Question 1

Suppose country X is one of the largest exporter of coffee in the world. A recent massive cyclone has destroyed much of the coffee crop in country X and has considerably lowered its exports. Which of the following is a likely consequence of this disaster?

Accepted Answer

The answer of Suppose country X is one of the...

Question 2

Suppose a capital-abundant country experiences a significant increase in its capital stock. This change in endowments is most likely to lead to:

Accepted Answer

With an increase in capital stock, the country becomes more productive and efficient in producing both capital and labor-intensive goods. This results in a comparative advantage in producing these goods which leads to an increased willingness to trade in the international market to exploit this advantage. Therefore, option D is the most appropriate answer.

Question 3

The figure given below shows a shift in the production-possibility curve of a country from AB to AC. Here, S₁ and C₁ are the initial production and consumption points respectively. S₂ and C₂, on the other hand, are the final production and consumption points respectively. Which of the following is illustrated by this figure?

Accepted Answer

The answer of The figure given below shows a shift...

Question 4

When a small, initially closed country engages in free trade:

Accepted Answer

Free trade allows a small, closed country to access a larger market, which can provide revenue and increased efficiency. It is unlikely to experience immiserizing growth where the country's terms of trade deteriorate to the point where it is worse off than before engaging in free trade. However, it is possible that the country's production-possibility curve could shift inward if it cannot compete with international producers or if domestic industries struggle to adjust to the new competition.

Question 5

Suppose a labor-abundant country, exporting a labor-intensive good, experiences a significant increase in its capital stock. This change in endowments can:

Accepted Answer

This scenario aligns with the Heckscher-Ohlin model, which predicts that countries will export goods that utilize their abundant factors of production more intensively. An increase in capital stock in a labor-abundant country could lead to a shift in comparative advantage, potentially reversing the country's trade pattern to favor the export of capital-intensive goods instead of labor-intensive goods.

Question 6

The figure given below shows a shift in the production-possibility curve of a country from AB to AC. Here, S₁ and C₁ are the initial production and consumption points respectively. S₂ and C₂, on the other hand, are the final production and consumption points respectively. Which of the following is illustrated by this figure?

Accepted Answer

The answer of The figure given below shows a shift...

Question 7

The possibility of immiserizing growth can arise when:

Accepted Answer

Immiserizing growth occurs when a large country's expansion in export production leads to a deterioration in its terms of trade, potentially making the country worse off despite economic growth.

Question 8

Which of the following is true of product cycle hypothesis?

Accepted Answer

The product cycle hypothesis explains how an initial exporter of a good ends up importing the good from other countries. It suggests that as the country reaches maturity in producing the good, other countries begin producing it as well, and eventually, it no longer makes economic sense for the initial exporter to continue producing it. The hypothesis does not completely specialize countries in the production of the good or ignore the importance of research and development, and it does not assume that demand for various commodities in countries does not change over time.

Question 9

The Heckscher-Ohlin theory suggests that research and development activity is most likely to be concentrated in countries which:

Accepted Answer

The Heckscher-Ohlin theory states that countries will specialize in the production of goods that use their abundant factors of production most intensively. In the case of research and development activity, it requires skilled labor and therefore is likely to be concentrated in countries that are abundant in skilled labor.

Question 10

Immiserizing growth is most likely to occur when:

Accepted Answer

Immiserizing growth occurs when the increase in exports resulting from economic growth leads to a decrease in the price of exports, causing the country's terms of trade to deteriorate. This can result in a decline in the country's welfare despite an increase in its overall income. The other choices do not directly relate to immiserizing growth.

Question 11

Countries that are open to international trade:

Accepted Answer

Countries that are open to international trade tend to grow faster than the closed economies due to increased market size, increased competition, specialization in comparative advantage goods, and access to new technologies and ideas. Immiserizing growth is possible but not a certainty, and biased growth and loss of benefits of technological diffusion are not inherent to international trade.

Question 12

Which of the following refers to individual efforts by businesses that focus on improvements in production technologies for existing products and on new production technologies for new or improved products?

