Deck 3: Labor Productivity and Comparative Advantage: the Ricardian Model

Question 1

Assume that labor is the only factor of production and that wages in the United States equal $20 per hour while wages in Japan are $10 per hour.Production costs would be lower in the United States as compared to Japan if

A)U)S.labor productivity equaled 15 units per hour and Japan's 25 units per hour.
B)U)S.labor productivity equaled 20 units per hour and Japan's 30 units per hour.
C)U)S.labor productivity equaled 15 units per hour and Japan's 40 units per hour.
D)U)S.labor productivity equaled 40 units per hour and Japan's 15 units per hour.
E)U)S.labor productivity equaled 30 units per hour and Japan's 20 units per hour.

Answer 1

D

Question 2

The pauper labor and the exploitation arguments

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

Answer 2

C

Question 3

A country engaging in trade according to the principles of comparative advantage gains from trade because it

A)is producing exports indirectly more efficiently than it could alternatively.
B)is producing imports indirectly using fewer labor units.
C)is producing exports while outsourcing services.
D)is producing exports using fewer labor units.
E)is producing imports indirectly more efficiently than it could domestically.

Answer 3

E

Question 4

The Ricardian model attributes the gains from trade associated with the principle of comparative advantage result to

A)differences in labor productivity.
B)differences in technology.
C)gravity relationships among countries.
D)differences in preferences.
E)differences in resources.

Question 5

Which of the following is most likely to be an untraded good in a Ricardian two- country,multi- good model?

A)haircuts
B)telemarketer services
C)textiles
D)petroleum
E)steel

Question 6

Assume that transportation costs are especially high for Widgets in the two- country,two- product Ricardian model,and Country A enjoys a comparative advantage in Widgets,then

A)country B must also enjoy a comparative advantage in Widgets.
B)country B may end up exporting Widgets.
C)country A will still export Widgets.
D)trade may be impossible between the two countries.
E)country A may switch to having a comparative advantage in the other good.

Question 7

The earliest statement of the principle of comparative advantage is associated with

A)David Ricardo.
B)David Hume.
C)Eli Heckscher.
D)Bertil Ohlin.
E)Adam Smith.

Question 8

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

A)negate the logical basis for trade in the Ricardian model.
B)not negate the logical basis for trade in the Ricardian model.
C)negate the applicability of the Ricardian model if the number of products were greater than the number of trading partners.
D)demonstrate the validity of the Ricardian model.
E)render the Ricardian model theoretically correct but practically useless.

Question 9

Trade between two countries can benefit both countries if

A)each country has a more elastic supply for the exported goods.
B)each country produces a wide range of goods for export.
C)each country exports that good in which it has a comparative advantage.
D)each country enjoys superior terms of trade.
E)each country has a more elastic demand for the imported goods.

Question 10

A nation engaging in trade according to the Ricardian model will find its consumption bundle

A)inside its production possibilities frontier.
B)on its production possibilities frontier.
C)on its trade- partner's production possibilities frontier.
D)outside its production possibilities frontier.
E)inside its trade- partner's production possibilities frontier.

Question 11

According to Ricardo,a country will have a comparative advantage in the product in which its

A)labor productivity is relatively high.
B)labor mobility is relatively high.
C)labor productivity is relatively low.
D)labor mobility is relatively low.
E)labor is outsourced to neighboring countries.

Question 12

The Ricardian model demonstrates that

A)trade between two countries may benefit both if each exports the product in which it has a comparative advantage.
B)trade between two countries will benefit both countries.
C)trade between two countries may benefit one but harm the other.
D)trade between two countries always benefits the country with a larger labor force.
E)trade between two countries may benefit both regardless of which good each exports.

Question 13

In the Ricardian model,comparative advantage is likely to be due to

A)home product taste bias.
B)political pressure.
C)scale economies.
D)labor productivity differences.
E)greater capital availability per worker.

Question 14

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

A)guarantees benefits for Indian workers.
B)makes no sense.
C)makes no economic sense.
D)is consistent with the the Ricardian model of comparative advantage.
E)is not consistent with the Ricardian model of comparative advantage.

Question 15

In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least _ unit labor requirements.

A)three
B)five
C)one
D)four
E)two

Question 16

If a production possibilities frontier is a straight line,then production occurs under conditions of

A)decreasing opportunity costs.
B)constant opportunity costs.
C)uncertain opportunity costs.
D)increasing opportunity costs.
E)infinite opportunity costs.

Question 17

In a two- product,two- country world,international trade can lead to increases in

A)prices of both goods in both countries.
B)consumer welfare only if output of both products is increased.
C)consumer welfare in both countries but not total production of both products.
D)total production of both products but not consumer welfare in both countries.
E)output of both products and consumer welfare in both countries.

Question 18

Which of the following statements is TRUE?

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

Question 19

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 should invest in more widget production.
B)Rhozundia may or may not have a comparative advantage in copper.
C)Rhozundia has a comparative advantage in copper.
D)Rhozundia should export both widgets and copper.
E)Rhozundia should import copper and export widgets.

Question 20

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 exported silk for political reasons even though it had no comparative advantage.
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 had a comparative advantage in silk.
E)China was unable to profit by exporting silk because it was unknown in the rest of the world.

Question 21

The growth of clothing exports originating in Bangladesh is the result of the

A)high wages in other countries.
B)low productivity of workers in other countries.
C)low productivity of workers in Bangladesh in industries other than those that produce clothing for export.
D)high productivity of workers in Bangladesh.
E)low wages in Bangladesh.

Question 22

When compared with China,the growth of clothing exports originating in Bangladesh is the result of

A)the comparative and absolute advantage that Bangladesh has in the production of clothing for export.
B)the absolute advantage that Bangladesh has in the production of clothing for export.
C)the comparative advantage that Bangladesh has in the production of clothing for export.
D)the comparative and absolute advantage that China has in the production of clothing for export.
E)the absolute advantage that China has in the production of clothing for export.

Question 23

Which of the following has been confirmed by empirical tests of the Ricardian model?

A)The unimportance of economies of scale as a cause of trade.
B)Companies tend to export goods in which they have a relatively high level of productivity.
C)The existence of nontraded goods results in a high degree of specialization among countries.
D)International trade has no impact on income distribution.
E)All predictions of the model for a multi- product,multi- country world are highly unrealistic.