000 hours of labor,how much X will it produce after trade begins? How much Y? Explain.
(d) What is the allowable range on A's wages relative to B's if trade is flowing between these two countries according to comparative advantage?

Question 43

Adam Smith was an American economist that published The Wealth of Nations,one of the most important books in the history of economic thought.

Question 44

Suppose that workers in A can produce 1 unit of S in 3 hours and 1 unit of T in 9 hours.Suppose that the relative price of S in B is 2.Graph the PPF for country A.Indicate the exact slope of the PPF.Show how the autarky equilibrium is determined.Illustrate a hypothetical international trade equilibrium,including production and consumption points,and trade volumes for a given (your assumption-be explicit)but permissible value of the international terms of trade.

Question 45

Once trade begins,a country will tend to specialize completely in the production of its export good.

Question 46

A country in autarky does not trade.

Question 47

In a two country world,at least one country must lose from trade.

Question 48

A country gains more from international trade the more its terms of trade differ from its autarky price.

Question 49

Mercantilism is another name given to the version of capitalism that has emerged in the globalized world of the 21st century.

Question 50

Starting from a situation where country A which exports good S and imports good T has a larger trade triangle than country B,explain how the process of reciprocal demand leads to international trade equilibrium.

Question 51

Explain how trade will tend to emerge along the lines of comparative advantage if markets are allowed to work freely.