Chapters 1-5

Question 1

The United States is less dependent on trade than most other countries because?
A) the United States is a relatively large country with diverse resources.
B) the United States is a “Superpower.”
C) the military power of the United States makes it less dependent on anything.
D) the United States invests in many other countries.
E) many countries invest in the United States.

Answer 1

A) the United States is a relatively large country with diverse resources.

Question 2

Theories of international economics from the 18th and 19th centuries are?
A) not relevant to current policy analysis.
B) only of moderate relevance in today’s modern international economy.
C) highly relevant in today’s modern international economy.
D) the only theories that are actually relevant to modern international economy.
E) not well understood by modern mathematically oriented theorists.

Answer 2

C) highly relevant in today’s modern international economy.

Question 3

The benefits of international trade are derived from trade in?
A) tangible goods only.
B) intangible goods only.
C) goods but not services.
D) services but not goods.
E) anything of value.

Answer 3

E) anything of value.

Question 4

International economics ____ use the same fundamental methods of analysis as other branches of economics, because ____?
A) does not, the level of complexity of international issues is unique
B) does not, the interactions associated with international economic relations is highly mathematical
C) does not, international economics takes a different perspective on economic issues
D) does not, international economic policy requires cooperation with other countries
E) does, the motives and behavior of individuals are the same in international trade as they are in domestic transactions

Answer 4

E) does, the motives and behavior of individuals are the same in international trade as they are in domestic transactions

Question 5

The study of exchange rate determination is a relatively new part of international economics, since?
A) for much of the past century, exchange rates were fixed by government action.
B) the calculations required for this were not possible before modern computers became available.
C) economic theory developed by David Hume demonstrated that real exchange rates remain fixed over time.
D) dynamic overshooting asset pricing models are a recent theoretical development.
E) the exchange rate never fluctuates.

Answer 5

A) for much of the past century, exchange rates were fixed by government action.

Question 6

A fundamental problem in international economics is how to produce?
A) a perfect degree of monetary harmony.
B) an acceptable degree of harmony among the international trade policies of different countries.
C) a world government that can harmonize trade and monetary policies
D) a counter-cyclical monetary policy so that all countries will not be adversely affected by a financial crisis in one country.
E) a worldwide form of currency.

Answer 6

B) an acceptable degree of harmony among the international trade policies of different countries.

Question 7

The international capital market is?
A) the place where you can rent earth moving equipment anywhere in the world.
B) a set of arrangements by which individuals and firms exchange money now for promises to pay in the future.
C) the arrangement where banks build up their capital by borrowing from the Central Bank.
D) the place where emerging economies accept capital invested by banks.
E) exclusively concerned with the debt crisis that ended in the 1990s.

Answer 7

B) a set of arrangements by which individuals and firms exchange money now for promises to pay in the future.

Question 8

In 1998 an economic and financial crisis in South Korea caused it to experience?
A) a surplus in their balance of payments.
B) a deficit in their balance of payments.
C) a balanced balance of payments.
D) an unbalanced balance of payments.
E) a lull in international trade.

Answer 8

A) a surplus in their balance of payments.

Question 9

International economists cannot discuss the effects of international trade or recommend changes in government policies toward trade with any confidence unless they know?
A) their theory is the best available.
B) their theory is internally consistent.
C) their theory passes the “reasonable person” legal criteria.
D) their theory is good enough to explain the international trade that is actually observed.
E) their theory accounts for China’s unique position in international trade.

Answer 9

D) their theory is good enough to explain the international trade that is actually observed.

Question 10

Trade theorists have proven that the gains from international trade?
A) must raise the economic welfare of every country engaged in trade.
B) must raise the economic welfare of everyone in every country engaged in trade.
C) must harm owners of “specific” factors of production.
D) will always help “winners” by an amount exceeding the losses of “losers.”
E) usually outweigh the benefits of protectionist policies.

Answer 10

E) usually outweigh the benefits of protectionist policies.

Question 11

International economics can be divided into two broad sub-fields?
A) macro and micro.
B) developed and less developed.
C) monetary and barter.
D) international trade and international money.
E) static and dynamic.

