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TEST BANK (ch3-9)

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TEST BANK (ch3-9)

Part?. Fill in the blank with suitable content.

    1.Seven themes recur throughout the study of international economics. These are The gains from trade , The pattern of

    trade , Protectionism , the balance

    of payments, exchange rate determination, international policy coordination, international capital market.

    2.Countries engage in international trade for two basic reasons : comparative advantage and economics of scale .

    3.A country has a comparative advantage in producing a good if the opportunity cost of producing that good in terms of other goods is lower in that country than it is in other countries. **4. Labor is the only one factor of production. and are the unit aaaaLCLWLWLC

    labor requirement in cheese and wine at Home and Foreign, respectively. If , Home has a comparative advantage in cheese. /is ppCW

    the relative price of cheese, when Home and

    Foreign specialize in producing cheese and wine , respectively.

    **5. Labor is the only one factor of production. and are the unit aaaaLCLWLWLC

    labor requirement in cheese and wine at Home and Foreign, respectively. L and

    **L*are Homes and Foreigns labor force. If /</</, the world paapaaLCLWCWLWLC

    relative supply of cheese equals . Homes gains from

    indirectly producing wine can be shown as

    6. In specific factors model(Q=Q(K, L); Q=Q (T, L); L=L+L), if Home MM MFFFMF

    produces and trades manufactured goods for food , the overall comparison of the five

    ˆˆˆˆˆchange rate of goods price and factor price inside Home rrPPWTMFK

    is . That is, the real income of capitalists increase, it can be shown as .

    7. In the Heckscher-Ohlin model,Comparative advantage is influenced by the interaction between and

    8.According to ,if the relative price of a good rises, the

    real income of the factor which intensively used in that good will rise, while the real income of the other factor will fall.

    9.According to , at unchanged relative goods price, if

    the supply of a factor of production increases, the output of the good that are intensive in that factor will rise, while the output of the other good will fall. 10.According to , owners of a country‟s abundant

    factors gain from trade, but owners of a country‟s scare factors lose.

    11.According to , international trade produces a

    convergence of relative goods prices. This convergence, in turns, causes the convergence of the relative factor prices. Trade leads to complete equalization of factor prices.

    12.“U.S. exports were less capital-intensive than U.S. imports” is known as

     .

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    15.The Ricardian Model , the Specific Factor model and the H-O model may be viewed as special cases of

    14.The standard trade model derives a world relative supply curve from

    and a world relative demand curve from .

    15.To export-biased growth, if the decline of the welfare caused by the deterioration of the terms of trade swap over the rise of the welfare caused by growth, the growth is .

    16. Some economists argued that export-biased growth by poor nations would worsen their term of trade so much that they would be worse off than if they had not grown at all. This situation is known as .

    17.In the model of “Monopolistic Competition and Trade”, firms of an individual

    nation face the trade-off between and .

    18. Marshall argued that there were three main reasons why a cluster of firms may be more efficient than an individual firm in isolation: ,

     ,

    19.The pattern of intraindustry trade itself is unpredicted,

    determine the details of the trade pattern.

    20. When there is external economies, the pattern of international trade is determined by .

    21. The indexes of intrainindustry trade of a industry can be calculated by the standard formula: I= .

    22. Interindustry trade and intrainindustry trade are the sources of gains from trade . When ,

    intrainindustry trade is the dominant source of gains from trade, everyone gains from trade.

    23.The argument of temporary protection of industries to enable them to gain experience is known as

    24. If we add together the gains and losses from a tariff, We find the the net effect on national welfare can be separated into two parts: and

    25.Why do countries adopt trade policies such as tariff or import quota, which produce more costs than benefits?——

    26.In the political economy of trade policy , government are assumed to maximize

     rather than .

    27.Deviations from free trade can sometimes increase national welfare. These arguments include and

    28.According to , domestic market failure should be corrected

    by domestic policies aimed directly at the problem‟s sources.

