Question 1

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:

Accepted Answer

The ratio of the prices of products in a competitive economy is determined by the ratio of marginal products of labor, which represents the contribution of labor to production. This is because in a competitive market, firms compete to hire labor until the marginal product of labor equals the wage. Therefore, the ratio of prices is inversely proportional to the ratio of marginal products of labor.

Question 2

Which term below describes a situation in which a nation engages in no trade and produces everything it consumes?

Accepted Answer

Autarky means a situation in which a nation is self-sufficient and does not engage in any external trade. It produces everything it needs and consumes, relying entirely on its own resources. This is a rare and usually unsustainable economic model for any nation as it limits access to resources that may not be available domestically.

Question 3

(Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign). Under the condition of no trade, what is the relative price of manufacturing goods?

Accepted Answer

The answer of (Table: Home and Foreign Prices for Manufacturing...

Question 4

In an economy in which labor is mobile and homogeneous, the wages between industries will be:

Accepted Answer

In an economy with homogeneous and mobile labor, the labor market would be competitive and any wage differences across industries would be quickly arbitrated away. For example, if wages in one industry were higher than another, workers would migrate from the lower-paying industry to the higher-paying one, increasing labor supply in that industry and driving down its wages, while decreasing labor supply in the lower-paying industry and driving up its wages. Ultimately, this would lead to all industries paying the same wage rate for equivalent jobs. Therefore, the wages between industries would be equal.

Question 5

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

Accepted Answer

The slope of the production possibility frontier (PPF) in equilibrium, especially under the condition of diminishing marginal products, is equal to the ratio of prices for the products. This is because the slope reflects the opportunity cost of producing one good over another, which in equilibrium is determined by the relative prices of the goods.

Question 6

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?

Accepted Answer

The marginal productivity of labor in the manufacturing sector is calculated by dividing the wage by the price of the good produced. In this case, $20 (wage in manufacturing) divided by $50 (price per unit of manufactured good) equals 0.4 units per hour.

Question 7

Which term below describes a situation in which a nation prohibits trade with one or more trading partner nations?

Accepted Answer

Embargo is the term used to describe a situation in which a nation prohibits trade with one or more trading partner nations. Anarchy refers to a lack of government or authority, while oligarchy is a form of government in which a small group of people hold power. Autarky refers to a situation in which a nation is self-sufficient and does not rely on trade with other nations.

Question 8

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufacturing output. What will happen to the relative price of manufactured output when trade occurs?

Accepted Answer

When a country has a comparative advantage in manufacturing output and engages in trade, it will increase its exports of manufactured goods, thus increasing demand for its products and raising the relative price of manufacturing output relative to agriculture output.

Question 9

(Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign). If the two countries open their markets for trade, then:

Accepted Answer

The answer of (Table: Home and Foreign Prices for Manufacturing...

Question 10

(Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign). Under free trade conditions, Foreign will export ________ goods and Home will export ___________ goods.

Accepted Answer

According to the theory of comparative advantage, a country will specialize in producing and exporting the goods in which it has a comparative advantage (i.e. lower opportunity cost). In this case, Home has a lower opportunity cost of producing manufactured goods, while Foreign has a lower opportunity cost of producing agricultural goods. Therefore, under free trade conditions, Foreign will export agricultural goods and Home will export manufactured goods.

Question 11

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

Accepted Answer

A nation will export products for which its own relative price is lower than other nations because it has a comparative advantage in producing those goods more efficiently or at a lower cost.

Question 12

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.

Accepted Answer

When a nation begins to export, the demand for its goods increases in the foreign market, causing the relative price of exported goods to rise. On the other hand, as the nation imports other goods, the supply of those goods increases in the domestic market, causing their relative price to fall. This process raises the standard of living of the nation as it can sell its goods at a higher price and buy other goods at a lower price. Therefore, the best choice is C, as it correctly describes the rise in the relative price of exported goods and the fall in the relative price of imported goods, resulting in raising the nation's standard of living.

Question 13

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

Accepted Answer

A nation will wish to import products for which its own relative price is higher than other nations, as it can obtain these goods more cheaply from abroad than it can produce them domestically. This is based on the principle of comparative advantage.

Question 14

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?

Accepted Answer

The marginal product of labor (MPL) can be calculated as MPL = change in output / change in labor input. Assuming that one worker can produce one bicycle, if the price per bicycle is $20, the revenue from selling one bicycle would be $20. Since the wage per worker is $40, the cost of hiring one worker would be $40. Therefore, the change in output with the addition of one worker would be one bicycle, and the change in labor input would be one worker. Therefore, MPL = 1/1 = 1 bicycle. So, the correct choice is B, 2 bicycles.

