Question 1

According to Ricardo's theory of comparative advantage, countries should:

Accepted Answer

A)   specialize in the production of those goods that it produces most efficiently.
B)   specialize in the production of those goods that their competitors in the world market currently have monopolies on.
C)   produce all the products for which they have an absolute advantage.
D)   produce only the products for which they have an absolute advantage.E) None of the above
F) All of the above

Question 2

Company A entered the production of office software before its competitors. Because of this, the company's products are more familiar among and favored by customers. This situation exemplifies the _____.

Accepted Answer

A)   first-mover advantage
B)   diminishing marginal returns
C)   economies of scale
D)   constant marginal returnsE) A) and C)
F) A) and B)

Question 3

What will happen, according to Paul Samuelson's critique, if a rich country enters into a free trade agreement with a poor country?

Accepted Answer

A)   Both the countries will incur losses due to the exchanges between them.
B)   The productivity of the poor country will decline rapidly.
C)   The poor country will rapidly improve its productivity.
D)   Both the countries will garner benefits from the exchanges between them.E) None of the above
F) A) and B)

Question 4

According to Paul Samuelson's critique, a poor country will rapidly improve its productivity if a rich country enters into a free trade agreement with it.

Accepted Answer

A) True 
 B)False

Question 5

The production possibility frontier will be _____ if constant return to specialization is observed.

Accepted Answer

A)   convex
B)   parabolic
C)   a straight line
D)   logarithmicE) A) and B)
F) A) and C)

Question 6

Country A exports electronic goods from Country B although there are no underlying differences in factor endowments between the two countries. Which of the following theories explains this anomaly?

Accepted Answer

A)   Comparative advantage theory
B)   New trade theory
C)   Ricardo's theory
D)   Smith's theoryE) A) and C)
F) None of the above

Question 7

Which of the following statements is true of the Leontief Paradox?

Accepted Answer

A)   It shows an anomaly that occurs when a nation has high domestic demand for a product.
B)   It explains the relationship between domestic demand and comparative advantage.
C)   It disproved Ricardo's theory of comparative advantage.
D)   It raised questions about the validity of the Heckscher-Ohlin theory.E) B) and C)
F) A) and D)

Question 8

_____ refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country.

Accepted Answer

A)   Fair trade
B)   Trade theory
C)   Free trade
D)   MercantilismE) A) and C)
F) A) and D)

Question 9

Explain the concept of free trade.

Accepted Answer

Free trade refers to a situation where a...

Question 10

Which of the following is one of the four attributes present in Porter's diamond?

Accepted Answer

A)   Economies of scale
B)   Factor endowments
C)   Structural innovation
D)   Procedural innovationE) B) and C)
F) A) and D)

Question 11

Which of the following is a major flaw associated with mercantilism?

Accepted Answer

A)   Mercantilists do not support government intervention in trade.
B)   Mercantilists view trade as a zero-sum game.
C)   Mercantilists recommend policies to maximize imports.
D)   Mercantilists recommend countries to maintain a negative trade balance.E) A) and B)
F) All of the above

Question 12

The simple model of free trade assumed away transportation costs between countries.

Accepted Answer

A) True 
 B)False

Question 13

The Heckscher-Ohlin theory predicts that countries will:

Accepted Answer

A)   export those goods that make intensive use of factors that are locally scarce.
B)   export those goods that make intensive use of factors that are locally abundant.
C)   import those goods that make intensive use of factors that are locally abundant.
D)   import those goods that make intensive use of factors that are available world-wide.E) B) and D)
F) All of the above

Question 14

Explain Smith's theory of absolute advantage.

Accepted Answer

A country has an absolute advantage in t...

Question 15

Explain how the principle of diminishing returns weakens the Ricardian model.

Accepted Answer

Diminishing returns show that it is not ...

Question 16

Explain the Paul Samuelson's critique.

Accepted Answer

Paul Samuelson's critique looks at what ...

Question 17

Identify the theory that supports the view that, in some cases, countries export for the reason that the world market can support only a limited number of firms.

