Deck 3: Gains and Losses From Trade in the Specific-Factors Model

Question 1

The argument that trade generates gains for all workers
May NOT be true because:

A)a more realistic assumption includes capital and land as factors of production and recognizes that trade will
Generate gains for some factors and losses for others.
B)greedy corporations exploit workers.
C)technology gains are concentrated among low­skill workers.
D)some workers lack skills and training and cannot find jobs.

Answer 1

A

Question 2

In a two­sector (manufacturing and agriculture) specific­
Factors model:

A)land, labor, and capital are transferable between sectors.
B)labor is transferable between sectors.
C)land is transferable between sectors.
D)capital is transferable between sectors.

Answer 2

B

Question 3

Under free trade and comparative advantage, the home
Country:

A)will see only benefits for its resources.
B)will see only losses for its resources.
C)will see winners and losers within its economy.
D)will be convinced that trade is not beneficial.

Answer 3

C

Question 4

In the two­sector (manufacturing and agriculture)
Specific­factors model, which resource(s) is (are)
Transferable between sectors?

A)land
B)labor
C)capital
D)labor and capital

Question 5

In the two­sector (manufacturing and agriculture)
Specific­factors model, diminishing returns to labor
Implies:

A)that the country's production possibilities frontier is linear (a straight line).
B)that the country's production possibilities frontier is concave to the origin (bowed out from the origin).
C)that the country's production possibilities frontier is convex from the origin (bowed in toward the origin).
D)that the country's production possibilities frontier may be either concave to or convex from the origin.

Question 6

Because of the "law of diminishing marginal returns" to
A factor, as more labor is employed, its marginal
Product:

A)rises.
B)falls.
C)stays constant.
D)rises disproportionally.

Question 7

In contrast to the Ricardian model, international trade in
The specific­factors model:

A)will lead to gains for all resources.
B)will lead to losses for all resources
C)will lead to gains for some resources and losses for other resources.
D)will not cause changes in the returns of any resources.

Question 8

In a two­sector (manufacturing and agriculture) specific­
Factors model:

A)land is specific to the manufacturing sector.
B)labor is specific to the manufacturing sector.
C)capital is specific to the manufacturing sector.
D)labor and capital are specific to the manufacturing sector.

Question 9

What resource is specific to the agriculture sector?

A)labor
B)land
C)capital
D)entrepreneurs

Question 10

The specific­factors model is termed a "short­run" model
Because:

A)labor cannot move from one activity to another.
B)land resources can move from one activity to another.
C)labor can move from one activity to another.
D)land and capital cannot move from one activity to another.

Question 11

Bolivia's government attempted to solve some of its
Problems with inequality of outcomes due to foreign
Investment in its natural gas resources by:

A)taxing international firms.
B)insisting that the firms pay higher wages to workers in the industry.
C)shutting down the firms in the wake of protests.
D)nationalizing the firms by reclaiming 51% ownership and raising taxes on foreign profits.

Question 12

When there are diminishing marginal returns to factors
Of production, the PPF is:

A)a negatively sloped straight line.
B)bowed out from the origin.
C)caved in toward the origin.
D)a positively sloped straight line.

Question 13

In the specific­factors model, it is assumed that labor:

A)can move freely between the manufacturing and agricultural sectors.
B)can move from the manufacturing to the agriculture sector, but not from the agricultural to the
Manufacturing sector.
C)cannot move from one sector to the other.
D)cannot move within a sector.

Question 14

A "specific" factor of production is:

A)critical to the production of the good or service.
B)not transferable to other types of production and can only be used for the product in question.
C)a set quantity for each unit produced.
D)the opposite of a general factor, meaning it must fit within certain narrow quality parameters.

Question 15

In the specific­factors model, as more labor is added to
A sector, we will see:

A)the total product of labor decrease.
B)the marginal product of labor increase.
C)the average product of labor stay constant.
D)the marginal product of labor decrease.

Question 16

The model used to study the earnings of resources of
Production is called:

A)comparative advantage theory.
B)absolute advantage theory.
C)specific­factors model.
D)production possibility frontier.

Question 17

What does the specific­factors model allow us to
Analyze?

A)the returns to factors of production
B)the allocation of resources between sectors
C)the returns to factors of production and the allocation of resources between sectors
D)the allocation of resources to the service sector

Question 18

The two­sector (manufacturing and agriculture) specific­
Factors model assumes:

A)that there are increasing returns to labor.
B)that there are diminishing returns to labor.
C)that there are diminishing returns to capital in the agricultural sector.
D)that there are diminishing returns to land in the manufacturing sector.

