Question 1

Assume a two-country two-good two-input model where the following relationships hold: (K/L)_U.S.> (K/L)_ROW (K/L)_automobiles> (K/L)_shoes Where (K/L)_U.S. is the capital-labor ratio in the United States, (K/L)_ROW is the capital-labor ratio in the Rest of the World, (K/L)_automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)_shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. Which of the following statements is true?

Accepted Answer

According to the given relationships, (K/L)_automobiles > (K/L)_shoes, which means the production of shoes is relatively labor-intensive compared to the production of automobiles.

Question 2

The figure given below shows the post-trade production and consumption points in country Y. AB is the production-possibility curve of country Y. I₁ is the community indifference curve of country Y. Country Y exports:

Accepted Answer

A

Question 3

In international trade jargon, constant cost production-possibility curves are associated with _____ specialization while increasing cost production-possibility curves are associated with _____ specialization.

Accepted Answer

Constant cost production-possibility curves shows that a nation can produce one good without sacrificing the other. This leads to complete specialization. On the other hand, increasing cost production-possibility curves shows that a nation cannot produce one good without sacrificing the other. This leads to partial specialization. Therefore, choice C (complete specialization with constant cost production-possibility curves and partial specialization with increasing cost production-possibility curves) is the best fit.

Question 4

Which of the following economists proposed an international trade model that explains international trade patterns using factor proportions?

Accepted Answer

Eli Heckscher and Bertil Ohlin proposed the Heckscher-Ohlin model which explains international trade patterns using factor proportions.

Question 5

Assume a two-country two-good two-input model where the following relationships hold: (K/L)_U.S.> (K/L)_ROW (K/L)_automobiles> (K/L)_shoes Where (K/L)_U.S. is the capital-labor ratio in the United States, (K/L)_ROW is the capital-labor ratio in the Rest of the World, (K/L)_automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)_shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. This information indicates that the United States:

Accepted Answer

The inequality (K/L)_U.S.> (K/L)_ROW implies that the United States is relatively capital-abundant compared to the Rest of the World. Additionally, the inequality (K/L)_automobiles> (K/L)_shoes indicates that the production of automobiles in the United States is relatively capital-intensive compared to the production of shoes. Together, these two pieces of information suggest that the United States has a relatively high ratio of capital to labor.

Question 6

In the figure given below AB is the production-possibility curve of Canada. In the absence of trade, the price ratio is 1 bushel of wheat/bale of cotton as shown by the line PQ. The international price ratio is 0.25 bushels of wheat/bale of cotton as shown by the line RS. I₁and I₂ are the pre-trade and the post trade community indifference curves of Canada respectively. In the absence of trade Canada will:

Accepted Answer

The answer of In the figure given below AB is...

Question 7

China has 20% of the world's population but only 10% of the world's farmable land. Which of the following will be predicted by the Heckscher-Ohlin theory, if China begins to trade with other countries?

Accepted Answer

The Heckscher-Ohlin theory predicts that countries will export goods that utilize their abundant factors of production and import goods that utilize their scarce factors. Since China has a large population (abundant labor) and relatively little farmable land (scarce land), it is predicted to shift resources to produce and export labor-intensive goods, rather than land-intensive agricultural goods.

Question 8

In the figure given below AB is the production-possibility curve of Canada. In the absence of trade, the price ratio is 1 bushel of wheat/bale of cotton as shown by the line PQ. The international price ratio is 0.25 bushels of wheat/bale of cotton as shown by the line RS. I₁and I₂ are the pre-trade and the post trade community indifference curves of Canada respectively. After Canada engages in free trade, it will:

Accepted Answer

The answer of In the figure given below AB is...

Question 9

The figure given below shows the post-trade production and consumption points in country Y. AB is the production-possibility curve of country Y. I₁ is the community indifference curve of country Y. Here country Y's production-possibility curve indicates that it faces _____ marginal costs of production.

Accepted Answer

The answer of The figure given below shows the post-trade...

Question 10

The figure given below shows the post-trade production and consumption points in country Y. AB is the production-possibility curve of country Y. I₁ is the community indifference curve of country Y. Country Y imports:

Accepted Answer

The country is currently at point U1, which is not on the production-possibility curve AB. This means that country Y cannot produce all the goods it needs on its own, and must import some goods to reach its desired level of consumption. The community indifference curve I₁ indicates that the country prefers to consume at point U1 rather than point B0. In order to reach point U1, the country needs to import 50 gallons of wine (from point B to point 1) and no cheese. Therefore, the best choice is C, which indicates that the country imports 50 gallons of wine.

