Worksheet #1 for ECO 3004 International Economics

28.03.2024

1) Given the information in the table above

A) neither country has a comparative advantage in cloth.
B) Home has a comparative advantage in cloth.
C) Foreign has a comparative advantage in cloth.
D) Home has a comparative advantage in both cloth and widgets.
E) neither country has a comparative advantage in widgets.
Answer: B
Page Ref: 57
Difficulty: Moderate

2) Given the information in the table above, if it is ascertained that Foreign uses prison-slave
labor to produce its exports, then home should
A) export cloth.
B) export widgets.
C) export both and import nothing.
D) export and import nothing.
E) export widgets and import cloth.
Answer: A
Page Ref: 57
Difficulty: Moderate
3) Given the information in the table above, if the Home economy suffered a meltdown, and
the Unit Labor Requirements doubled to 20 for cloth and 40 for widgets then home should
A) export cloth.
B) export widgets.
C) export both and import nothing.
D) export and import nothing.
E) export widgets and import cloth.
Answer: A
Page Ref: 57
Difficulty: Moderate

4) Given the information in the table above, if wages were to double in Home, then Home
should
A) export cloth.
B) export widgets.
C) export both and import nothing.
D) export and import nothing.
E) export widgets and import cloth.
Answer: A
Page Ref: 57
Difficulty: Moderate

5) Given the information in the table above

A) neither country has a comparative advantage in cloth.
B) Home has a comparative advantage in widgets.
C) Foreign has a comparative advantage in widgets.
D) Home has a comparative advantage in both cloth and widgets.
E) neither country has a comparative advantage in widgets.
Answer: C
Page Ref: 57
Difficulty: Moderate

6) Given the information in the table above, Home's opportunity cost of cloth is
A) 0.5.
B) 2.0.
C) 6.0.
D) 1.5.
E) 3.0.
Answer: A
Page Ref: 56-57
Difficulty: Moderate
7) Given the information in the table above, Home's opportunity cost of widgets is
A) 0.5.
B) 2.0.
C) 6.0.
D) 1.5.
E) 3.0.
Answer: B
Page Ref: 56-57
Difficulty: Moderate

8) Given the information in the table above, Foreign's opportunity cost of cloth is
A) 0.5.
B) 2.0.
C) 6.0.
D) 1.5.
E) 3.0.
Answer: B
Page Ref: 56-57
Difficulty: Moderate

9) Given the information in the table above, Foreign's opportunity cost of widgets is
A) 0.5.
B) 2.0.
C) 6.0.
D) 1.5.
E) 3.0.
Answer: A
Page Ref: 56-57
Difficulty: Moderate

10) Given the information in the table above, if the world equilibrium price of widgets were 4
cloth, then
A) both countries could benefit from trade with each other.
B) neither country could benefit from trade with each other.
C) each country will want to export the good in which it enjoys comparative advantage.
D) neither country will want to export the good in which it enjoys comparative advantage.
E) both countries will want to specialize in cloth.
Answer: A
Page Ref: 56-61
Difficulty: Moderate
11) Given the information in the table above, if the world equilibrium price of widgets were
40 cloths, then
A) both countries could benefit from trade with each other.
B) neither country could benefit from trade with each other.
C) each country will want to export the good in which it enjoys comparative advantage.
D) neither country will want to export the good in which it enjoys comparative advantage.
E) both countries will want to specialize in cloth.
Answer: A
Page Ref: 56-61
Difficulty: Moderate

12) According to Ricardo, a country will have a comparative advantage in the product in
which its
A) labor productivity is relatively low.
B) labor productivity is relatively high.
C) labor mobility is relatively low.
D) labor mobility is relatively high.
E) labor is outsourced to neighboring countries.
Answer: B
Page Ref: 54-56
Difficulty: Moderate

13) Assume that labor is the only factor of production and that wages in the United States
equal $20 per hour while wages in Japan are $10 per hour. Production costs would be lower
in the United States as compared to Japan if
A) U.S. labor productivity equaled 40 units per hour and Japan's 15 units per hour.
B) U.S. labor productivity equaled 30 units per hour and Japan's 20 units per hour.
C) U.S. labor productivity equaled 20 units per hour and Japan's 30 units per hour.
D) U.S. labor productivity equaled 15 units per hour and Japan's 25 units per hour.
E) U.S. labor productivity equaled 15 units per hour and Japan's 40 units per hour.
Answer: A
Page Ref: 63-65
Difficulty: Moderate

14) If a production possibilities frontier is a straight line, then production occurs under
conditions of
A) increasing opportunity costs.
B) constant opportunity costs.
C) decreasing opportunity costs.
D) infinite opportunity costs.
E) uncertain opportunity costs.
Answer: B
Page Ref: 66
Difficulty: Easy

15) If labor productivities were exactly proportional to wage levels internationally, this would
A) not negate the logical basis for trade in the Ricardian model.
B) render the Ricardian model theoretically correct but practically useless.
C) negate the logical basis for trade in the Ricardian model.
D) negate the applicability of the Ricardian model if the number of products were greater
than the number of trading partners.
E) demonstrate the validity of the Ricardian model.
Answer: A
Page Ref: 66
Difficulty: Moderate

16) Tastes of individuals are represented by

A) isovalue lines.
B) production possibility frontiers.
C) production functions.
D) indifference curves.
E) the terms of trade.
Answer: D
Page Ref: 154
Difficulty: Easy

17) If the ratio of price of cloth (PC) divided by the price of food (PF) increases in the
international marketplace, then
A) the terms of trade of food exporters will improve.
B) the terms of trade of all countries will improve.
C) the terms of trade of cloth exporters will worsen.
D) all countries would be better off.
E) the terms of trade of cloth exporters will improve.
Answer: E
Page Ref: 153-157
Difficulty: Easy

18) Terms of trade refers to

A) what goods are exported.
B) the volume of trade.
C) the relative price at which trade occurs.
D) the tariffs applied to trade.
E) what goods are imported.
Answer: C
Page Ref: 156-157
Difficulty: Easy

19) If points A and B are two locations on a country's production possibility frontier, then
A) at any point in time, the country could produce both.
B) both bundles must have the same relative cost.
C) consumers are indifferent between the two bundles.
D) the country could produce either of the two bundles.
E) producers are indifferent between the two bundles.
Answer: D
Page Ref: 152-153
Difficulty: Easy
20. Refer to the figure above. This country’s imports equal
a. GH units of Y c. CD units of X
a. DE units of Y d. CE units of X

21. Which is not an assumption of the H-O model?

a. The same technology in both nations
b. Constant returns to scale
c. Complete specialisation
d. Equal tastes in both nations
22. In the Heckscher-Ohlin model, when there is international-trade equilibrium
A) the capital-rich country will charge more for the capital-intensive good than the
price paid by the capital-poor country for the capital-intensive good.
B) workers in the capital-rich country will earn more than those in the poor country.
C) the workers in the capital-rich country will earn less than those in the poor country.
D) the relative price of the capital-intensive good in the capital-rich country will be
the same as that in the capital-poor country.
E) the capital-rich country will charge less for the capital-intensive good than the
price paid by the capital-poor country for the capital-intensive good.
Answer: D

23. If Australia has more land per worker, and Belgium has more capital per worker,then
if trade began between these two countries
A) the real income of labor in Australia would decline.
B) the real income of labor in Belgium would decline.
C) the real income of landowners in Belgium would decline.
D) the real income of capital owners in Australia would increase.
E) the real income of labor in both countries would decline.
Answer: C

24. Trade benefits a country by

A) increasing available consumption choices.
B) reducing the relative price of the exported good.
C) increasing the wage rate.
D) increasing the real income of all resource owners.
E) reducing the need for specialization in production.
Answer: A
25. Which of the following is an assertion of the Heckscher-Ohlin model?
A) In the long run, labor is mobile and capital is not.
B) Factor endowments determine the technology that is available to a country, which
determines the good in which the country will have a comparative advantage.
C) An increase in a country's labor supply will increase production of both the capital-
intensive and the labor-intensive good.
D) Factor price equalization will occur only if there is costless mobility of all factors
across borders.
E) An increase in a country's labor supply will increase production of the labor-
intensive good and decrease production of the capital-intensive good.
Answer: E