01. Mercantilists believed that a trading country could accumulate gold through:
A. increased exports of goods.
B. a reduction in exports of goods.
C. increased imports of goods.
02. A trade policy favored by mercantilists involved:
A. increasing taxes on exports.
B. increasing tariffs on imports.
C. reducing tariffs on imports.
03. David Ricardo sought to illustrate the idea of comparative advantage by considering trade in cloth and wine between:
A. England and France.
B. England and Spain.
C. England and Portugal.
04. In the original Ricardian model England was assumed to enjoy an absolute advantage in the production of:
A. cloth.
B. wine.
C. neither cloth nor wine.
05. In the original Ricardian model England was assumed to enjoy a comparative advantage in the production of:
A. cloth.
B. wine.
C. neither cloth nor wine.
06. A worker can produce 4 bushels of wheat or 2 yards of cloth. This production exhibits:
A. constant returns to scale.
B. increasing returns to scale.
C. decreasing returns to scale.
07. The production possibilities frontier is linear in the Ricardian model with two goods because:
A. the marginal product of labor for each good is constant.
B. the marginal product of labor for one good is decreasing.
C. the marginal product for each good is decreasing.
08. A worker can produce 4 bushels of wheat or 2 yards of cloth. The opportunity cost of wheat is:
A. 2 yards of cloth.
B. 4 yards of cloth.
C. 0.5 yards of cloth.
09. If workers are needed to produce two goods in a competitive labor market, mobility of labor implies that , in equilibrium:
A. the marginal product of each good will be the same.
B. the wage rate will equal the marginal product of the more expensive good.
C. the wage rate will equal the marginal product of each good multiplied by its price.
10. A worker in Country M can produce 4 bushels of wheat or 2 yards of cloth. A worker in Country N can produce 1 bushel of wheat or 1 yard of cloth. Country N enjoys an absolute advantage in the production of:
A. wheat.
B. cloth.
C. neither wheat nor cloth.
11. A worker in Country M can produce 6 bushels of corn or 3 yards of cloth. A worker in Country N can produce 1 bushel of corn or 1 yard of cloth. The opportunity cost of corn in Country M is:
A. less than that in Country N.
B. equal to that in Country N.
C. greater than that in Country N.
12. A worker in Country X can produce 4 bushels of wheat or 2 yards of cloth. A worker in Country Y can produce 5 bushels of wheat or 5 yards of cloth. Country Y enjoys a comparative advantage in the production of:
A. wheat.
B. cloth.
C. both wheat and cloth.
13. A worker in Country M can produce 2 bushels of corn or 6 shirts. With competitive markets, the relative price of corn in Country M will be:
A. one-third.
B. one.
C. three.
14. A worker in Country X can produce 2 bushels of corn or 8 yards of cloth. A worker in Country Y can produce 1 bushel of corn or 1 yard of cloth. With competitive markets, the relative price of corn will be:
A. greater in Country X than in Country Y.
B. equal in both countries.
C. lower in Country X than in Country Y.
15. Consider the basic Ricardian model in which a worker in Country M can produce 5 bushels of soybeans or 10 yards of cloth, while a worker in Country N can produce 1 bushel of soybeans or 1 yard of cloth. Under free trade, and assuming Country M is not very large, Country M will:
A. sell soybeans to Country N.
B. sell cloth to Country N.
C. sell both soybeans and cloth to Country N.
16. Consider the basic Ricardian model in which a worker in Country M can produce 6 bushels of soybeans or 3 yards of cloth, while a worker in Country N can produce 1 bushel of soybeans or 1 yard of cloth. Under free trade, and assuming Country N is not very large, Country N will be fully specialized in the production of:
A. soybeans
B. cloth
C. neither good—it will produce some amount of each.
17. The gains from trade for a country may be shown by a shift of:
A. the budget constraint to the left.
B. the indifference curve to the left.
C. the indifference curve to the right.
18. The pattern of trade in the Ricardian model is determined by differences between two countries in:
A. the amount of resources.
B. climate.
C. labor productivity.
19. The terms of trade of a country are obtained as a ratio of:
A. the quantity of exports to quantity of imports.
B. the price of exports to the price of imports.
C. the price of imports to the price of exports.
20. According to Raul Prebisch and Hans Singer, developing countries tend to export primary commodities and import manufactured goods. Over time, the terms of trade of these countries are likely to decline because:
A. the share of a country’s expenditure on food increases with income.
B. the prices of raw minerals tend to rise with improvements in technology.
C. developed countries will tend to find substitutes for the use of minerals in the production of manufactured products.