Question 1

In the United States, one worker can produce 10 tons of steel per day or 20 tons of chemicals per day. In the United Kingdom, one worker can produce 5 tons of steel per day or 15 tons of chemicals per day. Which of the following statements is correct?
A) U.S. wages will be higher than U.K. wages.
B) U.K. wages will be higher than U.S. wages.
C) Wages in the United States and the United Kingdom will be equal.
D) There will be no relationship between U.S. and U.K. wages.

Accepted Answer

In the United States, one worker can produce 10 tons of steel per day or 20 tons of chemicals per day. This means that the opportunity cost of producing one ton of steel is 2 tons of chemicals, and the opportunity cost of producing one ton of chemicals is 0.5 tons of steel. In the United Kingdom, one worker can produce 5 tons of steel per day or 15 tons of chemicals per day. This means that the opportunity cost of producing one ton of steel is 3 tons of chemicals, and the opportunity cost of producing one ton of chemicals is 0.33 tons of steel. Since the opportunity cost of producing one ton of steel is higher in the United Kingdom than in the United States, and the opportunity cost of producing one ton of chemicals is lower in the United Kingdom than in the United States, it follows that wages will be higher in the United States than in the United Kingdom.

Question 2

In the United States, one worker can produce 10 tons of steel per day or 20 tons of chemicals per day. In the United Kingdom, one worker can produce 5 tons of steel per day or 15 tons of chemicals per day. The United Kingdom will gain the most from trade (and trade will be feasible) if 1 ton of steel trades for:
A) 2 tons of chemicals.
B) 3 tons of chemicals.
C) 1.5 tons of chemicals.
D) 0.5 ton of chemicals.

Accepted Answer

In the United States, the opportunity cost of producing 1 ton of steel is 2 tons of chemicals (10 tons of steel / 5 tons of chemicals). In the United Kingdom, the opportunity cost of producing 1 ton of steel is 3 tons of chemicals (5 tons of steel / 1.5 tons of chemicals). Therefore, the United Kingdom will gain the most from trade if 1 ton of steel trades for 3 tons of chemicals.

Question 3

If a home country is exporting corn and importing bikes and if the relative price P_c/P_b is increasing, then: A) the home country will export less corn. B) the home country will export more corn. C) the home country will import the same number of bikes. D) there is no change in the trade pattern for the home country.

Accepted Answer

The relative price increase suggests that the price of corn (the export) relative to bikes (the import) is increasing. This means corn is becoming relatively more expensive or valuable on the international market, incentivizing the home country to export more corn to capitalize on the higher prices.

Question 4

It is possible to determine how much a nation will export over and above its domestic consumption at various international prices, other things being equal, by finding a set of equilibria. This schedule is:
A) the import demand curve for a nation.
B) the export supply curve for a nation.
C) the production possibilities frontier for a nation.
D) the "no-trade" equilibrium.

Accepted Answer

The schedule mentioned in the question is the export supply curve for a nation, as it shows the quantity of a good a nation is willing and able to export at different international prices. Option A is incorrect as import demand curve shows the quantity of a good a nation is willing and able to import at different international prices. Option C is incorrect as the production possibilities frontier shows the maximum combination of goods a nation can produce, given its resources and technology. Option D is incorrect as "no-trade" equilibrium refers to a situation where a nation does not engage in international trade due to high autarky (self-sufficiency) levels.

Question 5

Home has a comparative advantage in wheat, and Foreign has a comparative advantage in cloth. Once trade occurs, Home produces 1,000 bushels of wheat, and Foreign produces 1,000 yards of cloth. The following table shows the amount of wheat that Home is willing to supply and Foreign is willing to buy at various international prices.  What is the international price of wheat?
A) 1 yard/bushel
B) 3 yards/bushel
C) 5 yards/bushel
D) 7 yards/bushel

Accepted Answer

The answer of Home has a comparative advantage in wheat,...

Question 6

Suppose that there is an improvement in a country's terms of trade between 2010 and 2014. This improvement means that:
A) the country can purchase more imports in 2014, with the same volume of exports as in 2010.
B) the country can purchase more exports in 2014, with the same volume of exports as in 2010.
C) the country needs to increase its exports in order to purchase the same volume of imports as in 2010.
D) regarding its international trade, the country is worse off in 2014 than it was in 2010.

Accepted Answer

An improvement in a country's terms of trade means that the country can sell its exports at a higher price while paying a lower price for its imports. This means that the country can purchase more imports in 2014 with the same volume of exports as in 2010, which is option A. Therefore, the best choice is A.

Question 7

International trade equilibrium occurs where:
A) there is no further way to increase production of any commodity.
B) the home excess supply curve intersects with the home excess demand curve.
C) the total world import demand curve intersects with the total world export supply curve.
D) the amount produced in each nation is just equal to the amounts produced in every other nation.

