Multiple Choice Questions 1
1. Given the following information:
Unit labour requirements
Chees Win
e e
Home 10 20
Foreig 60 30
n
Which of the following statements is correct?
A. Neither country has a comparative advantage.
B. Home has a comparative advantage in cheese.
C. Foreign has a comparative advantage in cheese.
D. Home has a comparative advantage in both products.
2. Given the following information:
Number of Units Produced by one Unit of Labor
Chees Win
e e
Home 10 20
Foreig
60 30
n
Which of the following statements is correct?
A. Neither country has a comparative advantage.
B. Home has a comparative advantage in cheese.
C. Foreign has a comparative advantage in cheese.
D. Home has a comparative advantage in both products.
3. Start with the information in the following table:
Unit labour requirements
Chees Win
e e
Home 10 20
Foreig
60 30
n
Assume now that wages in the Home country double. Which of the following
statements is correct?
A. Home will export cheese
B. Home will import both goods
C. Home will no longer trade
D. Home will export wine and import cheese
4. Start with the information in the following table:
Unit labour requirements
Chees Win
e e
Home 10 20
Foreig
60 30
n
If the world equilibrium price of wine were 2 cheese, then
A. both countries could benefit from trade with each other.
B. Foreign will produce cheese and wine
C. Home will specialize in wine.
D. both countries will want to specialize in cheese.
5. The growth of clothing exports originating in Bangladesh can be the result
of:
A. Low productivity of workers in other countries
B. High wages in other countries
C. Low wages in Bangladesh
D. Low productivity of workers in Bangladesh in industries other than
those that are producing clothing for export
6. In a two-country, two-product world, the statement "Germany enjoys a
comparative advantage over France in autos relative to ships" is
equivalent to
A. France having a comparative advantage over Germany in ships.
B. France having a comparative disadvantage compared to Germany in
autos and ships.
C. Germany having a comparative advantage over France in autos and
ships.
D. France should produce autos.
7. 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.
8. The number of gallons of wine the economy would have to give up in order
to produce an extra pound of cheese is called
A. the opportunity cost of a pound of cheese in terms of wine.
B. the opportunity cost of a gallon of wine in terms of cheese.
C. the opportunity cost of a pound of cheese and a gallon of wine.
D. the opportunity cost of either a pound of cheese or a gallon of wine.
9. Assume PCP_C and PWP_W are the prices of cheese and wine, and
aLCa_{LC} and aLWa_{LW} are the unit labor requirements in cheese and
wine production, respectively. The economy will specialize in the
production of cheese and will not produce wine if
A. PCPW>aLCaLW\frac{P_C}{P_W} > \frac{a_{LC}}{a_{LW}}
B. PCPW<aLCaLW\frac{P_C}{P_W} < \frac{a_{LC}}{a_{LW}}
C. PCPW=aLCaLW\frac{P_C}{P_W} = \frac{a_{LC}}{a_{LW}}
D. PCaLC=PWaLW\frac{P_C}{a_{LC}} = \frac{P_W}{a_{LW}}
[Link] Country of Rhozundia is blessed with rich copper deposits. The cost of
copper produced (relative to the cost of widgets produced) is therefore
very low. From this information we know that
A. Rhozundia has a comparative advantage in copper.
B. Rhozundia should import copper and export widgets.
C. Rhozundia should export both widgets and copper.
D. Rhozundia may or may not have a comparative advantage in copper.
[Link] know that in antiquity, China exported silk because no one in any other
country knew how to produce this product. From this information we know
that
A. China had a comparative advantage in silk.
B. China had an absolute advantage, but not a comparative advantage in
silk.
C. No comparative advantage could exist because the technology was not
diffused.
D. China exported silk for political reasons even though it had no
comparative advantage.
[Link] of the following is most likely to be a nontraded good in a Ricardian
two-country, multi-good model?
A. Steel
B. Textiles
C. Haircuts
D. Petroleum
Here are the multiple choice questions from In-depth and exercise session 3
(Ch7–Ch9) — without the answers:
Multiple Choice Questions
1. We have external economies if the unit cost:
A. increases as the industry increases
B. decreases as the industry increases
C. decreases as the average firm increases
D. increases as the average firm increases
2. If a small country imposes a tariff, then
A. the producers must suffer a loss.
B. the consumers must suffer a loss.
C. the government revenue must suffer a loss.
D. the demand curve must shift to the left.
3. Given the following figure
Which of the following statements is FALSE?