Question 15

Suppose that the wage is $20 per hour in a two-sector (manufacturing and agriculture) specific-factors 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?

Accepted Answer

The value of the marginal product of labor (VMPL) is higher in the manufacturing sector ($5 * 6 = $30) than in the agriculture sector ($1 * 10 = $10). Therefore, firms in the manufacturing sector are willing to pay more for an additional hour of labor compared to firms in the agriculture sector, leading to a shift of labor towards manufacturing.

Question 16

If the price per bushel of wheat is $3 and the marginal product of labor is four bushels per hour, then what is the hourly wage?

Accepted Answer

The hourly wage can be calculated by multiplying the price per bushel of wheat ($3) by the marginal product of labor (4 bushels per hour), which equals $12.

Question 17

In the two-sector (manufacturing and agriculture) specific-factors model, the slope of the production possibilities curve equals:

Accepted Answer

The slope of the production possibilities curve represents the opportunity cost of producing one good in terms of the other. In the two-sector specific-factors model, the opportunity cost of producing manufacturing goods in terms of agriculture goods equals the ratio of marginal products of labor utilized in the two sectors. This is because the model assumes that labor is the mobile factor of production between the two sectors, and the marginal product of labor is the additional output that can be produced by using one additional unit of labor. Therefore, the correct answer is B, the ratio of marginal products of labor utilized in the two sectors.

Question 18

As a nation opens up to free trade:

Accepted Answer

When a nation opens up to free trade, the relative price of goods and services will change. Specifically, the price of the traded products will adjust to the global market price, which may be higher or lower than the domestic price. This means that the relative price will rise in the export sector as the country can offer goods and services at a lower price and sell them competitively in the global market. Conversely, the relative price will fall in the import sector as imported goods and services become cheaper due to competition from international markets. Overall, this change in relative prices will result in a greater demand for the country's exports and a decreased demand for the imported goods.

Question 19

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

Accepted Answer

When there are diminishing returns to labor, the production possibility frontier is downward sloping and concave (bowed out from the origin). This is because as more labor is added, the increase in output becomes smaller and smaller, leading to a curved shape for the curve. Option A is incorrect because a downward sloping curve cannot be convex. Option C and D are both incorrect because they describe a scenario where there are increasing returns to labor, not diminishing returns.

Question 20

Suppose that a country has a comparative advantage in agricultural products. When trade occurs, the nominal and real prices of the agricultural good will:

Accepted Answer

When a country has a comparative advantage in a good and begins to trade, the demand for that good increases on the global market, leading to an increase in both the nominal and real prices of the good.

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

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:

Which term below describes a situation in which a nation engages in no trade and produces everything it consumes?

(Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign) . Under the condition of no trade, what is the relative price of manufacturing goods?

In an economy in which labor is mobile and homogeneous, the wages between industries will be:

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

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?

Which term below describes a situation in which a nation prohibits trade with one or more trading partner nations?

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufacturing output. What will happen to the relative price of manufactured output when trade occurs?

(Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign) . If the two countries open their markets for trade, then:

(Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign) . Under free trade conditions, Foreign will export goods and Home will export ___ goods.

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

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.

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

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?

If the price per bushel of wheat is $3 and the marginal product of labor is four bushels per hour, then what is the hourly wage?

In the two-sector (manufacturing and agriculture) specific-factors model, the slope of the production possibilities curve equals:

As a nation opens up to free trade:

When there are diminishing returns to labor, the production possibility frontier is _ sloping and __.

Suppose that a country has a comparative advantage in agricultural products. When trade occurs, the nominal and real prices of the agricultural good will:

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

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:

Which term below describes a situation in which a nation engages in no trade and produces everything it consumes?

(Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign) . Under the condition of no trade, what is the relative price of manufacturing goods?

In an economy in which labor is mobile and homogeneous, the wages between industries will be:

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

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?

Which term below describes a situation in which a nation prohibits trade with one or more trading partner nations?

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufacturing output. What will happen to the relative price of manufactured output when trade occurs?

(Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign) . If the two countries open their markets for trade, then:

(Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign) . Under free trade conditions, Foreign will export ________ goods and Home will export ___________ goods.

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

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.

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

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?

If the price per bushel of wheat is $3 and the marginal product of labor is four bushels per hour, then what is the hourly wage?

In the two-sector (manufacturing and agriculture) specific-factors model, the slope of the production possibilities curve equals:

As a nation opens up to free trade:

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

Suppose that a country has a comparative advantage in agricultural products. When trade occurs, the nominal and real prices of the agricultural good will:

(Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign) . Under free trade conditions, Foreign will export goods and Home will export ___ goods.

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.

When there are diminishing returns to labor, the production possibility frontier is _ sloping and __.