Damietta University

Faculty of Commerce
Department of Economics
2nd Semester Final Exam 2020/ 2021
English Section Level: Second year
Money & Banking 2 International Trade Code: ECON203
Date 8 / 6 / 2021 Total Marks: 70
Time: 120 Minutes Total Pages: 6
MODEL A

Answer the following questions (MCQ)

1. In the following Classical-type table showing the output per 10-days of labor input in each of the two
commodities in each of the two countries,
Cameras Juice
France 100 units 40 units
Germany 150 unis 50 units
a. Germany has comparative advantage in both goods.
b. France has absolute advantage in both goods.
c. France has comparative advantage in cameras.
d. the pretrade price ratio in France is 1 Juice = 2.5 cameras.
2. In the Classical (Ricardo) analysis ,
a. if a country has an absolute advantage in a good, it also has a comparative advantage in the good.
b. if a country has a comparative advantage in a good, it cannot have an absolute advantage in the good.
c. a country can have a comparative advantage in a good at the same time that it has an absolute
advantage in that good.
d. a country with an absolute advantage in all goods cannot gain from trade.
3. Given the following Ricardo-type table showing the amount of labor input needed to get one unit of output
in each industry in each country:
Wheat Chairs
Malaysia 3days 2 days
India 10 days 8 days
a. Terms of trade of 1 wheat:1.25 chairs is not a feasible equilibrium terms of trade.
b. Terms of trade of 1 wheat:1.5 chairs would give all the gains from trade to India.
c. Malaysia has an absolute advantage in both goods and a comparative advantage in wheat.
d. India has an absolute advantage in both goods and a comparative advantage in wheat.
4. If a country's relative price of X (compared to Y) in autarky is greater than the same relative prices on the
world market, then the country has a comparative advantage in good _______, and it will_______
a. X; export Y and import X b. X; export X and import Y
c. Y; export Y and import X d. Y; export X and import Y
5. Suppose that, with constant opportunity costs, Spain can produce 2,000 units of clothing if it gives all
its resources to clothing production and 8,000 units of wheat if it gives all of its resources to wheat
production. If Spain is opened to trade at a world price ratio of 1 wheat:0.4 clothing (or 1 clothing:2.5
wheat), Spain will export ______; if the world price ratio were 1 wheat:4 clothing (or 1 clothing:2.5
wheat), Spain would_________.
a. wheat; also export wheat. b. wheat; would export clothing.
c. clothing; also would export clothing. d. clothing; would be indifferent to trade.
6. Given the following Ricardo-type table showing the amount of labor input required to produce one unit of
output of each of the two goods in each of the two countries:
Wheat Clothing
United Kingdom 6 days 5 days
United States 4 days 3 days
a. The United States has a comparative advantage in wheat.
b. The United Kingdom has an absolute advantage in neither good.
c. The United States has a comparative advantage in both goods.
 MODEL A

d. A post-trade price ratio (terms of trade) of 1 wheat:1.5 clothing is a feasible equilibrium post-trade
price ratio.
7. Two important assumptions contained in David Hume's price specie-flow adjustment mechanism are that
a. countries are at full employment and the demands for traded goods are "inelastic".
b. countries are at full employment and the price level of a country moves in inverse proportion to
movements in the country's money supply.
c. a country with a balance-of-payments deficit will experience a gold outflow and countries are at a
level of employment that is below full employment.
d. the demands for traded goods are "elastic" and countries are at full employment.
8. The policy of minimum government interference in or regulation of economic activity, advocated by Adam
Smith and the Classical economists, was known as
a. the law of comparative advantage. b. laissez-faire.
c. the labor theory of value. d. Mercantilism.
9. In David Hume's price-specie-flow doctrine or adjustment mechanism, the assumption is made that
changes in the money supply have an impact on __________. Further, the demand for traded goods is
assumed to be __________ with respect to price .
a. prices rather than on output; elastic b. prices rather than on output; inelastic
c. output rather than on prices; elastic d. output rather than on prices; inelastic
10. In Adam Smith's view, international trade
a. benefited both trading countries. b. was based on absolute cost differences.
c. reflected the resource base of the countries in question. d. all of the above.
11. In the price-specie-flow adjustment mechanism, a country with a balance-of-trade surplus experiences
a. a gold inflow and a decrease in the price level.
b. a gold outflow and an increase in the money supply.
c. an increase in the money supply and a decrease in exports.
d. a decrease in the money supply and a decrease in imports.
12. The "paradox of Mercantilism" reflected that fact that
a. trade surpluses were fostered by protective tariffs.
b. rich countries were comprised of large numbers of poor people.
c. gold inflows led to higher prices and reduced exports.
d. gold could not be hoarded and provide money for the economy at the same time.
13. In the price-specie-flow mechanism, there is a gold __________ a country with a balance-of-trade surplus,
and this gold flow ultimately leads to __________ in the surplus country's exports .
a. inflow into; an increase b. outflow from; an increase
c. inflow into; a decrease d. outflow from; a decrease
14. Given the following Classical-type table showing the number of days of labor input required to obtain one
unit of output of each of the two commodities in each of the two countries:

The United States has an absolute advantage in the production of .__________

a. bicycles (only) b. computers (only)
c. both bicycles and computers d. neither bicycles nor computers

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 MODEL A

15. In the following Edgeworth box diagram for a country's production,

a. point T has greater output of the A good than does point R.

b . output of the A good is greater at point S as at point R.
c. a plotting of the output combinations along the "diagonal" results in the production-possibilities
frontier for this country.
d. good A is the relatively labor-intensive good and good B is the relatively capital-intensive good.
16. Two indifference curves for an individual consumer __________ intersect; two community indifference
curves for a country __________ .
a. cannot; also cannot intersect b. cannot; can intersect under some circumstances
c. can; can also intersect under some circumstances d. can; cannot intersect
17. In the Edgeworth box diagram for production ,
a. a point off the "contract curve" (or "production efficiency locus") cannot have more production of
one of the goods than can some point on the curve.
b. a point off the "contract curve" (or "production efficiency locus") can involve more production of
both goods than can any point on the curve.
c. a movement from autarky to trade can be associated with a movement along the "contract curve" (or
"production efficiency locus").
d. the "contract curve" (or "production efficiency locus") will always be the "diagonal" of the box.
18.In the following table of production possibilities for a country,

there are __________ opportunity costs in the production of good X, and there are __________ opportunity
costs in the production of good Y .
a. increasing; increasing b. increasing; constant
c. constant; increasing d. constant; decreasing.
19. If, for a consumer, (MUA /PA) is greater than (MUB/PB), then the consumer
a. has an incentive to consume relatively more of good A, which will increase his MUA.
b. has an incentive to consume relatively more of good A, which will decrease his MUA.
c. has an incentive to consume relatively more of good B, which will increase his MUB.
d. has an incentive to consume relatively more of good B, which will decrease his MUB.
20. In the following table of production possibilities for a country,

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 MODEL A

there are _______opportunity costs when moving to greater production of good X and _______ when moving
to greater production of good Y .
a. increasing; decreasing. b. decreasing; constant.
c. constant; increasing. d. increasing; increasing.
21. Suppose that, in the context of the Edgeworth box diagram in production, there are constant returns to scale
in each of the two industries and that one good is relatively labor-intensive in its production process and
the other good is relatively capital-intensive in its production process. In considering this Edgeworth box
diagram and the PPF that can be derived from it ,
a. all points on the "diagonal" of the Edgeworth box diagram will have corresponding points on the PPF
b. no point on the "diagonal" of the Edgeworth box diagram will correspond to a point on the PPF.
c. the PPF will show increasing opportunity costs. d. the PPF will show constant opportunity costs.
22. The equilibrium condition for consumer behavior pertaining to goods A and B is .__________
a. (MUB/PA) = (MUA/PB) b. MUB = MUA
c. (MPB/MPA) = (PB/PA) d. (MUB/MUA) = (PB/PA)
23. A production isoquant shows the various combinations
a. of two factors of production that can produce the same amount of output of a good.
b. of two factors of production that can be hired by a firm for the same cost.
c. of two goods that can be produced by the firm with the same quantity of the factors of production.
d. of two goods that bring an equivalent satisfaction level to an individual consumer.
24. In the Edgeworth box diagram in production with two goods and two factors of production ,
a. a movement from any point off the "production efficiency locus" ("contract curve") to any point on
the locus must involve greater production of one good and less production of the other good.
b. a movement from any point on the "production efficiency locus" ("contract curve") to another point
on the locus must involve greater production of one good and less production of the other good.
c. a point that is off the "production efficiency locus" ("contract curve") must be associated with
unemployment of at least one of the factors of production.
d. a movement from any point on the "production efficiency locus" ("contract curve") to any point off
the locus must involve less production of both goods.
25. The slope of a consumer indifference curve at any given point on the curve reflects
a. the marginal rate of transformation (MRT) in production of one commodity into the other commodity
b. the marginal rate of technical substitution (MRTS) between the factors of production.
c. the marginal rate of substitution (MRS) of the consumer between the two goods.
d. the relative prices of the commodities in the consumption bundle of goods.
26. The equilibrium condition for producers (i.e., the condition that exists when the isocost line is tangent to
an isoquant) is .__________
a. (MPL/r) = (MPK/w) b. (MPL/MPK) = (w/r)
c. (MUB/MUA) = (PB/PA) d. (MUB/PA) = (MUA/PB)
27. Given the following table showing various combinations of goods X and Y that bring equal satisfaction
to an individual consumer:

In this table, as the individual consumes a greater amount of X, a __________ amount of good Y is given up
for each additional unit of good X. This pattern suggests that, as more of good X is consumed and less of good
Y is consumed, the ratio MUX/MUY is .__________
a. larger; increasing, which contradicts economists' usual expectations.
b. larger; decreasing, which conforms to economists' usual expectations.
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 MODEL A

c. smaller; increasing, which contradicts economists' usual expectations.

d. smaller; decreasing, which conforms to economists' usual expectations.
28. The curve in the following diagram is called an __________, and its slope indicates the ratio.__________

a. isoquant; - w/r b. isoquant; - MPL/MPK c. isocost line; - w/r d. isocost line; MPL/MPK
29. In the following graph showing an isoquant and an isocost line, at point X,

MPL/MPK is ________w/r and the producer has an incentive to use relatively more ______ in producing the
given output .
a. greater than; capital b. greater than; labor c. less than; capital d. less than; labor

30. In the following Edgeworth box diagram for a country's production,

A movement from point S to point T will lead to __________ in the capital/labor ratio used in the production
of good A and __________ in the capital/labor ratio used in the production of good.
a. an increase; will lead to a decrease. b. an increase; also will lead to an increase.
c. a decrease; also will lead to a decrease. d. a decrease; will lead to an increase.
31. During the price-specie-flow adjustment process to a trade imbalance, if demands for goods are inelastic,
then, when the price level ________ in the country with the trade deficit, the value of that country's exports
will ________as the price-specie-flow process takes place .
a. falls; increase b. falls; decrease c. rises; increase d. rises; decrease.
32. A Mercantilist policymaker would be in favor of which of the following policies relating to his country ?
a. an increase in the percentage of factors of production devoted to adding value to imported raw
materials in order to later export the resulting manufactured goods.
b. a decrease in the size of the population. c. a prohibition on the export of manufactured goods.
d. a minimum wage bill to protect the standard of living of workers.
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 MODEL A

33. Given the following Classical-type table showing the number of days of labor input required to obtain one
unit of output of each of the two commodities in each of the two countries:

The United States has an absolute advantage in the production of .__________

a. bicycles (only) b. computers (only)
c. both bicycles and computers d. neither bicycles nor computers
34. If, in a 2 commodity, 2 country Classical world, Sweden can make a unit of furniture with 10 days of
labor and a unit of steel with 15 days labor, while Germany can make a unit of furniture with 12 days of
labor and a unit of steel with 12 days labor, then
a. Sweden has an absolute advantage in steel and Germany has an absolute advantage in furniture.
b. Sweden has a comparative advantage in steel and Germany has a comparative advantage in furniture.
c. the pretrade price ratios indicate that Germany will export steel if trade takes place.
d. the pretrade price ratio in Sweden is 1 furniture:1.5 steel.
35. Which one of the following is NOT an assumption contained in the Classical/Ricardo trade model ?
a. Factors of production (labor) are completely mobile within a country.
b. Factors of production (labor) are completely mobile between countries.
c. Marginal costs are constant as production increases for a firm/industry.
d. Transportation costs of goods between countries are zero.
36. Country A has a comparative advantage in good X if: ax/ay > bx/by
a. True b. False
37. One of the assumptions of the Ricardian model is the fixed technology for each country
a. True b. False
38. Another assumption of the Ricardian model is the variable cost of production
a. True b. False
39. The export condition for the classical model is achieved when a1j*W1*e < a2j*W2
a. True b. False
40 According to the classical model, wage rate limits are determined by the following equation:
a1j/a2j < W2/(W1*e)
a. True b. False

Last Page
Best Wishes

Dr. Ibrahim Elatroush

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