Accepted Answer

International trade equilibrium occurs where the total world import demand curve intersects with the total world export supply curve. This represents a situation where the quantity demanded by importers worldwide is equal to the quantity supplied by exporters worldwide. This balance ensures that both importing and exporting nations benefit from international trade. Choices A, B, and D do not accurately describe international trade equilibrium.

Question 8

Because the PPF is a straight line in the Ricardian model, Foreign's import demand curve is:
A) upward sloping in parts.
B) flat in parts.
C) downward sloping in parts.
D) flat everywhere.

Accepted Answer

The answer of Because the PPF is a straight line...

Question 9

What does the term value-added per hour help us measure? A) terms of trade B) labor productivity C) volume of exports D) volume of imports

Accepted Answer

Value-added per hour is a measure of labor productivity, which measures the efficiency of workers in producing output. It shows how much value is created by each worker in an hour of work, and is often used to compare productivity levels between different countries or industries.

Question 10

In the United States, one worker can produce 10 tons of steel per day or 20 tons of chemicals per day. In the United Kingdom, one worker can produce 5 tons of steel per day or 15 tons of chemicals per day. International trade will occur between the United States and the United Kingdom so long as 1 ton of steel trades for:
A) at least 1 ton of chemicals, but no more than 2 tons of chemicals.
B) at least 2 tons of chemicals, but no more than 3 tons of chemicals.
C) at least 0.33 ton of chemicals, but no more than 0.5 ton of chemicals.
D) at least 0.55 ton of chemicals but no more than 0.75 ton of chemicals.

Accepted Answer

In the United States, one worker can produce either 10 tons of steel or 20 tons of chemicals per day. Therefore, the opportunity cost of producing 1 ton of steel is 2 tons of chemicals. In the United Kingdom, one worker can produce either 5 tons of steel or 15 tons of chemicals per day. Therefore, the opportunity cost of producing 1 ton of steel is 3 tons of chemicals.

Based on the above calculation, the United States has a comparative advantage in producing steel and the United Kingdom has a comparative advantage in producing chemicals. In order for international trade to occur between the two countries, the price of steel and chemicals should lie within the range of opportunity cost of production for both countries.

Since the opportunity cost of producing 1 ton of steel for the United States is 2 tons of chemicals, the United States would be willing to trade 1 ton of steel for at least 2 tons of chemicals. Since the opportunity cost of producing 1 ton of steel for the United Kingdom is 3 tons of chemicals, the United Kingdom would be willing to trade 1 ton of steel for at most 3 tons of chemicals. Therefore, the acceptable range for the trade of 1 ton of steel is between 2 and 3 tons of chemicals, making choice B the correct answer.

Question 11

Suppose that the U.S. price index for its imports rose from 100 to 120 from 2010 to 2011 and the price index for its exports remained unchanged. Which of the following statements is correct?
A) The U.S. terms of trade worsened between 2010 and 2011.
B) The U.S. terms of trade improved between 2010 and 2011.
C) The U.S. terms of trade improved in 2010 and worsened in 2011.
D) There was no change in the U.S. terms of trade between 2010 and 2011.

Accepted Answer

The terms of trade refer to the ratio of a country's export prices to its import prices. If the U.S. price index for imports rose while the price index for exports remained the same, then the ratio of export prices to import prices has decreased, indicating a worsened terms of trade. Therefore, choice A is correct.

Question 12

Suppose that the introduction of computers increases the productivity of workers in the developed world. What you would expect wages to do?
A) Rise mainly in the developed countries.
B) Rise mainly in the developing countries.
C) Fall mainly in the developed countries.
D) Fall mainly in the developing countries.

Accepted Answer

The increased productivity of workers in the developed world due to the introduction of computers would lead to an increase in the demand for skilled workers who can operate and maintain the computers. As a result, wages for skilled workers in the developed world would rise. In contrast, the developing countries may not have the same level of access to technology and may not be able to compete with the higher wages offered for skilled labor in the developed world. Therefore, the overall effect would be an increase in wages mainly in the developed countries.

Question 13

If the foreign import demand curve intersects the home country's export supply curve in its horizontal portion, then:
A) the home country will suffer a loss from international trade.
B) the home country will not gain from trade.
C) the home country will gain from trade.
D) the foreign country will not gain from trade.

Accepted Answer

When the foreign import demand curve intersects the home country's export supply curve in its horizontal portion, it means that the home country can supply an infinite amount of goods at a given price. This indicates that the home country has a comparative advantage in producing the goods. Therefore, the home country will gain from trade by exporting the goods to the foreign country. However, the foreign country will not gain from trade as it has to import the goods at a higher price. Hence, the correct answer is B - the home country will not gain from trade.

Question 14

The international relative price and total quantity of a traded good or service is determined by:
A) labor shortages that occur worldwide.
B) the World Trade Organization.
C) the intersection of the total world import demand curve with the total world export supply curve.
D) natural resource availability compared with the industrial demand for those products.