Answer 11

D) international trade and international money.

Question 12

International monetary analysis focuses on?
A) the real side of the international economy.
B) the international trade side of the international economy.
C) the international investment side of the international economy.
D) the issues of international cooperation between Central Banks.
E) the monetary side of the international economy, such as currency exchange.

Answer 12

E) the monetary side of the international economy, such as currency exchange.

Question 13

The gravity model suggests that over time?
A) trade between neighboring countries will increase.
B) trade between all countries will increase.
C) world trade will eventually be swallowed by a black hole.
D) trade between Earth and other planets will become important.
E) the value of trade between two countries will be proportional to the product of the two countries’ GDP.

Answer 13

E) the value of trade between two countries will be proportional to the product of the two countries’ GDP.

Question 14

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.

Answer 14

A) trade between Sweden and Germany exceeds that between Sweden and Spain.

Question 15

In general, which of the following do NOT tend to increase trade between two countries?
A) linguistic and/or cultural affinity
B) historical ties
C) larger economies
D) mutual membership in preferential trade agreements
E) the existence of well controlled borders between countries

Answer 15

E) the existence of well controlled borders between countries

Question 16

Why does the gravity model work?
A) Large economies became large because they were engaged in international trade.
B) Large economies have relatively large incomes, and hence spend more on government promotion of trade and investment.
C) Large economies have relatively larger areas, which raises the probability that a productive activity will take place within the borders of that country.
D) Large economies tend to have large incomes and tend to spend more on imports.
E) Large economies tend to avoid trading with small economies.

Answer 16

D) Large economies tend to have large incomes and tend to spend more on imports.

Question 17

We see that the Netherlands, Belgium, and Ireland trade considerably more with the United States than with many other countries?
A) This is explained by the gravity model, since these are all large countries.
B) This is explained by the gravity model, since these are all small countries.
C) This fails to be consistent with the gravity model, since these are small countries.
D) This fails to be consistent with the gravity model, since these are large countries.
E) This is explained by the gravity model, since they do not share borders.

Answer 17

C) This fails to be consistent with the gravity model, since these are small countries.

Question 18

The two neighbors of the United States do a lot more trade with the United States than European economies of equal size?
A) This contradicts predictions from gravity models.
B) This is consistent with predictions from gravity models.
C) This is irrelevant to any inferences that may be drawn from gravity models.
D) This is because these neighboring countries have exceptionally large GDPs.
E) This relates to Belgium’s trade record with the U.S.

Answer 18

B) This is consistent with predictions from gravity models.

Question 19

Since the early 1970s, world’s trade as a share of world production has?
A) remained constant.
B) increased.
C) decreased.
D) fluctuated widely with no clear trend.
E) increased slightly before dropping off.

Answer 19

B) increased.

Question 20

In the current Post-Industrial economy, international trade in services (including banking and financial services)?
A) dominates world trade.
B) does not exist.
C) is an increasingly important component of global trade.
D) is relatively stagnant.
E) far surpasses the predictions of economist Alan Blinder.

Answer 20

C) is an increasingly important component of global trade.

Question 21

In the early 20th century, the United Kingdom exported mainly?
A) manufactured goods.
B) services.
C) primary products including agricultural.
D) technology intensive products.
E) livestock.

Answer 21

A) manufactured goods.

Question 22

Trade between two countries can benefit both countries if?
A) each country exports that good in which it has a comparative advantage.
B) each country enjoys superior terms of trade.
C) each country has a more elastic demand for the imported goods.
D) each country has a more elastic supply for the exported goods.
E) each country produces a wide range of goods for export.

Answer 22

A) each country exports that good in which it has a comparative advantage.

Question 23

A country engaging in trade according to the principles of comparative advantage gains from trade because it?
A) is producing exports indirectly more efficiently than it could alternatively.
B) is producing imports indirectly more efficiently than it could domestically.
C) is producing exports using fewer labor units.
D) is producing imports indirectly using fewer labor units.
E) is producing exports while outsourcing services.