Accepted Answer

A)   Heckscher-Ohlin theory
B)   Smith's theory
C)   Ricardo's theory
D)   New trade theoryE) None of the above
F) A) and D)

Question 18

Country A can produce product X, but it can also buy it at a cheap rate from Country B. Which of the following courses of action is suitable in this situation according to Adam Smith's theory of absolute advantage?

Accepted Answer

A)   Country A should import product X from country B and it should not attempt to produce it at home.
B)   Country A should partly import the product and produce it domestically.
C)   Country A should produce more of product X and should attempt to obtain an absolute advantage for the product.
D)   Country A should subsidize the production of product X to obtain an absolute advantage over country B.E) A) and D)
F) B) and C)

Question 19

Paul Samuelson's critique argues that:

Accepted Answer

A)   when a rich country enters into a free trade agreement with a poor country, only the poor country benefits from the relationship.
B)   trade is a positive-sum game in which all countries that participate realize economic gains.
C)   when a rich country enters into a free trade agreement with a poor country, only the rich country benefits from the relationship.
D)   trade is a net-sum game in which all countries that participate realize economic gains.E) None of the above
F) A) and C)

Question 20

Heckscher-Ohlin theory stresses that comparative advantage arises from differences in productivity.

Accepted Answer

A) True 
 B)False

Exam 6: International Trade Theory

Explain the concept of free trade.

Correct AnswerverifiedFree trade refers to a situation where a...View AnswerShow Answer

Identify the theory that supports the view that, in some cases, countries export for the reason that the world market can support only a limited number of firms.

Correct AnswerverifiedShow Answer

Country A exports electronic goods from Country B although there are no underlying differences in factor endowments between the two countries. Which of the following theories explains this anomaly?

Correct AnswerverifiedShow Answer

What will happen, according to Paul Samuelson's critique, if a rich country enters into a free trade agreement with a poor country?

Correct AnswerverifiedShow Answer

Which of the following is a major flaw associated with mercantilism?

Correct AnswerverifiedShow Answer

Explain Smith's theory of absolute advantage.

Correct AnswerverifiedA country has an absolute advantage in t...View AnswerShow Answer

Explain the Paul Samuelson's critique.

Correct AnswerverifiedPaul Samuelson's critique looks at what ...View AnswerShow Answer

Which of the following statements is true of the Leontief Paradox?

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Which of the following is one of the four attributes present in Porter's diamond?

Correct AnswerverifiedShow Answer

Company A entered the production of office software before its competitors. Because of this, the company's products are more familiar among and favored by customers. This situation exemplifies the _____.

Correct AnswerverifiedShow Answer

_____ refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country.

Correct AnswerverifiedShow Answer

According to Paul Samuelson's critique, a poor country will rapidly improve its productivity if a rich country enters into a free trade agreement with it.

Correct AnswerverifiedShow Answer

Explain how the principle of diminishing returns weakens the Ricardian model.

Correct AnswerverifiedDiminishing returns show that it is not ...View AnswerShow Answer

Paul Samuelson's critique argues that:

Correct AnswerverifiedShow Answer

Country A can produce product X, but it can also buy it at a cheap rate from Country B. Which of the following courses of action is suitable in this situation according to Adam Smith's theory of absolute advantage?

Correct AnswerverifiedShow Answer

According to Ricardo's theory of comparative advantage, countries should:

Correct AnswerverifiedShow Answer

The Heckscher-Ohlin theory predicts that countries will:

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The production possibility frontier will be _____ if constant return to specialization is observed.

Correct AnswerverifiedShow Answer

The simple model of free trade assumed away transportation costs between countries.

Correct AnswerverifiedShow Answer

Heckscher-Ohlin theory stresses that comparative advantage arises from differences in productivity.

Correct AnswerverifiedShow Answer

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Free trade refers to a situation where a...
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A country has an absolute advantage in t...
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Paul Samuelson's critique looks at what ...
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Diminishing returns show that it is not ...
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