Question 1

If country A's (P_X/P_Y) in autarky is greater than the (P_X/P_Y) on the world market, then, as the country moves from autarky to trade, the relative price of good X facing A's producers will __________, and A's producers will hence want to shift their production toward producing __________. A) decrease; more of good X and less of good Y B) decrease; more of good Y and less of good X C) increase; more of good X and less of good Y D) increase; more of good Y and less of good X

Accepted Answer

The relative price of good X will decrease when moving from autarky to trade, leading producers to shift production towards the good that has become relatively more expensive, which is good Y.

Question 2

As a country moves from autarky to trade, the relative price of the country's export good Will __________ for home consumers, and the relative price of the country's import good __________ for home consumers.
A) fall; will rise
B) fall; also will fall
C) rise; also will rise
D) rise; will fall

Accepted Answer

When a country moves from autarky (no trade) to trade, the relative price of the country's export good increases because the good is now being sold in international markets at potentially higher prices. Conversely, the relative price of the country's import good falls for home consumers because they can now purchase these goods from international markets, where the goods may be cheaper or of better quality for the same price.

Question 3

In the following graph, at point W (and ignoring the negative signs), the marginal rate of transformation (MRT) in production __________ the marginal rate of substitution (MRS) in consumption.

A) is greater than
B) is equal to
C) is less than
D) has no determinate relationship to

Accepted Answer

At point W, the MRT is steeper (i.e., the absolute value is larger) than the MRS. This indicates that to produce an additional unit of X, a larger amount of Y has to be given up than what is gained (i.e., the opportunity cost is high). On the other hand, at point W, the MRS indicates the amount of Y that has to be given up to obtain an additional unit of X while keeping utility constant. The fact that the slope of the MRT is steeper than the slope of the MRS indicates that the opportunity cost of producing an additional unit of X is higher than the amount of Y that has to be given up to obtain an additional unit of X while keeping utility constant. Therefore, option C is the best choice.

Question 4

Suppose that a country's factors of production are "completely specific" to the industries In which they are located (i.e., factors in the X industry would contribute nothing to Y Output if they were employed in the Y industry and factors in the Y industry would Contribute nothing to X output if they were employed in the X industry). In addition, Suppose that the country has an autarky P_X/P_Y that is greater than the world P_X/P_Y. In this Situation, if the country is opened to international trade, it will A) export good X and will obtain "gains from specialization" (a "production gain") but not "gains from exchange" (a "consumption gain"). B) export good X and will obtain "gains from exchange" (a "consumption gain") but not "gains from specialization" (a "production gain"). C) export good Y and will obtain "gains from specialization" (a "production gain") but not "gains from exchange" (a "consumption gain"). D) export good Y and will obtain "gains from exchange" (a "consumption gain") but not "gains from specialization" (a "production gain").

Accepted Answer

The answer of Suppose that a country's factors of production...

Question 5

In the neoclassical (or modern) theory, two countries with identical production-possibilities frontiers (PPFs)
A) can gain from trade with each other if demand conditions (tastes) differ in the two Countries and the identical PPFs demonstrate increasing opportunity costs.
B) can gain from trade with each other if demand conditions (tastes) differ in the two Countries and the identical PPFs demonstrate constant opportunity costs.
C) can gain from trade with each other even if demand conditions (tastes) are identical in The two countries as long as the identical PPFs demonstrate constant opportunity Costs.
D) cannot gain from trade with each other under any circumstances.

Accepted Answer

If two countries have identical PPFs with increasing opportunity costs, they can still gain from trade if their demand conditions differ, as this can lead to different relative prices and comparative advantages.

Question 6

Given the diagram below, in which country A is producing at point P and consuming at point C: Country A is __________, and the ratio of the price of food relative to the price of books [i.e., (P_food/P_books)] reflected by price line P₀ is __________ than the (P_food/P_books) ratio that existed when country A was in autarky. A) exporting food and importing books; lower B) exporting food and importing books; higher C) exporting books and importing food; lower D) exporting books and importing food; higher

Accepted Answer

The answer of Given the diagram below, in which country...

Question 7

If a country's P_X/P_Y in autarky is less than the P_X/P_Y on the world market, then, as the Country moves from autarky to trade, the relative price of good Y will __________ for Home consumers. Thus, consumers with a strong relative preference for good __________ would tend to oppose the movement to trade. A) increase; Y B) increase; X C) decrease; Y D) decrease; X

Accepted Answer

If a country's domestic price ratio of good X to good Y (P_X/P_Y) in autarky is less than the world market price ratio, it means that, relative to the world market, good X is cheaper domestically than good Y. When the country opens to trade, it will import good Y (which it relatively overprices) and export good X (which it relatively underprices), leading to an increase in the domestic price of good X relative to good Y. Therefore, the relative price of good Y will decrease for home consumers, making consumers with a strong relative preference for good X (since it becomes relatively more expensive) likely to oppose the move to trade.

Question 8

If a country's P_X/P_Y in autarky is less than the P_X/P_Y on the world market, then this country has a comparative advantage in the __________ good, and, if the country now engages in international trade and moves along its production-possibilities frontier, its Production of the X good will __________. A) Y; increase B) Y; decrease C) X; decrease D) X; increase

Accepted Answer

If a country's P_X/P_Y in autarky is less than the P_X/P_Y on the world market, it means that the country is relatively more efficient in producing the X good compared to the Y good. Therefore, the country has a comparative advantage in producing the X good. If the country engages in international trade and specializes in producing and exporting the X good, its production of the X good will increase, and the production of the Y good will decrease. Therefore, the correct answer is D.

Quiz 6: Gains From Trade in Neoclassical Theory

If country A's (P_X/P_Y) in autarky is greater than the (P_X/P_Y) on the world market, then, as the country moves from autarky to trade, the relative price of good X facing A's producers will , and A's producers will hence want to shift their production toward producing .

As a country moves from autarky to trade, the relative price of the country's export good Will for home consumers, and the relative price of the country's import good for home consumers.

In the following graph, at point W (and ignoring the negative signs) , the marginal rate of transformation (MRT) in production __________ the marginal rate of substitution (MRS) in consumption.

In the neoclassical (or modern) theory, two countries with identical production-possibilities frontiers (PPFs)

If a country's P_X/P_Y in autarky is less than the P_X/P_Y on the world market, then, as the Country moves from autarky to trade, the relative price of good Y will for Home consumers. Thus, consumers with a strong relative preference for good would tend to oppose the movement to trade.

If a country's P_X/P_Y in autarky is less than the P_X/P_Y on the world market, then this country has a comparative advantage in the good, and, if the country now engages in international trade and moves along its production-possibilities frontier, its Production of the X good will .

Quiz 6: Gains From Trade in Neoclassical Theory

If country A's (PX/PY) in autarky is greater than the (PX/PY) on the world market, then, as the country moves from autarky to trade, the relative price of good X facing A's producers will __________, and A's producers will hence want to shift their production toward producing __________.

As a country moves from autarky to trade, the relative price of the country's export good Will __________ for home consumers, and the relative price of the country's import good __________ for home consumers.

In the following graph, at point W (and ignoring the negative signs) , the marginal rate of transformation (MRT) in production __________ the marginal rate of substitution (MRS) in consumption.

In the neoclassical (or modern) theory, two countries with identical production-possibilities frontiers (PPFs)

If country A's (P_X/P_Y) in autarky is greater than the (P_X/P_Y) on the world market, then, as the country moves from autarky to trade, the relative price of good X facing A's producers will , and A's producers will hence want to shift their production toward producing .

As a country moves from autarky to trade, the relative price of the country's export good Will for home consumers, and the relative price of the country's import good for home consumers.