A. The efficiency loss for consumers and producers combined is 20.
B. The loss in consumer surplus due to the tariff is smaller than the gain in
producer surplus due to the tariff.
C. The tariff has a positive welfare impact in this country.
D. The tariff is imposed by a large country.
4. The existence of internal economies of scale
A. may be associated with a perfectly competitive industry.
B. cannot be associated with a perfectly competitive industry.
C. cannot form the basis for international trade.
D. focuses more on the industry than individual firms.
5. Which of the following statements is FALSE?
A. A localized industrial cluster improves efficiency because it limits the
market size by only attracting local firms and local suppliers.
B. A localized industrial cluster improves efficiency because it can bring
together many firms that collectively provide a large enough market to
support a wide range of specialized suppliers.
C. A localized industrial cluster improves efficiency because it creates
more competition, availability, and affordability of key inputs from a
network of specialized suppliers.
D. A localized industrial cluster improves efficiency because it frees
individual producers from the expense of developing capital equipment
internally and by spreading the costs of development by using specialized
suppliers.
6. Why does a pattern of specialization established by historical accident
persist even when new producers could potentially have lower costs?
A. New producers are faced with higher initial production cost than the
established producers.
B. New producers incur lower production cost than the established
producers.
C. New producers own better technology than the established producers.
D. New producers are more competitive than the established producers.
7. Which of the following statements is TRUE?
A. It is possible that trade based on external economies may make a
country worse off than it would have been in the absence of trade.
B. It is impossible that trade based on external economies will make a
country worse off than it would have been in the absence of trade.
C. It is impossible that trade based on external economies will make a
country better off than it would have been in the absence of trade.
D. It is guaranteed that trade based on external economies will make a
country better off than it would have been in the absence of trade.
8. In the presence of external economies of scale, trade
A. will unambiguously improve welfare in both countries.
B. will unambiguously worsen welfare in the exporting country and
improve welfare in the importing country.
C. may or may not improve welfare in both countries.
D. will unambiguously improve welfare in the exporting country and
worsen welfare in the importing country.
9. If there are a large number of firms in a monopolistically competitive
industry
A. there will be a small number of firms that are very large and the rest
will be very small.
B. the firms will converge production on a standardized product.
C. there will be barriers to entry that prevent additional firms from
entering the industry.
D. long-run profit will be equal to zero.
[Link] differentiation and internal economies of scale lead to
A. trade between similar countries with no comparative advantage
differences between them.
B. no trade between similar countries with no comparative advantage
differences between them.
C. a smaller variety of goods available to consumers.
D. higher price that consumers have to pay.
[Link] is a TRUE statement concerning the imposition in Europe of a tariff
on cheese?
A. It lowers the price of cheese domestically.
B. It raises revenue for the government.
C. It will always result in retaliation from abroad.
D. It leads to higher European demand for cheese.
[Link] equilibrium world price is NOT where
A. Home import demand equals Foreign export supply.
B. World supply equals world demand.
C. Home demand - Home supply = Foreign supply - Foreign demand.
D. Home demand + Home supply = Foreign supply + Foreign demand.
[Link] tariff levied in a "large country" (Home), lowers the world price of the
imported good in the foreign country. This lower price initially causes
A. foreign consumers to demand less of the good on which was levied a
tariff.
B. domestic demand for imports to decrease.
C. domestic demand for imports to increase.
D. foreign suppliers to produce less of the good on which was levied a
tariff.
[Link] EU policy of tariff reduction (where the EU is considered as a small
country) in the computer industry is
A. in the interest of the EU as a whole and in the interest of computer
producing countries in the EU.
B. in the interest of the EU as a whole but not in the interest of computer
producing countries in the EU.
C. not in the interest of the EU as a whole but in the interests of computer
producing countries in the EU.
D. not in the interest of the EU as a whole but in the interests of foreign
computer producers.
[Link] U.S. sugar quota import restrictions
A. raised the U.S. domestic price above the world price.
B. lowered the U.S. domestic price below the world price.
C. lowered U.S. sugar production and increased U.S. sugar consumption.
D. benefited U.S. consumers.
[Link] the figure below. Which of the following answers is wrong?
A. The total efficiency loss from imposition of the tariff is 75 €
B. The total government revenue from imposition of the tariff is 100 €
C. In the absence of a tariff and in the presence of trade, the consumer
surplus is 550 €
D. Given a tariff in the presence of trade, the consumer surplus is 320 €