1. The person credited with the first systematic expression of the principle of comparative advantage was ( )
A. Alan Greenspan.
B. John Maynard Keynes.
C. David Ricardo.
D. Adam Smith.
2. A regulation that sets the highest price at which it is legal to trade a good is a ( )
A. Production quota
B. Price floor
C. Price ceiling
D. Tax ceiling
3. In Country J, it takes one hour to knit a pair of socks, and five hours to brew a gallon of cider. In Country K, it takes three hours to knit a pair of socks, and six hours to brew a gallon of cider. If trade were to open between the two countries, Ricardo would predict that ( )
A. Country J will export cider and Country K will export socks.
B. Country J will export socks and Country K will export cider.
C. Country J will export both socks and cider.
D. Country K will export both socks and cider.
4. If Nation A can produce either 3x or 3y with one hour of labor, while nation B can produce either 1x or 1y with one hour of labor, and if labor is the only input, then ( )
A. Nation A has an absolute advantage in both goods.
B. Nation B has an absolute advantage in both goods.
C. Nation A has a comparative disadvantage in both goods.
D. Nation A has a comparative advantage in both goods.
5. Mutually beneficial trade
A. Allows both countries to consume a larger bundle of goods than before trade occurred.( )
B. Allows only the more productive country to consume a larger bundle of goods than before trade occurred.
C. Allows only the less productive country to consume a larger bundle of goods than before trade occurred.
D. Causes changes only in production, not consumption.
6. In the absence of trade, the consumption points available to a nation ( )
A. Are above the production possibility curve.
B. Are on or inside the production possibility curve.
C. Lie on the production possibility curve.
D. Cannot be identified.
7. For Heckscher-Ohlin, the most important cause of the differences in relative commodity prices is the difference between countries in ( )
A. Factor endowments.
B. National income.
C. Technology.
D. Tastes.
8. Country J has 1 million machines and 1 million workers, while country K has 2 million machines and 3 million workers. If computers are produced mostly by capital and beer is produced mostly by labor, the H-O model predicts that ( )
A. Country K will export computers in exchange for beer.
B. Country J will export computers in exchange for beer.
C. Country J is too small to be of economic interest to Country K.
D. Computers and beer don't mix, so trade cannot increase either country's well-being.
9. Mexico is an unskilled labor abundant country, while the United States is a skilled labor abundant country. With the opening of trade, you would expect that, in the long run, wages for unskilled workers ( )
A. Decline in both countries.
B. Decline in the United States and rise in Mexico.
C. Rise in the United States and decline in Mexico.
D. Rise in both countries
10. According to trade theory, if a nation has a comparative advantage in a capital-intensively produced good, and the rate of growth of capital is greater than the rate of growth of other inputs (e.g., labor), the pattern of growth which results will be ( )
A. Import replacing.
B. Neutral as between capital intensive and other products.
C. Export expanding.
D. None of the above.
11. Arguments in favor of having developing countries focus on exporting manufactured goods include ( )
A. Strong support in industrialized countries for free trade in manufactured goods.
B. Very low tariffs on manufactured textiles, apparel, and footwear in industrialized countries.
C. Political preference for VERs among importing countries.
D. A downward trend in the prices of primary products.
12. Which group definitely loses from international migration of labor? ( )
A. The migrants.
B. The migrants' new employers in the receiving country.
C. The migrants' old employers in the sending country.
D. The migrants' fellow workers who did not emigrate.
13. As technology advances, ( )
A. All opportunity cost decreases
B. The PPF shift outward
C. A country moves toward the midpoint along its PPF
D. The PPF shift inward because unemployment occurs
14. If a country is operating at a point of production efficiency ( )
A. It enjoys growth when increasing production
B. It produces on its production possibility frontier curve
C. It must specialize in the production of a good
D. It operates on its trade line
15. A cartel is ( )
A. Another name for a firm in an oligopoly
B. A collusive agreement among a number of firms
C. A government body that regulates an industry
D. An antitrust law
(Type and show your work)
Practicum Question (25 points)
Two countries, Haiti and the Dominican Republic, produce fruits and timber. Each island has a labor force of 1200 and the monthly productivity of each worker is as follow
Basket of fruit Board feet of timber
Haiti 10 5
Dominican Republic 30 10
a. Which county has an absolute advantage in the
production of fruit? Timber?
b. Which country has a comparative advantage in the production of fruit? Timber?
c. Sketch the production possibility frontier (PPF) of both countries
d. Both countries want to produce an equal amount of baskets of fruit and feet of timber. How should they allocate their workers to the two sectors?
e. Can specialization and trade move both countries beyond their PPF?
Extra credits (10 points)
The demand and supply curves of the market for DVD at the local (US) market are as follow:
P = 30 - Qd/2 and P= -1.5 + Qs/4
a. Find the equilibrium price and the equilibrium quantity when there is no international trade
b. What are the equilibrium quantities when the nations trade freely at price of $15?
Explain your answer