Accepted Answer

The international relative price and total quantity of a traded good or service is determined by the intersection of the total world import demand curve with the total world export supply curve. This intersection determines the equilibrium point where the price and quantity match the desires of both importers and exporters. Labor shortages, the World Trade Organization, and natural resource availability may impact the supply and demand factors that influence this intersection but they do not directly determine the price and quantity of the traded good or service.

Question 15

In the Ricardian model, wages are equal across industries because:
A) employers care for their workers.
B) workers prefer to work in exporting industries.
C) workers are freely mobile between industries.
D) workers are freely mobile between countries.

Accepted Answer

In the Ricardian model, wages are equal across industries because workers are freely mobile between industries. This means that if one industry has higher wages than another, workers will move to that industry, increasing the supply of labor and lowering wages until they are equalized.

Question 16

If prices of a nation's exported products rise in comparison with prices paid for imports, that nation experiences a:
A) rise in its international terms of trade.
B) decline in its international terms of trade.
C) reduction in its imports.
D) reduction in its exports.

Accepted Answer

When the prices of a nation's exported products rise in comparison with prices paid for imports, the nation experiences a rise in its international terms of trade. This means that the nation is able to export more goods for the same amount of imports or import more goods for the same amount of exports, resulting in a favorable trade balance.

Question 17

It is possible to determine how much a nation will import at various international prices, other things being equal, by finding a set of equilibria. This schedule is the:
A) import demand curve for a nation.
B) export supply curve for a nation.
C) production possibilities frontier for a nation.
D) "no-trade" equilibrium.

Accepted Answer

The import demand curve for a nation shows the quantity of goods and services that a nation will import at various international prices, assuming all other factors remain constant. This curve is based on the law of demand, which states that as the price of an item increases, the quantity demanded decreases. Therefore, the import demand curve represents the inverse relationship between the price of imports and the quantity of imports demanded by a nation.

Question 18

In the United States, one worker can produce 10 tons of steel per day or 20 tons of chemicals per day. In the United Kingdom, one worker can produce 5 tons of steel per day or 15 tons of chemicals per day. If trade occurs between the United States and the United Kingdom, American firms should specialize in producing:
A) steel.
B) chemicals.
C) neither steel nor chemicals.
D) both steel and chemicals.

Accepted Answer

The United States has an absolute advantage in producing both steel and chemicals compared to the United Kingdom. However, the comparative advantage, which determines trade specialization, is based on opportunity cost. The U.S. has a lower opportunity cost in producing steel (1 ton of steel costs 2 tons of chemicals) compared to the UK (1 ton of steel costs 3 tons of chemicals), making steel the U.S.'s comparative advantage and the product it should specialize in.

Question 19

If export prices increase, what can we expect the wages in the export sector to do?
A) increase
B) decrease
C) stay the same
D) The answer cannot be determined from the information provided.

Accepted Answer

If export prices increase, the revenue of the export sector will increase, allowing them to pay higher wages to their employees. Therefore, we can expect the wages in the export sector to increase.

Question 20

The flat part of Home's export supply curve in the Ricardian model is due to the assumption that:
A) Home has a comparative advantage in its export.
B) Home has an absolute advantage in its export.
C) the marginal product of labor is constant in the export good.
D) Home has more labor than Foreign.

Accepted Answer

The flat part of Home's export supply curve in the Ricardian model is due to the assumption that the marginal product of labor is constant in the export good. This means that as Home produces more of the export good, the same amount of labor can produce the same amount of output, leading to a constant marginal cost of production and a flat supply curve. Choices A, B, and D are not correct because they do not explain why the supply curve is flat.

Quiz 2: Trade and Technology: The Ricardian Model

In the United States, one worker can produce 10 tons of steel per day or 20 tons of chemicals per day. In the United Kingdom, one worker can produce 5 tons of steel per day or 15 tons of chemicals per day. Which of the following statements is correct?

If a home country is exporting corn and importing bikes and if the relative price P_c/P_b is increasing, then:

It is possible to determine how much a nation will export over and above its domestic consumption at various international prices, other things being equal, by finding a set of equilibria. This schedule is:

Suppose that there is an improvement in a country's terms of trade between 2010 and 2014. This improvement means that:

International trade equilibrium occurs where:

Because the PPF is a straight line in the Ricardian model, Foreign's import demand curve is:

What does the term value-added per hour help us measure?

Suppose that the U.S. price index for its imports rose from 100 to 120 from 2010 to 2011 and the price index for its exports remained unchanged. Which of the following statements is correct?

Suppose that the introduction of computers increases the productivity of workers in the developed world. What you would expect wages to do?

If the foreign import demand curve intersects the home country's export supply curve in its horizontal portion, then:

The international relative price and total quantity of a traded good or service is determined by:

In the Ricardian model, wages are equal across industries because:

If prices of a nation's exported products rise in comparison with prices paid for imports, that nation experiences a:

It is possible to determine how much a nation will import at various international prices, other things being equal, by finding a set of equilibria. This schedule is the:

If export prices increase, what can we expect the wages in the export sector to do?

The flat part of Home's export supply curve in the Ricardian model is due to the assumption that: