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.

Accepted Answer

U.S. production costs would be lower if U.S. labor productivity is higher relative to the wage difference. In option D, U.S. productivity is 40 units per hour, which is significantly higher than Japan's 15 units per hour, making U.S. production costs lower despite higher wages.

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.

Accepted Answer

The pauper labor and exploitation arguments do not affect the logical structure of the Ricardian model, which focuses on comparative advantage and assumes labor as the only factor of production.

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.

Accepted Answer

A country gains from trade by importing goods that it can produce less efficiently than other countries, allowing it to focus on producing and exporting goods where it has a comparative advantage.

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.

Accepted Answer

The Ricardian model explains gains from trade based on differences in labor productivity due to technological differences between countries.

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

Accepted Answer

Haircuts are typically considered non-tradable goods because they require the physical presence of the consumer and provider, making it impractical to trade internationally.

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.

Accepted Answer

High transportation costs can make trade unprofitable, potentially preventing any trade between the two countries.

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.

Accepted Answer

David Ricardo is credited with the earliest formal statement of the principle of comparative advantage in his 1817 book "On the Principles of Political Economy and Taxation."

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.

Accepted Answer

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

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.

Accepted Answer

Trade benefits both countries when each exports goods in which it has a comparative advantage, allowing for more efficient production and consumption.

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.

Accepted Answer

According to the Ricardian model, trade allows a nation to consume beyond its production possibilities frontier by specializing in the production of goods for which it has a comparative advantage and trading for other goods.

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.

Accepted Answer

According to Ricardo's theory of comparative advantage, a country will have a comparative advantage in producing goods for which it has relatively higher labor productivity compared to other goods, even if it doesn't have an absolute advantage.

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.

Accepted Answer

The Ricardian model shows that trade can be beneficial for both countries if each specializes in producing and exporting goods in which they have a comparative advantage, leading to more efficient production and consumption.

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.

Accepted Answer

The Ricardian model attributes comparative advantage to differences in labor productivity between countries, which arise from technological differences.

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.

Accepted Answer

The Ricardian model of comparative advantage suggests that countries should specialize in producing goods where they have a comparative advantage and trade with others, which may involve importing goods. Gandhi's approach of decreasing imports contradicts this model.

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

Accepted Answer

The answer of In order to know whether a country...

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.

Accepted Answer

A straight-line production possibilities frontier indicates constant opportunity costs, meaning that the trade-off between the two goods being produced remains consistent.

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.

Accepted Answer

International trade allows countries to specialize in the production of goods where they have a comparative advantage, leading to increased total output and improved consumer welfare due to access to a greater variety of goods at lower prices.

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.

Accepted Answer

Free trade can lead to increased economic welfare for all countries involved by allowing them to specialize in the production of goods and services where they have a comparative advantage, leading to more efficient resource allocation and potentially higher overall economic output.

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.

Accepted Answer

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

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.

Accepted Answer

China had a comparative advantage in silk because it was the only country that knew how to produce it, allowing it to specialize and trade silk with other countries.

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

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

The pauper labor and the exploitation arguments

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

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

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

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

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

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

Trade between two countries can benefit both countries if

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

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

The Ricardian model demonstrates that

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

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

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.

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

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

Which of the following statements is TRUE?

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

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