    29. International trade often produces losers as well as winners. In the actual politics of trade policy, income distribution is of crucial importance.

    can explain why policies that not only seem to produce more costs than benefits but that also seem to hurt far more voters them they can help can nonetheless be adopted.

    30.The WTO includes four aspects content: GATT 1994, GATS, ,

    31.“Nondiscriminatory” principles include principle and

     principle

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32.For preferential trading agreements, such as , countries must

    cede part of their sovereignty to supranational entity.

    33.Whether a customs union is desirable or undesirable depends on whether it largely leads to or .

    Part?. Choose the ONLY one collect answer in each question. 1. An important insight of international trade theory is that when countries exchange goods and services one with the other it

    A. is always beneficial to both countries.

    B. is usually beneficial to both countries.

    C. is typically beneficial only to the low wage trade partner country .

    D. is typically harmful to the technologically lagging country.

    E. tends to create unemployment in both countries.

    Answer: B

    2. If there are large disparities in wage levels between countries, then

    A. trade is likely to be harmful to both countries.

    B. trade is likely to be harmful to the country with the high wages.

    C. trade is likely to be harmful to the country with the low wages.

    D. trade is likely to be harmful to neither country.

    E. trade is likely to have no effect on either country.

    Answer: D

    3. Cost-benefit analysis of international trade

    A. is basically useless.

    B. is empirically intractable.

    C. focuses attention on conflicts of interest within countries.

    D. focuses attention on conflicts of interests between countries.

    E. None of the above.

    Answer: C

    4. Arguments for free trade are sometimes disregarded by the political process

    because

    A. economists tend to favor highly protected domestic markets.

    B. economists have a universally accepted decisive power over the political

    decision mechanism.

    C. maximizing consumer welfare may not be a chief priority for politicians.

    D. the gains of trade are of paramount concern to typical consumers.

    E. None of the above.

    Answer: C

    5. Proponents of free trade claim all of the following as advantages except

    A. relatively high wage levels for all domestic workers.

    B. a wider selection of products for consumers

    C. increased competition for world producers.

    D. the utilization of the most efficient production processes.

    E. None of the above.

     Answer: A

    6. A country engaging in trade according to the principles of comparative advantage

    gains from trade because it

    A. is producing exports indirectly more efficiently than it could alternatively.

    B. is producing imports indirectly more efficiently than it could domestically.

    C. is producing exports using fewer labor units.

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    A. is producing imports indirectly using fewer labor units. B. None of the above.

    Answer: B

    7. A nation engaging in trade according to the Ricardian model will find its consumption bundle

    A. inside its production possibilities frontier.

    B. on its production possibilities frontier.

    C. outside its production possibilities frontier.

    D. inside its trade-partner's production possibilities frontier. E. on its trade-partner's production possibilities frontier.

    Answer: C

    8. If a very small country trades with a very large country according to the Ricardian model, then

    A. the small country will suffer a decrease in economic welfare. B. the large country will suffer a decrease in economic welfare. C. the small country will enjoy gains from trade.

    D. the large country will enjoy gains from trade.

    E. None of the above.

    Answer: C

    9. If two countries have identical production possibility frontiers, then trade between

    them is not likely if

    A. their supply curves are identical.

    B. their cost functions are identical.

    C. their demand conditions identical.

    D. their incomes are identical.

    E. None of the above.

    Answer: E

    10. International trade has strong effects on income distributions. Therefore, international trade

    A. is beneficial to everyone in both trading countries.

    B. will tend to hurt one trading country.

    C. will tend to hurt some groups in each trading country. D. will tend to hurt everyone in both countries.

    E. will be beneficial to all those engaged in international trade.

    Answer: C

    11. Groups that lose from trade tend to lobby the government to A. shift the direction of comparative advantage.

    B. abolish the Specific Factor model from practical application. C. provide public support for the relatively efficient sectors. D. provide protection for the relatively inefficient sectors. E. None of the above.

