International Trade Study Guide

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Mid-semester exam sample 21/02/2012 Shabbir Ahmad Mid Semester Exam- Sample questions

Section 1-Multiple choice

1. Benefits of international trade are a. limited to tangible goods. b. limited to intangible goods. c. limited to all goods but not services. d. limited to services. e. not limited to any of the above categories. 2. The gravity model explains why a. trade between Sweden and Germany exceeds that between Sweden and Spain. b. countries with oil reserves tend to export oil. c. capital rich countries export capital intensive products. d. intra-industry trade is relatively more important than other forms of trade between neighboring countries. E) European countries rely most often on natural resources 3. The Ricardian model attributes the gains from trade associated with the principle of comparative advantage result to a. differences in technology. b. differences in preferences. c. differences in labor productivity. d. differences in resources. e. gravity relationships among countries. 4. In a two product two country world, international trade can lead to increases in a. consumer welfare only if output of both products is increased. b. output of both products and consumer welfare in both countries. c. total production of both products but not consumer welfare in both countries. d. consumer welfare in both countries but not total production of both products. e. prices of both goods in both countries. 5. A factor of production that can be used in any sector of an economy is a(an) a. mobile factor. b. specific factor. c. variable factor. d. import-competing factor. e. export-competing factor. 6. In the specific factors model, a country's production possibility frontier is ________ because of ________. a. a straight line; diminishing marginal returns b. a curved line; diminishing marginal returns c. a straight line; constant marginal returns d. a curved line; constant marginal returns 1

Mid-semester exam sample 21/02/2012 Shabbir Ahmad

e. a curved line; a limited supply of labor 7. In the specific factors model, which of the following will increase the quantity of labor used in food production? a. an increase in the price of food relative to that of cloth b. an increase in the price of cloth relative to that of food c. a decrease in the price of labor d. an equal percentage decrease in the price of food and cloth e. an equal percentage increase in the price of food and cloth 8. In the specific factors model, a 5% decrease in the price of food accompanied by a 5% decrease in the price of cloth will cause ________ in the welfare of labor, ________ in the welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed factor in the production of cloth. a. b. c. d. e. no change; no change; no change an increase; an increase; an increase a decrease; an increase; an increase an increase; a decrease; a decrease a decrease; a decrease; a decrease

9. In the 2-factor, 2 good Heckscher-Ohlin model, the country with a relative abundance of ________ will have a production possibility frontier that is biased toward production of the ________ good. a. labor; labor intensive b. labor; capital intensive c. land; labor intensive d. land; capital intensive e. capital; land intensive 10. In the Heckscher-Ohlin model, when there is international-trade equilibrium a. the relative price of the capital intensive good in the capital rich country will be the same as that in the capital poor country. b. 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. c. 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. d. workers in the capital rich country will earn more than those in the poor country. e. the workers in the capital rich country will earn less than those in the poor country. 11. If two countries...
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