18.The Leontieff Paradox

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

B) supported the validity of the Ricardian theory of comparative advantage. C) supported the validity of the Heckscher-Ohlin model. D) failed to support the validity of the Ricardian theory.

E) proved that the U.S. economy is different from all others.

19. Which of the following is an assertion of the Heckscher-Ohlin model?

A) Factor price equalization will occur only if there is costless mobility of all factors across borders. B) An increase in a country's labor supply will increase production of both the capital-intensive and the labor-intensive good.

C) In the long-run, labor is mobile and capital is not.

D) The wage-rental ratio determines the capital-labor ratio in a country's industries. E) Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage.

20. Which of the following is an assertion of the Heckscher-Ohlin model?

A) An increase in a country's labor supply will increase production of the labor-intensive good and decrease production of the capital-intensive good.

B) An increase in a country's labor supply will increase production of both the capital-intensive and the labor-intensive good.

C) In the long-run, labor is mobile and capital is not.

D) Factor price equalization will occur only if there is costless mobility of all factors across borders. E) Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage.

1.If the ratio of price of cloth (PC) divided by the price of food (PF) increases in the international marketplace, then

A) the terms of trade of cloth exporters will improve. B) all countries would be better off.

C) the terms of trade of food exporters will improve. D) the terms of trade of all countries will improve. E) the terms of trade of cloth exporters will worsen.

2.If the ratio of price of cloth (PC) divided by the price of food (PF) increases in the international marketplace, then

A) world relative quantity of cloth supplied will increase. B) world relative quantity of cloth supplied and demanded will increase. C) world relative quantity of cloth supplied and demanded will decrease. D) world relative quantity of cloth demanded will decrease. E) world relative quantity of food will increase.

Ch6-Ch10

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3.If the U.S. (a large country) imposes a tariff on its imported good, this will tend to A) have no effect on terms of trade.

B) improve the terms of trade of the United States. C) improve the terms of trade of all countries. D) because a deterioration of U.S. terms of trade.

E) raise the world price of the good imported by the United States.

4.If Slovenia were a large country in world trade, then if it instituted a large set of subsidies for its exports, this must

A) decrease its marginal propensity to consume. B) have no effect on its terms of trade. C) improve its terms of trade. D) harm its terms of trade. E) harm world terms of trade.

5.Internal economies of scale arise when the cost per unit A) falls as the average firm grows larger. B) rises as the industry grows larger. C) falls as the industry grows larger.

D) rises as the average firm grows larger.

E) remains constant over a broad range of output.

6. External economies of scale will ________ average cost when output is ________ by ________.

A) reduce; increased; the industry B) reduce; increased; a firm C) increase; increased; a firm

D) increase; increased; the industry E) reduce; reduce; the industry

7. If some industries exhibit internal increasing returns to scale in each country, we should not expect to see

A) perfect competition in these industries. B) intra-industry trade between countries. C) inter-industry trade between countries.

D) high levels of specialization in both countries. E) increased productivity in both countries.

8. A learning curve relates ________ to ________ and is a case of ________ returns. A) unit cost; cumulative production; dynamic decreasing returns

B) output per time period; long-run marginal cost; dynamic increasing returns C) unit cost; cumulative production; dynamic increasing returns D) output per time period; long-run marginal cost; dynamic decreasing returns E) labor productivity; education; increasing marginal returns

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9.Patterns of interregional trade are primarily determined by ________ rather than ________ because factors of production are generally ________. A) external economies; natural resources; mobile B) internal economies; external economies; mobile C) external economies; population; immobile D) internal economies; population; immobile E) population; external economies; immobile

10. Monopolistic competition is associated with A) product differentiation. B) price-taking behavior.

C) explicit consideration at the firm level of the strategic impact of other firms' pricing decisions. D) high profit margins in the long run. E) increasing returns to scale.

11. A firm in long-run equilibrium under monopolistic competition will earn A) positive monopoly profits because each sells a differentiated product. B) zero economic profits because of free entry C) positive oligopoly profits because each firm sells a differentiated product. D) negative economic profits because it has economies of scale. E) positive economic profit if it engages in international trade.

12. The most common form of price discrimination in international trade is A) dumping. B) non-tariff barriers.

C) Voluntary Export Restraints. D) preferential trade arrangements. E) product boycotts.

13.Consider the following two cases. In the first, a U.S. firm purchases 18% of a foreign firm. In the second, a U.S. firm builds a new production facility in a foreign country. Both are ________, with the first referred to as ________ and the second as ________. A) foreign direct investment (FDI) outflows; brownfield; greenfield B) foreign direct investment (FDI) inflows; greenfield; brownfield C) foreign direct investment (FDI) outflows; greenfield; brownfield D) foreign direct investment (FDI) inflows; brownfield; greenfield E) foreign direct investment (FDI); inflows; outflows

14. Specific tariffs are

A) import taxes stated in specific legal statutes.

B) import taxes calculated as a fixed charge for each unit of imported goods. C) import taxes calculated as a fraction of the value of the imported goods. D) the same as import quotas.

E) import taxes calculated based solely on the origin country.

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15. A problem encountered when implementing an \ A) domestic consumers will purchase the foreign good regardless of the tariff. B) the industry may never \

C) most industries require tariff protection when they are mature. D) the tariff may hurt the industry's domestic sales. E) the tariffs fail to protect the domestic producers.

16. In the country levying the tariff, the tariff will A) increase both consumer and producer surplus. B) decrease both the consumer and producer surplus.

C) decrease consumer surplus and increase producer surplus. D) increase consumer surplus and decrease producer surplus.

E) decrease consumer surplus but leave producers surplus unchanged.

17. If the tariff on computers is not changed, but domestic computer producers shift from domestically produced semiconductors to imported components, then the effective rate of protection in the computer industry will A) increase. B) decrease

C) remain the same.

D) depend on whether computers are PCs or \ E) no longer apply.

18. When a government allows raw materials and other intermediate products to enter a country duty free, this generally results in a(an) A) effective tariff rate less than the nominal tariff rate. B) nominal tariff rate less than the effective tariff rate. C) rise in both nominal and effective tariff rates. D) fall in both nominal and effective tariff rates. E) rise in only the effective tariff rate.

19. Should the home country be \on imports would lead to an increase in domestic welfare if the terms of the trade rectangle exceed the sum of the

A) revenue effect plus redistribution effect. B) protective effect plus revenue effect.

C) consumption effect plus redistribution effect.

D) production distortion effect plus consumption distortion effect. E) terms of trade gain.

20. The efficiency case made for free trade is that as trade distortions such as tariffs are dismantled and removed,

A) government tariff revenue will decrease, and therefore national economic welfare will decrease. B) government tariff revenue will decrease, and therefore national economic welfare will increase.

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