Answer 23

B) is producing imports indirectly more efficiently than it could domestically.

Question 24

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.

Answer 24

C) differences in labor productivity.

Question 25

The Ricardian model demonstrates that? A) trade between two countries will benefit both countries. B) trade between two countries may benefit both regardless of which good each exports. C) trade between two countries may benefit both if each exports the product in which it has a comparative advantage. D) trade between two countries may benefit one but harm the other. E) trade between two countries always benefits the country with a larger labor force.

Answer 25

**C) trade between two countries may benefit both if each exports the product in which it has a comparative advantage.**

Question 26

In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ________ unit labor requirements? A) one B) two C) three D) four E) five

Answer 26

**D) four**

Question 27

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 27

**B) Home has a comparative advantage in cloth.**

Question 28

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 28

**A) export cloth.**

Question 29

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 29

**C) Foreign has a comparative advantage in widgets.**

Question 30

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 30

**A) 0.5.**

Question 31

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 31

**A) both countries could benefit from trade with each other.**

Question 32

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.

Answer 32

**B) output of both products and consumer welfare in both countries.**

Question 33

A nation engaging in trade according to the Ricardian model will find its consumption bundle? A) inside its production possibilities frontier. B) on its production possibilities frontier. C) outside its production possibilities frontier. D) inside its trade-partner's production possibilities frontier. E) on its trade-partner's production possibilities frontier.

Answer 33

**C) outside its production possibilities frontier.**

Question 34

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 34

**B) constant opportunity costs.**

Question 35

Which of the following statements is TRUE? A) Free trade is beneficial only if your country is strong enough to stand up to foreign competition. B) Free trade is beneficial only if your competitor does not pay unreasonably low wages. C) Free trade is beneficial only if both countries have access to the same technology. D) Free trade is never beneficial for developing countries. E) Free trade can be beneficial to the economic welfare of all countries involved.

Answer 35

**E) Free trade can be beneficial to the economic welfare of all countries involved.**

Question 36

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 36

**A) not negate the logical basis for trade in the Ricardian model.**

Question 37

The two-country, multi-product model differs from the two-country, two-product model in that, in the former? A) the relative wage ratio will determine the pattern of trade (which good is exported by which country). B) which country will export which product is determined entirely by labor productivity data. C) full specialization is likely to hold in equilibrium. D) none of the goods are potentially nontraded. E) domestic relative prices are not relevant.

Answer 37

**A) the relative wage ratio will determine the pattern of trade (which good is exported by which country).**

Question 38

Assume that transportation costs are especially high for Widgets in the two-country, twoproduct Ricardian model, and Country A enjoys a comparative advantage in Widgets, then? A) country B must also enjoy a comparative advantage in Widgets. B) country B may end up exporting Widgets. C) country A may switch to having a comparative advantage in the other good. D) country A will still export Widgets. E) trade may be impossible between the two countries.

Answer 38

**E) trade may be impossible between the two countries.**

Question 39

Which of the following is most likely to be an untraded good in a Ricardian two-country, multi-good model? A) steel B) textiles C) haircuts D) petroleum E) telemarketer services

Answer 39

**C) haircuts**

Question 40

Which of the following has been confirmed by empirical tests of the Ricardian model? A) All predictions of the model for a multi-product, multi-country world are highly unrealistic. B) The existence of nontraded goods results in a high degree of specialization among countries. C) International trade has no impact on income distribution. D) The unimportance of economies of scale as a cause of trade. E) Companies tend to export goods in which they have a relatively high level of productivity.

Answer 40

**E) Companies tend to export goods in which they have a relatively high level of productivity.**

Question 41

The growth of clothing exports originating in Bangladesh is the result of the A) high productivity of workers in Bangladesh? B) low wages in Bangladesh. C) low productivity of workers in other countries. D) low productivity of workers in Bangladesh in industries other than those that produce clothing for export. E) high wages in other countries.

Answer 41

**D) low productivity of workers in Bangladesh in industries other than those that produce clothing for export.**

Question 42

The Ricardian model of international trade demonstrates that trade can be mutually beneficial. Why, then, do governments restrict imports of some goods? A) The Ricardian model is often incorrect in its prediction that trade can be mutually beneficial. B) Import restrictions are the result of trade wars between hostile countries. C) Trade can have substantial effects on a country's distribution of income. D) Imports are only restricted when foreign-made goods do not meet domestic standards of quality. E) Restrictions on imports are intended to benefit domestic consumers.

Answer 42

**C) Trade can have substantial effects on a country's distribution of income.**

Question 43

International trade can have important effects on the distribution of income because? A) the more powerful country dictates the terms of trade. B) some resources are immobile in the short run. C) different countries use different currencies. D) of government corruption. E) rich countries take advantage of poor countries.

Answer 43

**B) some resources are immobile in the short run.**

Question 44

In the specific factors model, labor is defined as a(an)? A) intensive factor. B) mobile factor. C) variable factor. D) fixed factor. E) specific factor.

Answer 44

**B) mobile factor.**

Question 45

In the specific factors model, which of the following is treated as a specific factor? A) capital B) technology C) cloth D) food E) labor

Answer 45

**A) capital**

Question 46

A worker who has invested in ____ skills will be _____ mobile than would otherwise be the case? A) occupation-specific; less B) occupation-nominal; less C) occupation-specific; more D) ethical; less E) ethical; more

Answer 46

**A) occupation-specific; less**

Question 47

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 E) a curved line; a limited supply of labor

Answer 47

**B) a curved line; diminishing marginal returns**

Question 48

In the four-quadrant diagram of the specific factors model, the graph in the upper right quadrant is a country's? A) production possibility frontier. B) production function for food. C) labor allocation constraint. D) labor supply curve. E) production function for cloth.

Answer 48

**A) production possibility frontier.**

Question 49

The slope of a country's production possibility frontier with cloth measured on the horizontal and food measured on the vertical axis in the specific factors model is equal to ____ and it _____ as more cloth is produced? A) -MPLC/MPLF; becomes steeper B) -MPLF/MPLC; becomes steeper C) -MPLC/MPLF; is constant D) -MPLF/MPLC; becomes flatter E) -MPLF/MPLC; is constant

Answer 49

**B) -MPLF/MPLC; becomes steeper**

Question 50

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 cloth relative to that of food B) an increase in the price of food relative to that of cloth C) a decrease in the price of labor D) an equal percentage increase in the price of food and cloth E) an equal percentage decrease in the price of food and cloth

Answer 50

**B) an increase in the price of food relative to that of cloth**

Question 51

In the specific factors model, a 5% increase in the price of food accompanied by a 5% increase in the price of cloth will cause wages to ____, the production of cloth to ____, and the production of food to ____? A) increase by more then 5%; increase; remain unchanged B) increase by 5%; remain unchanged; remain unchanged C) remain constant; decrease; decrease D) remain constant; increase; increase E) increase by less then 5%; decrease; increase

Answer 51

**B) increase by 5%; remain unchanged; remain unchanged**

Question 52

Refer to the production possibility graph above. Assume that the economy is in equilibrium at point e. If the price of good A increases, the new equilibrium is most likely to be? A) point h. B) point f. C) point e. D) point d. E) point b.

Answer 52

**D) point d.**

Question 53

The relative price of a unit of cloth in the small isolated country of Moribundia is 5 units of food. When the central city, Mudhole, puts in an airstrip, the country is able to engage in trade. If the relative price of cloth in the outside world is 8 units of food, then Moribundia will export _____ and ____ factors used in the production of ____ will benefit? A) cloth; immobile; food B) food; mobile; food C) food; immobile; food D) cloth; immobile; cloth E) cloth; mobile; cloth

Answer 53

**D) cloth; immobile; cloth**

Question 54

In the specific factors model, the effects of trade on welfare are ____ for mobile factors, ____ for fixed factors used to produce the exported good, and ____ for fixed factors used to produce the imported good? A) ambiguous; positive; negative B) positive; positive; positive C) ambiguous; negative; positive D) positive; ambiguous; ambiguous E) negative; ambiguous; ambiguous

Answer 54

**A) ambiguous; positive; negative**

Question 55

A country's budget constraint states that? A) real income in the exporting country must be equal to real income in the importing country. B) the value of exports must be equal to the value of imports. C) a country will engage in trade only if the value of imports exceed the value of exports. D) unless a country engages in trade, the value of exports cannot exceed the value of goods produced. E) a country will engage in trade only if the value of exports exceeds the value of imports.

Answer 55

**B) the value of exports must be equal to the value of imports.**

Question 56

The effect of trade on specialized employees of import-competing industries will be ____ jobs and _____ pay because they are relatively _____? A) more; lower; immobile B) more; higher; immobile C) fewer; lower; immobile D) more; higher; mobile E) fewer; lower; mobile

Answer 56

**C) fewer; lower; immobile**

Question 57

Economists consider the effects of free trade on income distribution to be ___ important than the effects on overall welfare because ___? A) more; the effects on income distribution are major and consequential B) less; the effects on income distribution are minor and inconsequential C) more; those who are harmed are not compensated by those who gain D) less; the wealthy benefit and only the poor lose E) less; those who are harmed can be compensated by those who gain

Answer 57

**E) less; those who are harmed can be compensated by those who gain**

Question 58

In modern economies? A) restrictions on international labor mobility are common. B) labor is far more mobile internationally than it is intra-nationally. C) outsourcing increases international labor mobility. D) restrictions on international labor mobility are rare. E) labor is far more mobile internationally than capital.

Answer 58

**A) restrictions on international labor mobility are common.**

Question 59

Refer to the graph above. Points A, B, and C represent ____, ____, and ____, respectively? A) the global wage rate before migration; the wage rate in foreign after migration; the wage rate in home after migration B) the global wage rate before migration; the wage rate in home after migration; the wage rate in foreign after migration C) equilibrium wage rate after migration from foreign to home has occurred; the wage rate in home before migration; the wage rate in foreign before migration D) equilibrium wage rate after migration from home to foreign has occurred; the wage rate in foreign before migration; the wage rate in home before migration E) the wage rate in home before migration; the wage rate in home after migration; the wage rate in foreign after migration

Answer 59

**D) equilibrium wage rate after migration from home to foreign has occurred; the wage rate in foreign before migration; the wage rate in home before migration**

Question 60

In the two-country model of international labor mobility? A) the effect of migration is to cause real wages in the two countries to diverge. B) the long-run equilibrium global real wage is equal to the greater of the pre-migration wages in the two countries. C) labor has only limited international mobility. D) the long-run equilibrium global real wage is equal to the lesser of the pre-migration wages in the two countries. E) the effect of migration is to cause real wages in the two countries to converge.

Answer 60

**E) the effect of migration is to cause real wages in the two countries to converge.**

Question 61

In the 2-factor, 2-good Heckscher-Ohlin model, an influx of workers from across the border would? A) move the point of production along the production possibility curve. B) shift the production possibility curve outward and increase the production of both goods. C) shift the production possibility curve outward and decrease the production of the labor intensive product. D) shift the production possibility curve outward and decrease the production of the capital intensive product. E) shift the possibility curve outward and displace preexisting labor.

Answer 61

**D) shift the production possibility curve outward and decrease the production of the capital intensive product.**

Question 62

If a country produces good Y (measured on the vertical axis) and good X (measured on the horizontal axis), then the absolute value of the slope of its production possibility frontier is equal to? A) the opportunity cost of good X. B) the price of good X divided by the price of good Y. C) the price of good Y divided by the price of good X. D) the opportunity cost of good Y. E) the cost of capital (assuming that good Y is capital intensive) divided by the cost of labor.

Answer 62

**A) the opportunity cost of good X.**

Question 63

The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former? A) has only two countries. B) has only two products. C) has two factors of production. D) has two production possibility frontiers (one for each country). E) has varying wage rates.

Answer 63

**C) has two factors of production.**

Question 64

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

Answer 64

**A) labor; labor intensive**

Question 65

In the 2-factor, 2-good Heckscher-Ohlin model, the production possibility frontier is kinked when? A) there is no factor substitution in production. B) the opportunity cost of production is constant. C) there are unemployed factor resources. D) a country does not engage in trade. E) transportation costs are very high.

Answer 65

**A) there is no factor substitution in production.**

Question 66

In the Heckscher-Ohlin model, countries are assumed to differ only in terms of their? A) factor endowments. B) tastes and preferences. C) available technologies. D) factor productivities. E) physical size.

Answer 66

**A) factor endowments.**

Question 67

One way in which the Heckscher-Ohlin model differs from the Ricardo model of comparative advantage is by assuming that _____ is (are) identical in all countries? A) factor endowments B) scale of production C) factor intensities D) technology E) opportunity costs

Answer 67

**D) technology**

Question 68

In the 2-factor, 2-good Heckscher-Ohlin model, trade will _____ the owners of a country's ____ factor and will _____ the good that uses that factor intensively? A) harm; scarce; import B) harm; abundant; import C) benefit; scarce; export D) benefit; scarce; import E) harm; scarce; export

Answer 68

**A) harm; scarce; import**

Question 69

Refer to the table above. If good S is capital intensive, then following the Heckscher-Ohlin Theory? A) country B will export good S. B) country A will export good S. C) both countries will export good S. D) trade will not occur between these two countries. E) both countries will import good S.

Answer 69

**A) country B will export good S.**

Question 70

Refer to the table above. If you are told that Country B is very much richer than Country A, then the correct answer is? A) country B will export good S. B) country A will export good S. C) both countries will export good S. D) trade will not occur between these two countries. E) both countries will import good S.

Answer 70

**A) country B will export good S.**

Question 71

Refer to the table above. You are told that Country B is very much larger than country A. The correct answer is? A) country B will export good S. B) country A will export good S. C) both countries will export good S. D) trade will not occur between these two countries. E) both countries will import good S.

Answer 71

**A) country B will export good S.**

Question 72

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 72

**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.**

Question 73

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 73

**A) increasing available consumption choices.**

Question 74

Starting from an autarky (no-trade) situation with Heckscher-Ohlin model, if Country H is relatively labor abundant, then once trade begins? A) wages should fall and rents should rise in H. B) wages and rents should fall in H. C) wages should rise and rents should fall in H. D) rent will be unchanged but wages will rise in H. E) wages and rents should rise in H.

Answer 74

**C) wages should rise and rents should fall in H.**

Question 75

The Leontief Paradox? A) proved that the U.S. economy is different from all others. B) failed to support the validity of the Ricardian theory. C) supported the validity of the Ricardian theory of comparative advantage. D) supported the validity of the Heckscher-Ohlin model. E) failed to support the validity of the Heckscher-Ohlin model.

Answer 75

**E) failed to support the validity of the Heckscher-Ohlin model.**

Question 76

The Case of the Missing Trade refers to? A) the fact that world exports does not equal world imports. B) the 9th volume of the Hardy Boys' Mystery series. C) the fact that factor trade is less than predicted by the Heckscher-Ohlin theory. D) the fact that the Heckscher Ohlin theory never applies to China-U.S. trade practices. E) the fact that the Heckscher Ohlin theory predicts much less volume of trade than actually exists.

Answer 76

**C) the fact that factor trade is less than predicted by the Heckscher-Ohlin theory.**

Question 77

If two countries are very different in relative factor abundance, then empirical support for which of the following would be less likely? A) the Factor Price Equalization Theorem B) the Heckscher-Ohlin Theorem C) the Law of One Price D) the Law of Demand E) the Gravity Theorem

Answer 77

**A) the Factor Price Equalization Theorem**

Question 78

Which of the following empirical studies cast the most doubt on the Heckscher-Ohlin model? A) the study by Wassily Leontief B) the study by Bowen, Leamer, and Sveikauskas C) the study by David Ricardo D) the study by Adam Smith E) the study by Davis and Weinstein

Answer 78

**A) the study by Wassily Leontief**