Question 11

Consider a two-country two-good model where labor is the only factor of production. Each country faces an increasing-cost production-possibility curve. In this model the amounts of both goods that are produced in a country in no-trade situation are determined by:

Accepted Answer

The answer of Consider a two-country two-good model where labor...

Question 12

In the figure given below AB is the production-possibility curve of Canada. In the absence of trade, the price ratio is 1 bushel of wheat/bale of cotton as shown by the line PQ. The international price ratio is 0.25 bushels of wheat/bale of cotton as shown by the line RS. I₁and I₂ are the pre-trade and the post trade community indifference curves of Canada respectively. Which of the following can be inferred from this figure?

Accepted Answer

In the absence of trade, the price ratio is 1 bushel of wheat/bale of cotton as shown by the line PQ, and it intersects with the production-possibility curve AB at point U1. This means that Canada is producing an equal amount of both goods, and it is not taking advantage of any comparative advantage. However, with international trade, the price ratio becomes 0.25 bushels of wheat/bale of cotton as shown by the line RS. The new equilibrium point is U2, where Canada is producing more wheat and less cotton, as it has a comparative advantage in the production of wheat. This is reflected in the post-trade community indifference curve I₂, which is above the pre-trade indifference curve I₁, indicating that Canada is better off after trade. Therefore, the answer is A) Canada has a comparative advantage in the production of wheat.

Question 13

Which of the following statements is true about production-possibility curves?

Accepted Answer

Constant cost production-possibility curves are straight lines because the opportunity cost of producing one good in terms of the other remains constant. This often leads to complete specialization in the production of one good over the other under conditions of free trade, as countries will specialize in producing the goods for which they have a comparative advantage.

Question 14

The figure given below shows the production-possibility curves of Canada (AB) and the Rest of the World (CD). The pre-trade price ratio in Canada and the Rest of the World are given by the lines P₁ and P₃ respectively. The international price ratio faced by the countries is represented by the line P₂. I?₁ and I₂ are the pre-trade and post-trade social indifference curves for both Canada and the Rest of the World respectively. Before Canada entered into a trade with the rest of the world, the total amount of cotton produced in the world was _____ bales and the total amount of wheat produced in the world was _____ bushels.

Accepted Answer

The answer of The figure given below shows the production-possibility...

Question 15

Which of the following best explains why increasing marginal costs of production arise?

Accepted Answer

Increasing marginal costs arise because different commodities use inputs in different proportions. As production is increased, inputs that are more specialized or less easily substituted for become scarce, causing their costs to rise. This results in the upward slope of the marginal cost curve.

Question 16

Assume that country X produces two goods-sugar and shoes-and that the country's production possibility curve is "bowed-out." As the country produces more sugar the opportunity cost of sugar in terms of shoes foregone will:

Accepted Answer

When the production possibility curve is "bowed-out" or curved, it means that the opportunity cost of producing one good increases as more of it is produced. As the country produces more sugar, it will have to sacrifice more and more of the resources that could have been used to produce shoes, resulting in a higher opportunity cost for each additional unit of sugar produced. Therefore, the answer is A - the opportunity cost of sugar in terms of shoes foregone will increase.

Question 17

The figure given below shows the production-possibility curves of Canada (AB) and the Rest of the World (CD). The pre-trade price ratio in Canada and the Rest of the World are given by the lines P₁ and P₃ respectively. The international price ratio faced by the countries is represented by the line P₂. I?₁ and I₂ are the pre-trade and post-trade social indifference curves for both Canada and the Rest of the World respectively. In the absence of trade, Canada consumes _____ bales of cotton and _____ bushels of wheat.

Accepted Answer

The answer of The figure given below shows the production-possibility...

Question 18

Assume a two-country, two-good, and two inputs model. Let the two countries in this model be the United States and the Rest of the World and the two goods being produced by each of the countries be steel and wheat. The two factors of production used in producing the goods in each country are capital and land. If the United States is capital-abundant and steel production is capital-intensive, the Heckscher-Ohlin model would predict that the Rest of the World would:

Accepted Answer

According to the Heckscher-Ohlin model, a capital-abundant country like the United States specializes in producing capital-intensive goods like steel. On the other hand, a land-abundant country like the Rest of the World specializes in producing land-intensive goods like wheat. Therefore, the Rest of the World would export wheat and import steel.

