Test 1

Question 1

Why does the gravity model work?

Answer 1

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

Question 2

Which things increase trade between two countries?

Answer 2

larger economies
historical ties
linguistic/or cultural affinity
mutual membership in preferential trade agreements

Question 3

Characteristics of indifference curves

Answer 3

the slope of the indifference curve is the marginal rate of substitution
indifference curves are usually bowed towards the origin
indifference curves are downwards sloping when both goods are bads

Question 4

Ceterus Paribus means we assume

Answer 4

factors besides those under consideration do not change

Question 5

Top 3 US trade partners

Answer 5

Mexico, Canada, Japan…

Question 6

Over the last 50 years, world production_____ and world trade____

Answer 6

increased, increased

Question 7

International economics _______use the same fundamental methods of analysis as other branches of economics, because

Answer 7

the motives and behavior of individuals are the same in international trade as they are in domestic transactions

Question 8

The demand curve for beverages slopes downward because

Answer 8

when the price of beverages falls, consumers buy more beverages

Question 9

The supply curve for beverages slopes upward because

Answer 9

when the price of beverages falls, producers make less beverages

Question 10

Over the last 50 years, U.S. imports…

Answer 10

increased more than exports

Question 11

One of the main actions of the Organization of Petroleum Exporting Countries in 1973 was to

Answer 11

reduce oil supply, causing world oil prices to rise

Question 12

A drop in the price of beverages causes

Answer 12

a movement along the beverage deman curve

Question 13

Suppose a Pepsi soda machine and a Coca Cola machine were sitting right next to each other and they both charged $1 for a bottle of their own soda. If Coca Cola raised its price to $1.25 we might expect that the demand curve…

Answer 13

the demand curve for Pepsi would shift to the right.

Question 14

Factors that cause the PPF to shift out

Answer 14

Discovery of new oil fields in Texas
Immigration
New manufacturing technologies

Question 15

In a model with only chips and beverages, the price of beverages is defined as

Answer 15

the number of chips you have to give up to get one more beverage

Question 16

True or False: Migration between countries is allowed in the Ricardian model

Answer 16

False

Question 17

True or False: the Ricardian model has one factor of production

Answer 17

True

Question 18

True or False: there is no money in the Ricardian model

Answer 18

True

Question 19

True or False: Factors are perfectly mobile between sectors in the Ricardian model

Answer 19

True

Question 20

True or False: Indifference curves are downwards sloping if both goods are good

Answer 20

True

Question 21

True or False: Indifference curves can cross

Answer 21

False

Question 22

True or False: A consumer’s happiness is equal everywhere along an indifference curve

Answer 22

True

Question 23

True or False: Most indifference curve analysis assumes that more of either good increases happiness

Answer 23

True

Question 24

The Ricardian model illustrates how gains from trade can emerge from….

Answer 24

differences in production technology across countries

Question 25

In the Ricardian model, workers are better off if

Answer 25

real wages go up

Question 26

In the Ricardian model, technology is:

Answer 26

the number of workers that it takes to produce one unit of each good

Question 27

In the Ricardian model, the pattern of trade is determined by:

Answer 27

comparative advantage, autarky prices, and autarky opportunity costs

Question 28

The main point of the Ricardian model

Answer 28

to show how comparative advantage leads to gains from trade

Question 29

The main difference between the Ricardian model and the Heckscher Ohlin model is

Answer 29

the number of inputs

Question 30

If we know that the capital-labor ratio in aircraft is higher than the capital-labor ratio in clothing, the correct characterization of the aircraft industry is

Answer 30

capital intensive

Question 31

The main reason that Mexico's wages are lower than wages in the US is most likely that

Answer 31

Mexico has less capital per worker than the US

Question 32

When there is one factor that is equally productive in both goods, the production possibilities frontier is -

Answer 32

a straight line

Question 33

China's wages are lower than US wages. Mexican wages are lower than US wages. Canada's wages are about the same as US wages. If capital is the same price in all countries, which of the following statements is most consistent with the Heckscher-Ohlin theorem?

Answer 33

The US imports labor intensive goods from China

Question 34

Which of the following models best demonstrates that differences in tech across countries determines comparative advantage?

Answer 34

Ricardian

Question 35

The Stolper-Samuelson theorem predicted that in the US, NAFTA would

Answer 35

increase earnings of capital owners but lower workers' wages

Question 36

The main difference between the Heckscher-Ohlin model and the Specific Factors model is

Answer 36

the Specific Factors model describes the short-run gains from trade and the Heckscher-Ohlin model describes the long-run gains from trade across different groups

Question 37

Which 2 models help us understand how some groups gain from trade while others lose from trade?

Answer 37

Heckscher Ohlin and Specific Factors

Question 38

Which theorem describes a long-run relationship between product prices and factor prices?

Answer 38

The Stolper-Samuelson Theorem

Question 39

In trade theory, a "small country" is one that

Answer 39

takes the world price as given

Question 40

Which theorem describes a long-run relationship between factor endowments and production?

Answer 40

Rybczynski Theorem

Question 41

Cuban immigrants did not change wages in the 80s - this is consistent with which theorem?

Answer 41

The Factor Price Equalization Theorem

Question 42

The best theorem for trying to understand if inequality is liked to US trade is:

Answer 42

The Stolper-Samuelson Theorem

Question 43

If we wanted to know if changes in apparel production were related to immigration, the most appropriate theory would be

Answer 43

Rybczynski (because it deals with output quantities/production over endowments/amount of labor)

Question 44

Which model is least likely to be supported by available data?

Answer 44

Factor Price Equalization

Question 45

If one good uses relatively more of factor A than Factor B,

Answer 45

we can't say anything about factor abundance or factor intensity of this good

Question 46

In the large country supply and demand model, an increase in supply in the exporting country

Answer 46

would cause the world price to fall

Question 47

Factor Price Equalization

Answer 47

different countries have different factor supplies. Some are more labor abundant and some are more capital abundant, so in a labor abundant country, capital is more expensive before trade. After trade, in the labor abundant country, the price of the labor-intensive good will increase because there is an increase in the demand for labor. Then, the price of labor will rise because they are making more of the labor intensive good. Wages will therefore begin to converge.

Question 48

Rybczynski

Answer 48

Increase in the endowment of labor causes production of the labor intensive good to increase and the production of the capital intensive good to fall.

Question 49

Stolper-Samuelson

Answer 49

An increase in the price of the labor-intensive good causes wages to go up in real terms and r (the price of capital) to fall in real terms. The capital-intensive good does the opposite.

Question 50

3 Theorems that are part of HO

Answer 50

FPE, SS, Ryb

Question 51

Long Run theorems

Answer 51

HO - FPE, SS, and Ryb

Question 52

Why do countries trade?

Answer 52

because prices are different