Question 19

If we assume only one factor (labor), we can
Demonstrate on the PPF the opportunity cost of
Producing less of one good and more of the other good
By:

A)taking the sum of the marginal products of labor for the two goods.
B)taking the difference of the marginal products of labor for the two goods.
C)taking the ratio of the marginal products of labor for the two goods times -1.
D)taking the average of the marginal products of labor for the two goods.

Question 20

When there are diminishing returns to labor, the
Production possibility frontier is _______ sloping and
________ to the origin.

A)downward; convex
B)downward; concave
C)upward; concave
D)upward; convex

Question 21

Many examples in this chapter indicate that there are
Substantial ________________ as a result of
Competition and trade.

A)environmental disasters
B)labor shortages and strikes
C)gains to the economy
D)losses to consumers and workers

Question 22

Earlier in our study we learned that when a country is
Opened to free trade:

A)relative prices of the traded products do not change.
B)absolute prices measured in the domestic currency do not change.
C)the relative price rises in the export sector and falls in the import sector.
D)the export sector experiences a decline in demand.

Question 23

In equilibrium, with diminishing marginal products, the
Slope of the PPF is equal to:

A)the ratio of prices for the products.
B)the slope of the highest possible indifference curve.
C)the ratio of the marginal products of labor.
D)the ratio of prices for the products, the slope of the highest possible indifference curve, and the ratio of the
Marginal products of labor.

Question 24

From 1807 to 1809, a trade embargo imposed by the
United States resulted in:

A)a rise in real GDP, as residents turned toward domestic production.
B)a fall in real GDP of about 5%.
C)a lower unemployment rate in the United States.
D)a rise in the U.S.standard of living from lower prices as a result of lowered demand.

Question 25

As a nation opens trade, the relative prices of products it
Exports will __________ and the relative prices of
Products it imports will ___________.

A)rise; fall
B)fall; rise
C)remain constant; fall
D)rise; remain constant

Question 26

A microeconomic analysis shows that in a competitive
Economy in which labor is homogenous and mobile, the
Ratio of the prices of the products in equilibrium is
Inversely proportional to:

A)the ratio of the capital used in production.
B)the ratio of the marginal products of labor.
C)the geographical region of the country in which the factory is located.
D)the strength of bargaining power of the workers.

Question 27

As a nation begins to export, its own relative price of
Exported goods will ______, and as it imports other
Goods, the relative price of those will ______, thus
___________ its standard of living.

A)fall; rise; lowering
B)rise; fall; lowering
C)rise; fall; raising
D)fall; rise; raising

Question 28

If a nation begins to trade, it will be able to sell (export)
The product for which its own relative price is:

A)lower than other nations.
B)higher than other nations.
C)the same as other nations.
D)less than 10% of the value of other nations.

Question 29

The absence of trade is known as:

A)alitartky.
B)oligarchy.
C)autarky.
D)embargo.

Question 30

Suppose that wages in the agricultural and
Manufacturing sectors are $10 and $20 per hour,
Respectively, and that the prices of both the agricultural
And manufactured good are both $50 per unit.What is
The marginal productivity of labor in the manufacturing
Sector?

A)$1,000
B)0.4 units per hour
C)2.5 units per hour
D)$0.40

Question 31

If the price per bushel of wheat is $3 and the marginal
Product of labor is 4 bushels per hour, then what is the
Hourly wage?

A)$0.75
B)$1.33
C)$12
D)4 bushels

Question 32

As a nation increases its production of exports, demand
For all factors of production used in those firms:

A)will rise.
B)will fall.
C)will remain the same.
D)will decrease but only slightly.

Question 33

If the wage rate in the agriculture sector is lower than
The manufacturing sector, then labor will migrate to the
Manufacturing sector.This will cause:

A)both wage and marginal product of labor in the manufacturing sector to decrease.
B)both wage and marginal product of labor in the agriculture sector to decrease.
C)the nation to import more goods.
D)There will be no effect on either sector.

Question 34

Suppose that the Home country in the two­sector
(manufacturing and agriculture) specific­factors model
Has a comparative advantage in agricultural output.Will
Workers be better or worse off following the opening of
Trade with other countries?

A)Workers will be better off because the nominal wage increases.
B)Workers will be worse off because the nominal wage decreases.
C)Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the
Real wage in terms of the manufactured good falls.
D)Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the
Real wage in terms of the manufactured good rises.

Question 35

As a nation increases its production of exports, demand
For specific or fixed factors (such as capital and land)
Used in the exporting sector:

A)will rise.
B)will fall.
C)will remain the same.
D)will decrease but only slightly.

Question 36

Consider the following information for a hypothetical
Economy: If the price per bicycle is $20 and the wage
Per worker is $40, then what is the marginal product of
Labor?

A)20 bicycles
B)2 bicycles
C)0.5 bicycle
D)1 bicycle

Question 37

In the two­sector (manufacturing and agriculture)
Specific­factors model, the slope of the production
Possibilities curve equals:

A)the ratio of marginal products of capital in the two sectors.
B)the ratio of marginal products of labor utilized in the two sectors.
C)the ratio of outputs produced in the two sectors.
D)the ratio of land and capital utilized in the two sectors.

Question 38

If a nation begins to trade, it will wish to buy (import)
The product for which its own relative price is:

A)lower than other nations.
B)higher than other nations.
C)the same as other nations.
D)less than 10% of the value of other nations.

Question 39

Suppose that the wage is $20 per hour in a two­sector
(manufacturing and agriculture) specific­factors model.
Currently, the prices of manufactured and agricultural
Outputs are $5 and $1, respectively; the marginal
Product of labor in the manufactured sector is 6 units
Per hour; and the marginal product of labor in the
Agricultural sector is 10 units per hour.What will happen
To the distribution of labor between the two sectors?

A)Nothing will happen.The current allocation of labor between the two sectors is ideal.
B)The manufacturing sector will demand more labor, and the agricultural sector will demand less labor at the
Current wage.
C)The agricultural sector will demand more labor, and the manufacturing sector will demand less labor at the
Current wage.
D)Both the agricultural and the manufacturing sector will demand more labor at the current wage.

Question 40

When a nation engages in no trade and produces
Everything it consumes, we call it:

A)anarchy.
B)oligarchy.
C)autarky.
D)embargo.

Question 41

In the specific­factors model, suppose that a country has
A comparative advantage in manufacturing output.Will
Workers be better or worse off following the opening of
Trade with other countries?

A)Workers will be better off because the nominal wage increases.
B)Workers will be better off because both nominal and real wages increase.
C)Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the
Real wage in terms of the manufactured good falls.
D)Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the
Real wage in terms of the manufactured good rises.

Question 42

When the demand for products competing with imports
Falls, demand for the specific factors used in their
Production falls and:

A)the relative prices (earnings) of these specific factors will fall disproportionally.
B)the relative prices (earnings) of these specific factors will rise disproportionally.
C)the relative prices (earnings) of these specific factors will fall by the same rate as for all resources.
D)the employment of these specific factors will rise disproportionally.

Question 43

Workers displaced because of trade:

A)have had larger losses in manufacturing compared with services.
B)have had larger losses among older workers than younger workers.
C)are likely to find replacement jobs within 3 years.
D)have experienced all of these answer choices.

Question 44

An increase in demand for resources fixed or specific to
An industry will cause their earnings _____ because
Those resources cannot be released from other
Industries.

A)to fall
B)to rise by the same rate as for all resources
C)to rise disproportionally
D)to fall disproportionally

Question 45

The Trade Adjustment Assistance program is:

A)an unemployment insurance program regardless of the reason for job loss.
B)an unemployment insurance program that pays for job loss due to import competition.
C)a subsidy program for the producers.
D)a tax on importers of foreign goods.

Question 46

If trade causes some workers to be laid off, most
Economists conclude:

A)that all other workers will be better off because their wages will rise.
B)that we should not allow imports to take U.S.jobs.
C)that we should expect wages to fall.
D)that none of these answers is true.

Question 47

In the specific­factors model, an increase in the price of
The manufactured good will cause:

A)an increase in the wage in the manufacturing sector.
B)capital to move from the agricultural to the manufacturing sector.
C)land to move from the manufacturing to the agricultural sector.
D)a decrease in the wage in the agricultural sector.

Question 48

If trade causes shifts in production so that some workers
Are laid off, most economists conclude:

A)that the nation should extend unemployment benefits for a longer period.
B)that the situation is usually temporary because there are jobs created in export industries.
C)that we should expect wages to fall and therefore should not allow imports to take U.S.jobs.
D)that all workers will be better off because overall the equilibrium wage will rise.

Question 49

Economists believe that layoffs and wage declines due to
Increased imports:

A)are the most critical problem facing the economy today.
B)may be caused by factors such as changing technology and changing demands for workers rather
Than by increased imports.
C)should be addressed by the WTO, which usually ignores such issues.
D)are so minor that we may safely ignore them.

Question 50

Suppose that the Home country in the two­sector
(manufacturing and agriculture) specific­factors model
Has a comparative advantage in manufactured output.
Will workers be better or worse off following the opening
Of trade with other countries?

A)Workers will be better off because the nominal wage increases.
B)Workers will be worse off because the nominal wage decreases.
C)Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the
Real wage in terms of the manufactured good falls.
D)Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the
Real wage in terms of the manufactured good rises.

Question 51

Which of the following is NOT a possible explanation for
Wage differences across sectors?

A)Demand for products affects demand for resources.
B)Changes in technology affect demand for resources.
C)The government mandates that service sector jobs pay more.
D)Import competition in a sector leads to lower wages.

Question 52

Which of the following BEST describes changes in U.S.
Manufacturing employment between 1973 and 2011?

A)Manufacturing employment fell, but manufacturing employment as a share of total U.S.employment rose.
B)Manufacturing employment rose, but manufacturing employment as a share of total U.S.employment fell.
C)Both manufacturing employment and manufacturing employment as a share of total U.S.employment fell.
D)Both manufacturing employment and manufacturing employment as a share of total U.S.employment rose.

Question 53

In an industrialized country, the amount of labor
Employed in the agriculture sector is:

A)larger than labor employed in the manufacturing sector.
B)larger than labor employed in the service sector.
C)lower than labor employed in either the manufacturing and service sector.
D)is about the same as labor employed in the service sector.

Question 54

As relative prices in various industries change due to
Trade, the marginal product of fixed resources used in
The expanding industry __________, and the marginal
Product of fixed resources used in the contracting
Industry __________.

A)rises; falls
B)remains the same; remains the same
C)changes by exactly the same percentage; changes by exactly the same percentage
D)falls; rises

Question 55

In the specific­factors model, an increase in the price of
The agricultural good will cause:

A)a decrease in nominal wages in both the agricultural and manufacturing sectors.
B)an increase in nominal wages in both the agricultural and manufacturing sectors.
C)an increase in both nominal and real wages in both the agricultural and manufacturing sectors.
D)an increase in the nominal wage in the agricultural sector and a decrease in nominal wage in the
Manufacturing sector.

Question 56

If the relative price of one product rises and labor is
Mobile, then:

A)the percentage increase in the equilibrium real wage will be exactly the same as the percentage increase in
The relative price.
B)the percentage increase in the equilibrium real wage will be lower than the percentage increase in the relative
Price.
C)the percentage increase in the equilibrium real wage will be higher than the percentage increase in the
Relative price.
D)the equilibrium real wage will not change.

Question 57

According to the Bureau of Labor Statistics, the people
Losing jobs in the manufacturing sector between 2009
And 2011, were:

A)more likely to find higher paying jobs than service sector workers.
B)less likely to find higher paying jobs than service sector workers.
C)more likely to work in a foreign country.
D)less likely to find a lower paying job than those in the service sector.

Question 58

Suppose that labor is mobile between sectors but that
Capital and land are specific.Then labor will tend to
Benefit from trade when:

A)it spends a large amount of its income on the imported good.
B)it spends a large amount of its income on the exported good.
C)wages do not change much in percentage terms.
D)all of these occur.

Question 59

As relative prices in various industries change due to
Trade, the marginal product of the mobile resources
Used in the expanding industry __________, and the
Marginal product of the mobile resources used in the
Contracting industry __________.

A)rises; falls
B)falls; rises
C)remains the same; remains the same
D)changes by exactly the same percentage; changes by exactly the same percentage

Question 60

The term real wages refers to:

A)a worker's hourly wage in dollars.
B)the purchasing power of a worker's wage.
C)the productivity of a worker's labor.
D)the productivity of a worker's capital.

Question 61

Why does the return to capital change after trade
Occurs?

A)There is more labor used per unit of capital in the manufacturing sector.
B)There is more capital used per unit of labor in the manufacturing sector.
C)There is more labor used per unit of land in the agricultural sector.
D)There is more land used per unit of labor in the agricultural sector.

Question 62

In the specific­factors model, an increase in the price of
Manufactured goods will cause:

A)an increase in the real rental of capital.
B)a decrease in the real rental of capital.
C)no change in the real rental of capital.
D)a decrease in the nominal wage in the manufacturing sector.

Question 63

The specific­factors model assumes that in each industry
(such as manufacturing and agriculture) there are
Factors of production that are:

A)less productive.
B)outsourced to other nations.
C)fixed or immobile.
D)very scarce and therefore have a high supply price.

Question 64

Suppose that the Home country in the two­sector
(manufacturing and agriculture) specific­factors model
Has a comparative advantage in manufacturing output.
What will happen to the return (rental) on capital when
Trade occurs?

A)It will fall.
B)It will rise.
C)It will not change.
D)It will first fall, then rise.

Question 65

Suppose that the Home country in the two­sector
(manufacturing and agriculture) specific­factors model
Has a comparative advantage in manufacturing output.
What will happen to the amount of land used in
Producing agricultural output when trade occurs?

A)It will fall.
B)It will rise.
C)It will not change.
D)It will first fall, then rise.

Question 66

The United States maintains a program to help workers
Affected by trade relocation.This is called:

A)the North American Free Trade Alliance.
B)the Worker Retraining and Education Act.
C)Trade Adjustment Assistance.
D)Supplemental Security Income (SSI).

Question 67

The specific­factors model concludes that if there is a
Decrease in relative price (and an expansion) in one
Industry, the factor specific to that industry:

A)will experience an increase in its marginal product.
B)will experience a decrease in its marginal product.
C)will be transferred to other industries.
D)will have competition as additional units of that specific factor are hired from other industries.

Question 68

In the United States, which workers displaced by trade
Are able to adjust the easiest?

A)those in the service industries
B)those in the manufacturing industries
C)Evidence indicates that there is no difference across industries.
D)There is no available evidence on this topic.

Question 69

In the specific­factors model, suppose that the Home
Country has a comparative advantage in agricultural
Output.What will happen to the amount of capital used
In manufacturing production when trade occurs?

A)It will fall.
B)It will rise.
C)It will not change.
D)It will first fall, then rise.

Question 70

Trade Adjustment Assistance provides:

A)training to those employed in exporting industries.
B)training to those employed in importing industries.
C)extra income to those employed in importing industries.
D)extra income to those formerly employed in importing industries.

Question 71

As a general rule, the return to (or rental price of) a
Specific factor used in a product tends to:

A)rise disproportionally when the product is exported.
B)fall disproportionally when the product is exported.
C)benefit its owners when there is a decrease in the relative price of the product.
D)rise disproportionally when the product is imported.

Question 72

As a general rule, when there are specific factors,
Owners of factors specific to the importing industry are
______________, whereas the mobile factor owners
(such as labor) in that industry are ______________.

A)harmed; benefited
B)benefited; harmed
C)harmed; either benefited or harmed, depending on consumption patterns
D)not affected; harmed

Question 73

Suppose that the Home country in the two­sector
(manufacturing and agriculture) specific­factors model
Has a comparative advantage in manufacturing output.
What will happen to the return (rental) on land when
Trade occurs?

A)It will fall.
B)It will rise.
C)It will not change.
D)It will first fall, then rise.

Question 74

Suppose that the Home country in the two­sector
(manufacturing and agriculture) specific­factors model
Has a comparative advantage in agricultural output.
What will happen to the return (rental) on land when
Trade occurs?

A)It will fall.
B)It will rise.
C)It will not change.
D)It will first fall, then rise.

Question 75

The specific­factors model concludes that if there is an
Increase in relative price (and an expansion) in one
Industry, the factor specific to that industry:

A)will experience an increase in its marginal product.
B)will experience a decrease in its marginal product.
C)will be transferred to other industries.
D)will have competition as additional units of that specific factor are hired from other industries.

Question 76

Which federal government program provides additional
Benefits to workers who are laid off due to import
Competition?

A)Trade Unemployment Insurance
B)Import Unemployment Insurance
C)Trade Adjustment Assistance
D)Unemployment Insurance

Question 77

Suppose that the Home country in the two­sector
(manufacturing and agriculture) specific­factors model
Has a comparative advantage in manufactured output.
What will happen to the marginal product of capital used
In manufacturing production when trade occurs?

A)It will fall.
B)It will rise.
C)It will not change.
D)It will first fall, then rise.

Question 78

Some economists believe that an extended safety net
For workers affected by trade:

A)would be extremely expensive and unnecessary.
B)would create a more favorable attitude toward trade by workers.
C)would create jealousy among those who lose jobs for other reasons.
D)Would lead to political maneuvering and corruption.

Question 79

Suppose that the Home country in the two­sector
(manufacturing and agriculture) specific­factors model
Has a comparative advantage in agricultural output.
What will happen to the return (rental) on capital when
Trade occurs?

A)It will fall.
B)It will rise.
C)It will not change.
D)It will first fall, then rise.

Question 80

Under the 2009 jobs stimulus bill signed by President
Obama, who can apply for aid after losing their job due
To import competition?

A)service sector workers
B)Farmers
C)neither service sector workers nor farmers
D)both service sector workers and farmers