Deck 2: Tools of Analysis for International Trade Models

Question 1

Which of the following is a Nobel Prize winning economist who argued that theories should be tested based on the validity of their predictions?

A) Milton Friedman.
B) Ben Bernanke.
C) Alan Greenspan.
D) Larry Summers.

Answer 1

A

Question 2

In autarky equilibrium,

A) production equals consumption.
B) exports equal imports.
C) there is no trade.
D) All of the above.

Answer 2

D

Question 3

Indifference curves are downward sloping because

A) when some of one good is taken away the consumer must be compensated with more of the other.
B) higher prices mean less quantity demanded.
C) higher indifference curves mean higher utility.
D) Both A and B.

Answer 3

A

Question 4

An indifference curve

A) is a locus of bundles of goods such that each good in every bundle yields equal satisfaction.
B) is a locus of bundles of goods such that the consumer is indifferent between each good in every bundle.
C) is a locus of bundles of goods such that the consumer is indifferent between each of the bundles.
D) All of the above.

Question 5

A diagram that shows the maximum amount of one type of good that can be produced in an economy, given the production of the other is known as

A) an indifference curve.
B) the tradeoff schedule.
C) the production possibility frontier.
D) the balance of trade.

Question 6

If individuals have money illusion then they

A) think that money is worthless.
B) ignore the effects on their income or wealth of some price changes in the economy.
C) they base their production and consumption decisions on relative rather than absolute prices.
D) Both B and C.

Question 7

Using community indifference curves to reflect tastes of the community

A) is a simple extension of indifference curve analysis because people are so different.
B) cannot usually be done because the community may have inconsistent tastes even though its residents do not.
C) is a simple extension of indifference curve analysis if people are all alike.
D) Both B and C.

Question 8

If the relative price of S in terms of T is 2 and S has a nominal price of $1, then the relative price of T is

A) $2.
B) 50 cents.
C) 1/2 S.
D) Need more information to answer.

Question 9

If a country has a straight (downward sloping) production possibilities frontier, then production is said to be subject to

A) constant opportunity costs.
B) decreasing opportunity costs.
C) first increasing and then decreasing opportunity costs.
D) increasing opportunity costs.

Question 10

Economists use general equilibrium models of an economy to explain

A) consumption levels.
B) production levels.
C) relative prices.
D) All of the above.

Question 11

If the autarky price of S (in terms of T) were lower in country A than in country B,

A) A has a comparative advantage in S.
B) B has a comparative advantage in T.
C) A has a comparative disadvantage in T.
D) All of the above.

Question 12

If the relative price of S in terms of T is 2 and S has a nominal price of $1, then the nominal price of T is

A) $2.
B) 50 cents.
C) 1/2 S.
D) Need more information to answer.

Question 13

If a country has a bowed out (concave to the origin) production possibility frontier, then production is said to be subject to

A) constant opportunity costs.
B) decreasing opportunity costs.
C) first increasing and then decreasing opportunity costs.
D) increasing opportunity costs.

Question 14

A situation in which a country does not take part in international trade is known as

A) autarky.
B) openness neglect.
C) indifference tradeoff.
D) protectionist point.

Question 15

analysis by economists refers to the attempt to answer questions such as what are the effects of a tax on production and consumption decisions.

A) Positive
B) Negative
C) Normative
D) Investigative

Question 16

If the autarky price of S were lower in country A than in country B, then if trade were allowed

A) A would likely export S to B.
B) A would likely import S from B.
C) neither country would want to trade.
D) None of the above.

Question 17

If a country is subject to increasing opportunity costs, its national supply curve (i.e. the locus of national output levels of S at various relative prices of S) will have a slope.

A) flat
B) positive
C) negative
D) bowed out

Question 18

In autarky, when a community maximizes its standard of living, its consumption point is

A) below the production possibility frontier.
B) on the production possibility frontier.
C) above the production possibility frontier.
D) can't tell without more information.

Question 19

analysis by economists refers to the attempt to answer questions such as should a tax be imposed.

A) Positive
B) Negative
C) Normative
D) Investigative

Question 20

In autarky, when a community maximizes its standard of living, its production point is

A) below the production possibility frontier.
B) on the production possibility frontier.
C) above the production possibility frontier.
D) Can't tell without more information.

Question 21

Normative analysis involves value judgments.

Question 22

General equilibrium occurs in autarky at the point where the community indifference curve intersects the production possibilities frontier.

Question 23

What is the difference between positive and normative analysis?

Question 24

The absolute value of the slope of the production possibilities frontier at the production point provides a measure of both the relative price of S in terms of T and the opportunity cost of producing one more unit of S calculated in terms of output of T foregone.

Question 25

If individuals have money illusion, they react to changes in certain prices without regard to simultaneous changes in other prices.

Question 26

If a country were to experience an increase in its factors of production, its production possibilities frontier would shift outward.

Question 27

As of 2009, most countries in the world live in autarky.

Question 28

Per capita real GDP levels provide one possible measure of a country's standard of living.

Question 29

An indifference curve represents the collection of goods and services that an individual has no desire to consume.

Question 30

Indifference curves intersect at the point of utility maximization.

Question 31

If the relative price of S were to rise, then an individual's indifference curve would rotate toward the T axis.

Question 32

Explain the relationship between relative prices and the slope of a country's production possibilities frontier.

Question 33

Production under increasing opportunity costs can result from the two industries using factors of production in different combinations.

Question 34

If country A produces S at a lower relative price than country B, A is said to have a comparative advantage in S.

Question 35

If an economy is characterized by increasing opportunity costs, increasing the production of S by constant amounts results in a constant decrease in the production of T.