Question 1

According to the specific-factors theory,resources that are specific to import-competing industries tend to lose as a result of trade,while resources specific to export industries tend to gain as a result of trade.

Accepted Answer

According to the specific-factors theory, trade tends to benefit resources that are specific to export industries and harm those that are specific to import-competing industries. This is because import-competing industries experience increased competition from foreign producers, leading to a decline in demand for resources specific to those industries. In contrast, export industries benefit from increased demand for their products in foreign markets, leading to an increase in demand for resources specific to those industries.

Question 2

When transportation costs are included in a trade model

Accepted Answer

Including transportation costs in a trade model typically decreases a country's gains from trade because these costs reduce the net benefits from trading by increasing the overall cost of importing and exporting goods.

Question 3

Assume that labor is relatively scarce in the United States.According to the factor price equalization theory,America labor may opt for trade barriers once trade opens up.

Accepted Answer

The factor price equalization theory suggests that when trade opens up between countries, factors of production (such as labor) will experience adjustments in their prices to equalize across countries. In other words, if labor is relatively scarce in the US (compared to other countries), its price will rise relative to other factors of production, making US goods more expensive. This could lead US labor to advocate for trade barriers to protect their jobs and wages.

Question 4

Industrial policy implies using governmental subsidies as a tool to provide domestic firms an edge over foreign competitors in domestic and foreign markets.

Accepted Answer

Industrial policy involves government intervention and support for domestic firms through strategies such as subsidies, tax breaks, and regulations to promote their competitiveness in the market, both domestic and international.

Question 5

The imposition of government regulations (clean environment,workplace safety,product safety) on domestic steel companies tends to result in lower production cost and improved competitiveness.

Accepted Answer

The imposition of government regulations on domestic steel companies can increase their production costs, which can make them less competitive compared to companies in other countries where such regulations may not exist or may be less stringent.

Question 6

In his test of the Heckscher-Ohlin model,W.Leontief found that,although the United States was perceived as being capital abundant relative to the rest of the world,U.S.exports were less capital intensive than import-competing goods.

Accepted Answer

W. Leontief's test showed that U.S.exports were less capital intensive than import-competing goods, which contradicted the prediction of the Heckscher-Ohlin model that a capital-abundant country like the United States would specialize in capital-intensive goods.

Question 7

The magnification effect suggests that the change in the price of a resource is smaller than the change in the price of the good that uses the resource relatively intensively.

Accepted Answer

The magnification effect is a well-known phenomenon in economics, which suggests that the change in the price of a resource is smaller than the change in the price of the final good that uses the resource relatively intensively. This effect occurs because changes in resource prices affect production costs, which in turn affect the price of the final good. Therefore, the magnification effect leads to a greater impact on the price of the final good than on the price of the resource itself.

Question 8

As industry output increases,suppose that new knowledge about production technology spreads among firms in the area through direct contacts among firms or as workers transfer from firm to firm.This would be an example of

Accepted Answer

The spread of new knowledge about production technology among firms in the area through direct contacts or as workers transfer from firm to firm is an example of external economies of scale. This is because the improvement in technology benefits all firms in the area, leading to increased productivity and efficiency.

Question 9

Brazil is labor abundant relative to Germany if the ratio of labor to capital in Brazil is higher than that in Germany.

Accepted Answer

A higher labor to capital ratio indicates that there is relatively more labor available per unit of capital in Brazil than in Germany, illustrating that Brazil is labor abundant relative to Germany.

Question 10

The simultaneous export and import of automobiles by Canada is an example of

Accepted Answer

The simultaneous export and import of automobiles by Canada is an example of intra-industry trade. Intra-industry trade refers to the trade that takes place between countries where they both produce and export similar products within the same industry. In this case, Canada is both exporting and importing automobiles, which indicates that it is engaged in intra-industry trade. Choices A and B are wrong because there is no specialization happening in this scenario, rather it is about trade in the same industry. Choice D is incorrect because interindustry trade refers to trade between different industries.