    Answer: D

    12. In the 2-factor, 2 good Heckscher-Ohlin model, an influx of workers from across the border would

    A. move the point of production along the production possibility curve. B. shift the production possibility curve outward, and increase the production of

    both goods.

    C. shift the production possibility curve outward and decrease the production of

    the labor-intensive product.

    D. shift the production possibility curve outward and decrease the production of

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    the capital-intensive product.

    E. None of the above.

    Answer: D

    13. The 1987 study by Bowen, Leamer and Sveikauskas

    A. supported the validity of the Leontieff Paradox.

    B. supported the validity of the Heckscher-Ohlin model.

    C. used a two-country and two-product framework.

    D. demonstrated that in fact countries tend to use different technologies. E. proved that the U.S.'s comparative advantage relied on skilled labor.

    Answer: A

    14. The Case of the Missing Trade refers to thA. the 9 volume of the Hardy Boys' Mystery series.

    B. the fact that world exports does not equal world imports.

    C. the fact that factor trade is less than predicted by the Heckscher-Ohlin theory. D. the fact that the Heckscher Ohlin theory predicts much less volume of trade

    than actually exists.

    E. None of the above.

    Answer: C

    15. One way in which the Heckscher-Ohlin model differs from the Ricardo model of comparative advantage is by assuming that __________ is (are) identical in all countries.

    A. factor of production endowments

    B. scale economies

    C. factor of production intensities

    D. technology

    E. opportunity costs

    Answer: D

    16. Suppose that there are two factors, capital and land, and that the United States is relatively land endowed while the European Union is relatively capital-endowed. According to the Heckscher-Ohlin model,

    A. European landowners should support US-European free trade.

    B. European capitalists should support US-European free trade.

    C. all capitalists in both countries should support free trade. D. all landowners should support free trade.

    E. None of the above.

    Answer: B

    17. According to the Heckscher-Ohlin model, if the United States is richly endowed in human-capital relative to Mexico, then as NAFTA increasingly leads to more bilateral free trade between the two countries,

    A. the United States will find its industrial base sucked into Mexico. B. Mexico will find its relatively highly skilled workers drawn to the United

    States.

    C. The wages of highly skilled U.S. workers will be drawn down to Mexican

    levels.

    D. The wages of highly skilled Mexican workers will rise to those in the United

    States.

    E. The wages of highly skilled Mexican workers will fall to those in the United

    States.

    Answer: E

    18. If two countries were very different in their relative factor availabilities, then we

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    would not expect which of the following to be empirically supported? A. The Heckscher - Ohlin Theorem

    B. The Factor Price Equalization Theorem.

    C. The Law of One Price

    D. The Law of Demand

    E. None of the above.

    Answer: B

    19. If P / Pwere to increase, CF

    A. the cloth exporter would increase the quantity of cloth exports. B. the cloth exporter would increase the quantity of cloth produced. C. the food exporter would increase the quantity of food exports. D. Both A and C.

    E. None of the above.

    Answer: B

    20. Export-biased growth in Country H will

    A. improve the terms of trade of Country H.

    B. trigger anti-bias regulations of the WTO.

    C. worsen the terms of trade of Country F (the trade partner). D. improve the terms of trade of Country F.

    E. decrease economic welfare in Country H.

    Answer: D

    21. In the period preceding the recent Financial Crisis in Asia, the South East Asian

    countries were receiving large inflows of financial capital. Following John Maynard Keynes' theory, this should have caused

    A. a glut in their banking asset situation.

    B. an improvement in their terms of trade.

    C. deterioration in their terms of trade.

    D. a fluctuation upward and then downward in their terms of trade. E. None of the above.

    Answer: B

    22. If Slovenia is a small country in world trade terms, then if it imposes a large series

    of tariffs on many of its imports, this would

    A. have no effect on its terms of trade.

    B. improve its terms of trade.

    C. deteriorate its terms of trade.

    D. decrease its marginal propensity to consume.

    E. None of the above.

    Answer: A

    23. If the United States exports skilled-labor intensive products and services, then we

    should expect unions representing unskilled labor to A. lobby in favor of tariffs.

    B. lobby against the imposition of tariffs.

    C. be indifferent to the issue of tariffs.

    D. lobby in favor of improved terms of trade.

    E. Not enough information.

    Answer: A

    24. Where there are economies of scale, an increase in the size of the market will

    A. increase the number of firms and raise the price per unit. B. decrease the number of firms and raise the price per unit. C. increase the number of firms and lower the price per unit.

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D. decrease the number of firms and lower the price per unit.

    E. None of the above.

    Answer: C

    25. If some industries exhibit internal (firm specific) increasing returns to scale in each country, we should not expect to see

    A. intra-industry trade between countries.

    B. perfect competition in these industries.

    C. inter-industry trade between countries.

    D. high levels of specialization in both countries.

    E. None of the above.

    Answer: B

    26. International trade based on external scale economies in both countries is likely to be carried out by a

    A. relatively large number of price competing firms.

    B. relatively small number of price competing firms.

    C. relatively small number of competing oligopolists.

    D. monopoly firms in each country/industry.

    E. None of the above.

    Answer: A

    27. In industries in which there are scale economies, the variety of goods that a country can produce is constrained by

    A. the size of the labor force.

    B. anti-trust legislation

    C. the size of the market.

    D. the fixed cost.

    E. None of the above.

    Answer: C

    28. History and accident determine the details of trade involving A. Ricardian and Classical comparative advantage.

    B. Heckscher-Ohlin model consideration.

    C. taste reversals.

    D. scale economies.

    E. None of the above.

    Answer: D

    29. If the world attained a perfect Heckscher-Ohlin model equilibrium with trade, then A. workers in the labor abundant country would migrate to the capital abundant

    country.

    B. workers in the labor abundant country would wish to migrate to the capital

    abundant country.

    C. workers in the labor abundant country would have no desire to migrate to the

    capital abundant country.

    D. workers in the capital abundant country would wish to migrate to the labor

    abundant country.

    E. workers in the capital abundant country would migrate to the labor abundant

    country.

    Answer: C

    30. International borrowing and lending may be interpreted as one form of A. intermediate trade.

    B. inter-temporal trade.

    C. trade in services.

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D. unrequited international transfers.

    E. None of the above.

    Answer: B

    31. A country that has a comparative advantage in future production of consumption

    goods

    A. will tend to be an international borrower.

    B. will tend to have low real interest rates.

    C. will tend to be an international investor or lender. D. will tend to have good work ethics.

    E. None of the above.

    Answer: A

    32. The effective rate of protection measures

    A. the "true" ad valorum value of a tariff.

    B. the quota equivalent value of a tariff.

    C. the efficiency with which the tariff is collected at the customhouse. D. the protection given by the tariff to domestic value added. E. None of the above.

    Answer: D

    33. When a government allows raw materials and other intermediate products to enter

    a country duty free, this generally results in a(an) A. effective tariff rate less than the nominal tariff rate. B. nominal tariff rate less than the effective tariff rate. C. rise in both nominal and effective tariff rates. D. fall in both nominal and effective tariff rates. E. None of the above.

    Answer: B

    34. The main redistribution effect of a tariff is the transfer of income from

    A. domestic producers to domestic buyers.

    B. domestic buyers to domestic producers.

    C. domestic producers to domestic government.

    D. domestic government to domestic consumers.

    E. None of the above.

    Answer: B

    35. The most vocal political pressure for tariffs is generally made by A. consumers lobbying for export tariffs.

    B. consumers lobbying for import tariffs.

    C. consumers lobbying for lower import tariffs.

    D. producers lobbying for export tariffs.

    E. producers lobbying for import tariffs.

    Answer: E

    36. The fact that industrialized countries levy very low or no tariff on raw materials

    and semi processed goods

    A. helps developing countries export manufactured products. B. has no effect on developing country exports.

    C. hurts developing country efforts to export manufactured goods. D. hurts developing country efforts to export raw materials. E. None of the above.

    Answer: C

    37. An Optimal Tariff is considered unlikely to be observed in the real world because of

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A. The Metzler Paradox.

    B. it is practically impossible to define optimality in trade policy terms.

    C. the likelihood of foreign repercussions.

    D. real countries are considered to be "small" in the world trade context.

    E. None of the above.

    Answer: C

    38. The optimum tariff is most likely to apply to

    A. a small tariff imposed by a small country. B. a small tariff imposed by a large country. C. a large tariff imposed by a small country. D. a large tariff imposed by a large country. E. None of the above.

    Answer: B

    39. The domestic market failure argument is a particular case of the theory of

    A. the optimum, or first-best.

    B. the second best.

    C. the third best.

    D. the sufficing principle.

    E. None of the above.

    Answer: B

    40. The median voter model

    A. works well in the area of trade policy. B. is not intuitively reasonable.

    C. tends to result in biased tariff rates. D. does not work well in the area of trade policy. E. None of the above.

    Answer: D

    41. The fact that trade policy often imposes harm on large numbers of people, and

    benefits only a few may be explained by A. the lack of political involvement of the public. B. the power of advertisement.

    C. the problem of collective action.

    D. the basic impossibility of the democratic system to reach a fair solution.

    E. None of the above.

    Answer: C

    42. A trade policy designed to alleviate some domestic economic problem by

    exporting it to foreign countries is know as a(n) A. international dumping policy.

    B. countervailing tariff policy.

    C. beggar thy neighbor policy.

    D. trade adjustment assistance policy.

    E. None of the above.

    Answer: C

    43. The World Trade Organization provides for all of the following except

    A. the usage of the most favored nation clause. B. assistance in the settlement of trade disagreements. C. bilateral tariff reductions.

    D. multilateral tariff reductions.

    E. None of the above.

    Answer: C

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44. Under U.S. commercial policy, the escape clause results in

    A. temporary quotas granted to firms injured by import competition.

    B. tariffs that offset export subsidies granted to foreign producers.

    C. a refusal of the U.S. to extradite anyone who escaped political oppression.

    D. tax advantages extended to minority-owned exporting firms.

    E. tariff advantages extended to certain Caribbean countries in the U.S. market.

    Answer: A

    Part?. Choose FOUR of the following questions and answer them.

    Chapter 3

    1. Suppose: Labor is the only one factor of production. L and L*are Homes and

    **Foreigns labor force.and are the unit labor requirement in aaaaLCLWLWLC

    cheesewine at Home and Foreign, respectively. /is the retative price of ppCW

    cheese.Home and Foreign have a comparative advantage in cheese and wine,respectively.Please denote each of the following contents with one equation. (1)Homes comparative advantage.

    (2)Foreigns specialization

    (3)World relative supply

    (4)Homes gains from trade

    **//and w/w* (5)Compare aaaaLCLWLWLC

    2.Japanese labor productivity is roughly the same as that of the United States in the manufacturing sector (higher in some industries, lower in others), while the United States is still considerably more productive in the service sector. But most services are nontraded. Some analysts have argued that this poses a problem for the United States, because its comparative advantage lies in things it cannot sell on world markets. What is wrong with this argument?

    3. In Ricardian model, trade benefit a country can be shown in two ways. (1) Explain the two ways respectively; (2) Can these ways suit for other trade model?

    4.The proposition that trade is beneficial is unqualified. That is, there is no requirement that a country be competitive or that the trade be fair. Judge and

    explain the remark.

    5.Free trade is beneficial only if your country is strong enough to stand up to foreign competition. Judge and explain the remark.

    6. Judge and explain the following arguments:

    (1)Foreign competition is unfair and hurts other countries when it is based on low wages.

    (2)It is precisely because the relative wage is between the relative productivities that each country ends up with a cost advantage in one good.

    7. Suppose that there are many countries capable of producing two goods, and that each country has only one factor of production, labor. What could we say about the pattern of production and trade in this case? (Hint: Try constructing the world

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