Question 1

If labor productivities were exactly proportional to wage levels internationally,this would
A)not negate the logical basis for trade in the Ricardian model.
B)render the Ricardian model theoretically correct but practically useless.
C)negate the logical basis for trade in the Ricardian model.
D)negate the applicability of the Ricardian model if the number of products were greater than the number of trading partners.
E)demonstrate the validity of the Ricardian model.

Accepted Answer

The answer of If labor productivities were exactly proportional to...

Question 2

The pauper labor theory,and the exploitation argument
A)are theoretical weaknesses that limit the applicability of the Ricardian concept of comparative advantage.
B)are theoretically irrelevant to the Ricardian model,and do not limit its logical relevance.
C)are not relevant because the Ricardian model is based on the labor theory of value.
D)are not relevant because the Ricardian model allows for different technologies in different countries.
E)invalidate the Ricardian model.

Accepted Answer

The pauper labor theory and exploitation argument are not directly relevant to the Ricardian model, which is based on the assumption of free trade and comparative advantage determined by relative resource endowments, as opposed to labor costs or exploitation. While there may be practical limitations to the model's applicability in real-world contexts, these do not negate its logical relevance as a theoretical framework for understanding trade patterns and gains from specialization.

Question 3

If two countries have identical production possibility frontiers,then trade between them is likely to be beneficial if
A)their supply curves are identical.
B)their cost functions are identical.
C)their demand conditions are identical.
D)their incomes are identical.
E)their demand functions differ.

Accepted Answer

If two countries have identical production possibility frontiers, they have the same ability to produce goods and services. However, they may have different demands for those goods and services, which can create opportunities for mutually beneficial trade. If their demand functions differ, then they may want to trade with each other to obtain goods that they cannot efficiently produce themselves. This is the basis for the theory of comparative advantage, which suggests that countries should specialize in producing the goods and services that they can produce most efficiently and then trade with other countries for the goods and services that they cannot produce as efficiently.

Question 4

The Country of Rhozundia is blessed with rich copper deposits.The cost of copper produced (relative to the cost of widgets produced)is therefore very low.From this information we know that
A)Rhozundia has a comparative advantage in copper.
B)Rhozundia should import copper and export widgets.
C)Rhozundia should export both widgets and copper.
D)Rhozundia should invest in more in widget production.
E)Rhozundia may or may not have a comparative advantage in copper.

Accepted Answer

The answer of The Country of Rhozundia is blessed with...

Question 5

-Given the information in the table above.If these two countries trade these two goods with each other in context of the Ricardian model of comparative advantage,what is the lower limit for the price of cloth?

Accepted Answer

The answer of 
-Given the information in the table above.If...

Question 6

Which of the following statements is TRUE?
A)Free trade is beneficial only if your country is strong enough to stand up to foreign competition.
B)Free trade is beneficial only if your competitor does not pay unreasonably low wages.
C)Free trade is beneficial only if both countries have access to the same technology.
D)Free trade is never beneficial for developing countries.
E)Free trade can be beneficial to economic welfare of all countries involved.

Accepted Answer

Free trade can be beneficial to economic welfare of all countries involved. While there may be some challenges and potential negative effects, such as job displacement and environmental concerns, overall free trade allows for increased competition, specialization, and productivity, leading to lower prices and higher output for consumers. It also promotes economic growth and better allocation of resources. Developing countries can also benefit from access to international markets and increased foreign investment. It is important, however, for policies and regulations to be in place to address potential negative impacts and support workers and communities affected by free trade.

Question 7

If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios)then it is probable that
A)free trade will not improve either both countries welfare.
B)free trade will result in no trade taking place.
C)free trade will result in each country exporting the good in which it enjoys comparative advantage.
D)free trade will result in each country exporting the good in which it suffers the greatest comparative disadvantage.
E)free trade will not affect the economic welfare of either country.

Accepted Answer

If one country has a higher wage level than another country, it may have a comparative advantage in producing goods that rely more on skilled labor. This means that it may be more efficient for that country to produce those goods and export them to the other country. In turn, the other country may export goods that rely more on unskilled labor. This specialization and trade can increase the overall welfare of both countries by allowing them to consume more than they could produce on their own. Therefore, free trade will result in each country exporting the good in which it enjoys comparative advantage.

Question 8

Suppose the United states production possibility frontier was flatter to the widget axis,whereas Germany's was flatter to the butter axis.We now learn that the German wage doubles,but U.S.wages do not change at all.We now know that
A)the United States has no comparative advantage.
B)Germany has a comparative advantage in butter.
C)the United States has a comparative advantage in butter.
D)Not enough information is given.
E)Germany gains a comparative advantage in widgets.

Accepted Answer

A flatter production possibility frontier along the butter axis indicates that Germany has a comparative advantage in butter production. Doubling the German wage would result in a higher opportunity cost for producing butter, meaning they would likely shift towards producing more widgets. In contrast, the U.S. production possibility frontier is flatter along the widget axis, which suggests they have a comparative advantage in widget production. However, since their wage did not change, there is no significant impact on their comparative advantage. Therefore, the best choice is B) Germany has a comparative advantage in butter.

Question 9

If the United States' production possibility frontier was flatter to the widget axis,whereas Germany's was flatter to the butter axis,we know that
A)the United States has no comparative advantage
B)Germany has a comparative advantage in butter.
C)the U.S.has a comparative advantage in butter.
D)Germany has comparative advantages in both products.
E)the U.S.has a comparative disadvantage in widgets.

Accepted Answer

The answer of If the United States' production possibility frontier...

Question 10

Many countries in sub-Saharan Africa have very low labor productivities in many sectors,for example in manufacturing and agriculture.They often despair of even trying to attempt to build their industries unless it is done in an autarkic context,behind protectionist walls because they do not believe they can compete with more productive industries abroad.Discuss this issue in the context of the Ricardian model of comparative advantage.

Accepted Answer

The answer of Many countries in sub-Saharan Africa have very...

Question 11

In a two-country,two-product world,the statement "Germany enjoys a comparative advantage over France in autos relative to ships" is equivalent to
A)France having a comparative advantage over Germany in ships.
B)France having a comparative disadvantage compared to Germany in autos and ships.
C)Germany having a comparative advantage over France in autos and ships.
D)France having no comparative advantage over Germany.
E)France should produce autos.

Accepted Answer

According to the statement, Germany has a comparative advantage in autos relative to ships. This means that Germany can produce autos at a lower opportunity cost than France can, while France can produce ships at a lower opportunity cost than Germany can. Therefore, France has a comparative advantage over Germany in ships.

Question 12

Mahatma Gandhi exhorted his followers in India to promote economic welfare by decreasing imports.This approach
A)makes no sense.
B)makes no economic sense.
C)is consistent with the the Ricardian model of comparative advantage.
D)is not consistent with the Ricardian model of comparative advantage.
E)guarantees benefits for Indian workers.

Accepted Answer

Mahatma Gandhi's approach to promote economic welfare by decreasing imports is not consistent with the Ricardian model of comparative advantage, which advocates for countries to specialize in producing goods that they can produce more efficiently than other countries and import goods that other countries can produce more efficiently. Limiting imports can lead to higher domestic prices and reduce access to a variety of goods, ultimately hindering economic growth and welfare.

Question 13

-Given the information in the table above.What is the opportunity cost of cloth in terms of Widgets in Foreign?

Accepted Answer

The answer of 
-Given the information in the table above.What...

Question 14

In 1975,wage levels in South Korea were roughly 5% of those in the United States.It is obvious that if the United States had allowed Korean goods to be freely imported into the United States at that time,this would have caused devastation to the standard of living in the United States,because no producer in this country could possibly compete with such low wages.Discuss this assertion in the context of the Ricardian model of comparative advantage.

Accepted Answer

The answer of In 1975,wage levels in South Korea were...

Question 15

If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios),then if they both use the same currency
A)neither country has a comparative advantage.
B)only the low wage country has a comparative advantage.
C)only the high wage country has a comparative advantage.
D)consumers will still find trade worth while from their perspective.
E)it is possible that both will enjoy the conventional gains from trade.

Accepted Answer

Even if one country has a higher wage level than the other, both countries can still benefit from trade as long as they have comparative advantage in producing different goods. The currency used does not affect this principle. Therefore, it is possible that both will enjoy the conventional gains from trade.

Question 16

If the production possibilities frontier of one trade partner ("Country A")is bowed out (concave to the origin),then increased specialization in production by that country will
A)increase the economic welfare of both countries.
B)increase the economic welfare of only Country A.
C)decrease the economic welfare of Country A.
D)decrease the economic welfare of Country B.
E)not affect the economic welfare of either country.

Accepted Answer

A bowed out PPF implies that the opportunity cost of producing one good is rising as more of it is produced. Therefore, when Country A specializes in producing the good in which it has a comparative advantage, it will give up less of the other good as compared to Country B, thereby increasing economic welfare for both countries. This is because Country B can then obtain the good from Country A at a lower price than it would have been able to produce on its own, and Country A can trade its surplus for goods that it cannot produce efficiently.

Question 17

We know that in antiquity,China exported silk because no one in any other country knew how to produce this product.From this information we know that
A)China had a comparative advantage in silk.
B)China had an absolute advantage,but not a comparative advantage in silk.
C)no comparative advantage could exist because the technology was not diffused.
D)China exported silk for political reasons even though it had no comparative advantage.
E)China was unable to profit by exporting silk because it was unknown in the rest of the world.

Accepted Answer

The fact that no other country knew how to produce silk indicates that China had a unique advantage in the production of silk, which is a comparative advantage. This gave China the ability to export silk and receive a greater benefit from trading it than by producing everything domestically.

Question 18

Suppose the United States' production possibility frontier was flatter to the widget axis,whereas Germany's was flatter to the butter axis.We now learn that the German mark sharply depreciates against the U.S.dollar.We now know that
A)the United States has no comparative advantage
B)Germany has a comparative advantage in butter.
C)the United States has a comparative advantage in butter.
D)Germany has a comparative advantage in widgets.
E)Germany has lost its comparative advantage.

Accepted Answer

The answer of Suppose the United States' production possibility frontier...

Question 19

If a production possibilities frontier is bowed out (concave to the origin),then production occurs under conditions of
A)constant opportunity costs.
B)increasing opportunity costs.
C)decreasing opportunity costs.
D)infinite opportunity costs.
E)uncertain opportunity costs.

Accepted Answer

A bowed out production possibilities frontier indicates increasing opportunity costs. This means that as more of one good is produced, the opportunity cost (in terms of the amount of the other good that must be given up) increases. This occurs because resources are not perfectly adaptable to producing different goods. As more resources are shifted towards one good, a greater amount of the other good must be given up, leading to increasing opportunity costs.

Question 20

-Given the information in the table above.If these two countries trade these two goods in the context of the Ricardian model of comparative advantage,then what is the lower limit of the world equilibrium price of widgets?

Accepted Answer

The answer of 
-Given the information in the table above.If...

Quiz 3: Labor Productivity and Comparative Advantage: The Ricardian Model

If labor productivities were exactly proportional to wage levels internationally,this would

The pauper labor theory,and the exploitation argument

If two countries have identical production possibility frontiers,then trade between them is likely to be beneficial if

The Country of Rhozundia is blessed with rich copper deposits.The cost of copper produced (relative to the cost of widgets produced) is therefore very low.From this information we know that

-Given the information in the table above.If these two countries trade these two goods with each other in context of the Ricardian model of comparative advantage,what is the lower limit for the price of cloth?

Which of the following statements is TRUE?

If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios) then it is probable that

Suppose the United states production possibility frontier was flatter to the widget axis,whereas Germany's was flatter to the butter axis.We now learn that the German wage doubles,but U.S.wages do not change at all.We now know that

If the United States' production possibility frontier was flatter to the widget axis,whereas Germany's was flatter to the butter axis,we know that

In a two-country,two-product world,the statement "Germany enjoys a comparative advantage over France in autos relative to ships" is equivalent to

Mahatma Gandhi exhorted his followers in India to promote economic welfare by decreasing imports.This approach

-Given the information in the table above.What is the opportunity cost of cloth in terms of Widgets in Foreign?

If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios) ,then if they both use the same currency

If the production possibilities frontier of one trade partner ("Country A") is bowed out (concave to the origin) ,then increased specialization in production by that country will

We know that in antiquity,China exported silk because no one in any other country knew how to produce this product.From this information we know that

Suppose the United States' production possibility frontier was flatter to the widget axis,whereas Germany's was flatter to the butter axis.We now learn that the German mark sharply depreciates against the U.S.dollar.We now know that

If a production possibilities frontier is bowed out (concave to the origin) ,then production occurs under conditions of

-Given the information in the table above.If these two countries trade these two goods in the context of the Ricardian model of comparative advantage,then what is the lower limit of the world equilibrium price of widgets?