Accepted Answer

Research and development refers to the individual efforts by businesses to improve production technologies for existing products and develop new production technologies for new or improved products.

Question 13

Technology-based comparative advantage:

Accepted Answer

Technology-based comparative advantage suggests that a country can gain a comparative advantage in producing a good by using more advanced technology. In the case of the United States, the adoption of more advanced technology in steel production allowed other countries to produce steel at a lower cost, leading to increased imports of steel and a shift from being a net exporter to a net importer.

Question 14

Large countries are _____ susceptible to immiserizing growth than small countries because when large countries expand their exports, their terms of trade _____.

Accepted Answer

Large countries are more susceptible to immiserizing growth than small countries because when they expand their exports, the increase in supply leads to a fall in price, which results in a worsening of their terms of trade. This means that the increase in export revenue will not be enough to offset the loss in income due to the fall in price, leading to a decrease in their welfare.

Question 15

The figure given below shows a shift in the production-possibility curve of a country from AB to AC. Here, S₁ and C₁ are the initial production and consumption points respectively. S₂ and C₂, on the other hand, are the final production and consumption points respectively. The shifts shown in the given figure indicate that:

Accepted Answer

The answer of The figure given below shows a shift...

Question 16

In Heckscher-Ohlin theory, differences in _____ across countries are considered to be the basis for comparative advantage.

Accepted Answer

Heckscher-Ohlin theory states that countries possess different factor endowments such as labor, capital, and natural resources. Differences in these factor endowments account for differences in comparative advantage across countries. Therefore, Option B is the best answer. Options A, C, and D are not relevant to Heckscher-Ohlin theory.

Question 17

Which of the following is most unlikely to lead to a reversal of a country's trade pattern?

Accepted Answer

A proportionate increase in output in all sectors of the economy is unlikely to lead to a reversal of a country's trade pattern as it does not address the specific factors that caused the initial pattern. The other options (growth in endowment, international diffusion of technology, shifting tastes) could all potentially lead to a reversal of trade patterns.

Question 18

_____ first presented the product cycle hypothesis.

Accepted Answer

Raymond Vernon first presented the product cycle hypothesis in his book "Sovereignty at Bay" (1966).

Question 19

Which of the following conditions is NOT necessary for immiserizing growth to arise in a country?

Accepted Answer

While the other conditions are necessary for immiserizing growth to arise, specializing in a single exportable good and importing all other goods is not a necessary condition. Immiserizing growth can occur even if a country produces and exports multiple goods.

Question 20

When economic growth in a large country lowers its willingness to trade, it can result in:

Accepted Answer

The answer of When economic growth in a large country...

Quiz 7: Growth and Trade Part II: Trade Policy

Suppose country X is one of the largest exporter of coffee in the world. A recent massive cyclone has destroyed much of the coffee crop in country X and has considerably lowered its exports. Which of the following is a likely consequence of this disaster?

Suppose a capital-abundant country experiences a significant increase in its capital stock. This change in endowments is most likely to lead to:

When a small, initially closed country engages in free trade:

Suppose a labor-abundant country, exporting a labor-intensive good, experiences a significant increase in its capital stock. This change in endowments can:

The possibility of immiserizing growth can arise when:

Which of the following is true of product cycle hypothesis?

The Heckscher-Ohlin theory suggests that research and development activity is most likely to be concentrated in countries which:

Immiserizing growth is most likely to occur when:

Countries that are open to international trade:

Which of the following refers to individual efforts by businesses that focus on improvements in production technologies for existing products and on new production technologies for new or improved products?

Technology-based comparative advantage:

Large countries are _ susceptible to immiserizing growth than small countries because when large countries expand their exports, their terms of trade _.

In Heckscher-Ohlin theory, differences in _____ across countries are considered to be the basis for comparative advantage.

Which of the following is most unlikely to lead to a reversal of a country's trade pattern?

_____ first presented the product cycle hypothesis.

Which of the following conditions is NOT necessary for immiserizing growth to arise in a country?

When economic growth in a large country lowers its willingness to trade, it can result in: