Unit_2_Exercise

Unit 2 Exercise

1. In the Mercantilist view of international trade (in a two-country world), ____

a. both countries could gain from trade a t the same time, but the distribution of the gains depended upon the terms of trade.

b. both countries could gain from trade at the same time, and the terms of trade were of no consequence for the distribution of the gains.

c. neither country could ever gain from trade.

One country’s gain from trade was associated with a loss for the other country.

2. The policy of minimum government interference in or regulation of economic activity advocate 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.

3. 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 abov

e.

4. Country A has 1000 units of labor. It takes 10 units of labor to develop 1 unit of software and produce 10 computers. What is the opportunity cost of a software in terms of computers?

a. 10

b. 0.1

c. 100

d. 50

5. In the Ricardo model, ____

a. there is only one factor of production.

b. international trade is a negative-sum game.

d. differences in factor endowments give rise to international trad

e.

d. there is only one industry in each country.

6. If Country A has an absolute advantage in every good, then____

a. it should not engage in international trade.

b. it should engage in a small percentage of trade.

c. it should still export goods in which it has a comparative advantage.

d. this is an impossible situation.

7. If Country A has a comparative advantage over Country B in producing textile, it means that____

a. Country A produces textile relatively less efficiently than County B does.

b. the labor productivity in textile industry in Country A is lower than in Country B.

c. the relative price of textile (to another product) in Country A is lower than in Country B.

d. Country B will never produce textile if free trade is allowed.

8. The Ricardian model exhibits gains from trade____

a. for both trading countries.

b. only if countries specialize completely.

c. only for one of the trading countries.

d. only if each country has an absolute advantage in one of the industries.

9. The opportunity cost of producing watches in terms of shoes is 50 in Country A and is 10 in Country B. Based on the Ricardian model, what can we conclude about the pattern of trade?

a. Country A will export watches and import shoes.

b. We need to know what the relative price of watches in terms of shoes to answer this question.

c. Trade will not occur.

d. Country A will export shoes and import watches.

10. Which of the following is not an assumption in the Ricardian model?

a. Labor productivity in each country is fixed.

b. Markets are perfectly competitive.

c. Each country has only one factor of production and its amount is fixe

d.

d. Labor can freely move across countries.

11. 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 counties:

Ship Computers

United States 4 days 3 days

United Kingdom 5 days 6 days

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

a. Ships (only)

b. computers (only)

c. both ships and computers

d. neither ships nor computers

12. Given the following Ricardo-type table showing the amount of labor input needed to produce one unit of output of the two goods in the two countries:

Ship Computers

Germany 6 days 9 days

United Kingdom 4 days 8 days

a. The United Kingdom has an absolute advantage in both goods and a comparative advantage in cloth.

b. The pre-trade price ratio in the United Kingdom is 1 steel : 2 cloth.

c. The United Kingdom has an absolute advantage in neither good but a comparative advantage in steel.

d. The pre-trade price ratio in Germany is 1 cloth : 1.5 steel

13. 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 goo

d.

d. a country with an absolute advantage in all goods cannot gain from trad

e.

2. Briefly define the concepts:

1. mercantilism

2. absolute advantage

3. comparative advantage