Question 11

Critics maintain that labor unions can stifle international competitiveness for a business firm when they

Accepted Answer

Labor unions can potentially stifle international competitiveness for a business firm in multiple ways. Setting wages and benefits above those in a competitive market can create an additional financial burden for the company, making it less competitive compared to others in the same industry. Restrictive work rules imposed by unions can also reduce labor productivity and innovation, limiting a company's ability to adapt and compete on a global scale. Similarly, if unions prioritize seniority over merit in promoting and paying employees, it can lead to a less efficient and effective workforce, ultimately negatively impacting a business's ability to compete.

Question 12

Regarding governmental subsidies applied to commercial jetliners,during 2010-2011 the World Trade Organization ruled that

Accepted Answer

The World Trade Organization ruled that both Airbus and Boeing have received illegal subsidies during the years 2010-2011.

Question 13

According to the product life cycle theory,comparative advantage

Accepted Answer

The product life cycle theory suggests that as a product matures, its production becomes standardized and cheaper, leading to a shift in comparative advantage from the home country to a foreign country with lower production costs. This is known as the "product life cycle shift." Hence, the answer is C.

Question 14

Wage inequality in the United States has been associated with

Accepted Answer

Wage inequality in the United States has been associated with all of the above factors, technological change, international trade, and immigration. Technological change has led to a demand for higher-skilled workers who are able to work with new technologies, while lower-skilled jobs become obsolete. International trade has also contributed to wage inequality by creating competition for lower-skilled jobs between American workers and workers from countries with lower labor costs. Immigration has also been a factor, as the influx of low-skilled immigrants has increased the supply of labor in certain industries and lowered wages for American workers.

Question 15

The Heckscher-Ohlin model assumes that tastes and preferences,and also factor endownments,are identical for trading nations.

Accepted Answer

The Heckscher-Ohlin model assumes that factor endowments (such as labor and capital) may differ between trading nations, but it assumes that tastes and preferences are the same.

Question 16

The Heckscher-Ohlin theory asserts that trade should occur with different factor endowments.This theory is most accurate when explaining trade patterns between industrialized countries and developing countries.

Accepted Answer

The Heckscher-Ohlin theory is most accurate when explaining trade patterns between countries with different factor endowments. This often includes industrialized countries and developing countries, but can also include other types of countries with differing factor endowments.

Question 17

Both the Ricardo model of comparative advantage and the Heckscher-Ohlin theory assert that trade patterns are largely the result of differences in endowments of factors of production.

Accepted Answer

The Ricardo model of comparative advantage suggests that trade patterns are determined by differences in labor productivity between countries, while the Heckscher-Ohlin theory asserts that differences in countries' endowments of factors of production (like labor, land, and capital) determine trade patterns.

Question 18

Although some people may be harmed by international trade,the Heckscher-Ohlin theory asserts that free trade will promote the standard of living for the nation as a whole.

Accepted Answer

The Heckscher-Ohlin theory argues that free trade will increase a country's overall level of income, even though some individuals or groups may experience negative effects from increased international competition.

Question 19

According to the product life cycle theory,trade between countries takes place because of

Accepted Answer

According to the product life cycle theory, as a product matures, its production shifts from the innovating country to other countries. This is because the innovating country loses its comparative advantage in producing the product due to rising labor costs and competition from other producers. As a result, the occurrence of changing patterns of comparative advantage leads to trade between countries.

Question 20

When industry output increases,a firm would realize an external economy of scale exists when

Accepted Answer

When industry output increases, a firm may benefit from external economies of scale, which means that it can take advantage of lower input costs or improved technology from other firms in the same industry. This can lead to a decrease in the firm's average total cost, and thus a shift downward in its average total cost curve. Therefore, the best choice is A. Choices B, C, and D are incorrect because they do not reflect the concept of external economies of scale.

Quiz 3: Sources of Comparative Advantage