Question 19

Assume a two-country two-good two-input model where the following relationships hold: (K/L)_U.S.> (K/L)_ROW (K/L)_automobiles> (K/L)_shoes Where (K/L)_U.S. is the capital-labor ratio in the United States, (K/L)_ROW is the capital-labor ratio in the Rest of the World, (K/L)_automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)_shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. The relationships shown here indicate that, with no trade, in the United States:

Accepted Answer

The capital-labor ratio is higher in the United States than in the Rest of the World, and the capital-labor ratio is higher in the production of automobiles than in the production of shoes. This means that the United States is relatively more capital-abundant and that automobiles are relatively more capital-intensive than shoes. Therefore, the relative price of automobiles to shoes will be lower in the United States than in the Rest of the World.

Question 20

Assume a two-country, two-good, and two-input model. Let the two countries in this model be the United States and the Rest of the World and the two goods being produced by each of the countries be steel and wheat. The two factors of production used in producing the goods in each country are capital and land. If the United States is capital-abundant and steel production is capital-intensive, the Heckscher-Ohlin model would predict that the United States would:

Accepted Answer

According to the Heckscher-Ohlin model, a capital-abundant country will specialize in producing the capital-intensive good. In this case, the United States is capital-abundant and steel is capital-intensive, so the United States would specialize in steel production and export it. Wheat is a land-intensive good, so the Rest of the World, which is land-abundant, would specialize in wheat production and export it to the United States. Therefore, the United States would import wheat and export steel.

Quiz 4: Trade: Factor Availability and Factor Proportions Are Key

The figure given below shows the post-trade production and consumption points in country Y. AB is the production-possibility curve of country Y. I₁ is the community indifference curve of country Y. Country Y exports:

In international trade jargon, constant cost production-possibility curves are associated with _ specialization while increasing cost production-possibility curves are associated with _ specialization.

Which of the following economists proposed an international trade model that explains international trade patterns using factor proportions?

China has 20% of the world's population but only 10% of the world's farmable land. Which of the following will be predicted by the Heckscher-Ohlin theory, if China begins to trade with other countries?

The figure given below shows the post-trade production and consumption points in country Y. AB is the production-possibility curve of country Y. I₁ is the community indifference curve of country Y. Country Y imports:

Consider a two-country two-good model where labor is the only factor of production. Each country faces an increasing-cost production-possibility curve. In this model the amounts of both goods that are produced in a country in no-trade situation are determined by:

Which of the following statements is true about production-possibility curves?

Which of the following best explains why increasing marginal costs of production arise?

Assume that country X produces two goods-sugar and shoes-and that the country's production possibility curve is "bowed-out." As the country produces more sugar the opportunity cost of sugar in terms of shoes foregone will:

Quiz 4: Trade: Factor Availability and Factor Proportions Are Key

The figure given below shows the post-trade production and consumption points in country Y. AB is the production-possibility curve of country Y. I1 is the community indifference curve of country Y. Country Y exports:

In international trade jargon, constant cost production-possibility curves are associated with _____ specialization while increasing cost production-possibility curves are associated with _____ specialization.

Which of the following economists proposed an international trade model that explains international trade patterns using factor proportions?

China has 20% of the world's population but only 10% of the world's farmable land. Which of the following will be predicted by the Heckscher-Ohlin theory, if China begins to trade with other countries?

The figure given below shows the post-trade production and consumption points in country Y. AB is the production-possibility curve of country Y. I1 is the community indifference curve of country Y. Country Y imports:

Consider a two-country two-good model where labor is the only factor of production. Each country faces an increasing-cost production-possibility curve. In this model the amounts of both goods that are produced in a country in no-trade situation are determined by:

Which of the following statements is true about production-possibility curves?

Which of the following best explains why increasing marginal costs of production arise?

Assume that country X produces two goods-sugar and shoes-and that the country's production possibility curve is "bowed-out." As the country produces more sugar the opportunity cost of sugar in terms of shoes foregone will:

The figure given below shows the post-trade production and consumption points in country Y. AB is the production-possibility curve of country Y. I₁ is the community indifference curve of country Y. Country Y exports:

In international trade jargon, constant cost production-possibility curves are associated with _ specialization while increasing cost production-possibility curves are associated with _ specialization.

The figure given below shows the post-trade production and consumption points in country Y. AB is the production-possibility curve of country Y. I₁ is the community indifference curve of country Y. Country Y imports: