Question 1

Intraindustry trade is most common in the trade patterns of
A) developing countries of Asia and Africa.
B) developed countries of Western Europe.
C) all countries.
D) None of the above.

Accepted Answer

Intraindustry trade, which involves the exchange of similar products belonging to the same industry, is most common among developed countries, particularly those in Western Europe. This is because these countries have similar levels of technology and consumer preferences, enabling them to specialize in different products within the same industry and trade these goods with each other.

Question 2

If output more than doubles when all inputs are doubled, production is said to occur under conditions of
A) increasing returns to scale.
B) imperfect competition.
C) intraindustry trade.
D) interindustry trade.

Accepted Answer

Increasing returns to scale means that when all inputs are increased by a certain proportion, output increases by a proportion greater than that. In this case, if output more than doubles when all inputs are doubled, it indicates increasing returns to scale.

Question 3

The finding that U.S. exports tend to come from labor-intensive industries, while U.S. imports are produced using relatively capital intensive techniques is known as
A) the Leontief paradox.
B) the balance of trade enigma.
C) the Heckscher-Ohlin paradox.
D) the Krugman finding.

Accepted Answer

The finding that U.S. exports tend to come from labor-intensive industries, while U.S. imports are produced using relatively capital intensive techniques is known as the Leontief paradox.

Question 4

One of the leading alternative theories to the HO model of international trade is the Human Skills theory, which was developed by
A) Donald Keesing.
B) Adam Smith.
C) David Ricardo.
D) G. D. A. MacDougall.

Accepted Answer

The Human Skills theory was developed by Donald Keesing, making option A the correct answer. Adam Smith and David Ricardo are known for their contributions to classical trade theories, while G.D.A. MacDougall is known for his work on balance of payments.

Question 5

The product life cycle model says that comparative advantage in manufactured goods may move from one country to another as a product becomes more standardized.

Accepted Answer

The product life cycle model suggests that as a product becomes more standardized, comparative advantage may shift from one country to another as production becomes more efficient and cost-effective in the new location. This is because the initial innovator country may face rising production costs or competition from emerging economies with lower labor costs and production costs, leading to a shift in production to other countries with a comparative advantage.

Question 6

The Leontief paradox can be summarized as the finding that U.S. exports tend to come from capital-intensive industries, while U.S. imports are produced using relatively labor-intensive techniques.

Accepted Answer

The Leontief Paradox actually found the opposite: U.S. exports were less capital-intensive than expected, and U.S. imports were more capital-intensive, contradicting the Heckscher-Ohlin theory which predicted that a country would export goods that intensively use its abundant factor of production.

Question 7

MacDougall's test provides evidence that exports are positively related to labor productivity.

Accepted Answer

MacDougall's test is a regression analysis that shows a positive relationship between exports and labor productivity. This means that as the level of exports increases, labor productivity also tends to increase.

Question 8

If some industries exhibit increasing returns to scale in each country, we should not expect to see
A) intraindustry trade between countries.
B) perfect competition in these industries.
C) interindustry trade between countries.
D) Either B or C.

Accepted Answer

The answer of If some industries exhibit increasing returns to...

Question 9

If the Heckscher-Ohlin model is correct, there would never be intraindustry trade.

Accepted Answer

According to the Heckscher-Ohlin model, there can be intraindustry trade if countries have different factor proportions and specialize in producing different varieties of products within the same industry. Therefore, the statement that there would never be intraindustry trade if the Heckscher-Ohlin model is correct is false.

Question 10

Intraindustry trade can be explained in part by
A) transportation costs within and between countries.
B) problems of data aggregation and categorization.
C) increasing returns to scale.
D) All of the above.

Accepted Answer

Transportation costs within and between countries can make it more efficient for firms to trade with others in the same industry rather than with firms producing different goods. Problems with data aggregation and categorization can also make it easier for firms to trade within their own industry rather than across different industries. Additionally, increasing returns to scale can lead to larger and more efficient production, which can make it easier for firms within the same industry to trade with one another.

Question 11

Linder argues that trade is based on international similarities in preferences rather than international differences in costs of production.

Accepted Answer

Linder's theory of international trade argues that trade is based on similarities in consumer preferences rather than differences in production costs. According to the theory, countries with similar income levels and consumer preferences are likely to participate in trade with each other, and trade in goods tends to be dominated by those that appeal to consumers' tastes and preferences.

Question 12

One of the reasons why we have several competing theories of international trade flows is difficulty economists encounter in devising and carrying out precise tests of trade theories.

Accepted Answer

This statement is true. The complexity of international trade, the presence of many variables and the lack of appropriate data, makes it difficult for economists to devise and carry out precise tests of trade theories, thereby leading to several competing theories.

Question 13

An input-output table details the sales of each industry to all other industries in an economy.

Accepted Answer

An input-output table shows the inter-industry transactions in an economy, detailing the sales of each industry to all other industries.

Question 14

A possible reconciliation of the Leontief Paradox is that the United States has high tariffs on capital intensive goods and low tariffs on labor intensive goods.

Accepted Answer

The statement is not entirely accurate. The original Leontief Paradox was based on the observation that the US, a capital-abundant country, was importing more capital-intensive goods than it was exporting, while exporting more labor-intensive goods. The proposed solution of high tariffs on capital-intensive goods and low tariffs on labor-intensive goods does not fully explain the paradox and is not necessarily true.

Question 15

Leontief explained his findings by arguing that U.S. labor is more efficient than their foreign counterparts.

Accepted Answer

The answer of Leontief explained his findings by arguing that...

Question 16

Which of the following is not one of the theories that have emerged as alternatives to the HO model?
A) The human skills theory.
B) The product life cycle theory.
C) The similarity of preferences theory.
D) All of the above have been suggested as alternatives to the HO model.

Accepted Answer

The answer of Which of the following is not one...

Question 17

If one allows natural resources to be a factor of production, then it is possible to explain the Leontief Paradox for the United States on the grounds that U.S. imports are natural resource intensive.

Accepted Answer

The Leontief Paradox refers to the fact that the United States, despite having a higher capital to labor ratio than its trading partners, was not more capital-intensive in its exports. By allowing natural resources to be a factor of production, the paradox can be explained by the fact that U.S. imports are often natural resource intensive, and therefore the country's comparative advantage lies in producing goods that require less natural resources and more capital and labor.

Question 18

Leontief showed that U.S. exports were capital intensive relative to U.S. imports.

Accepted Answer

Leontief's Paradox found that U.S. exports were less capital intensive and more labor intensive than U.S. imports, contrary to what the Heckscher-Ohlin theory would predict given the U.S.'s capital-abundant status.

Question 19

Recent tests suggest that the Leontief Paradox has been completely resolved.

Accepted Answer

There is ongoing debate and research on the Leontief Paradox, and no definitive resolution has been reached.

Question 20

The simultaneous export and import of airplanes by the United States is an example of
A) increasing returns to scale.
B) imperfect competition.
C) intraindustry trade.
D) interindustry trade.

Accepted Answer

The simultaneous export and import of airplanes by the United States falls under intraindustry trade, which refers to the trade of goods and services within the same industry between countries. In this case, the United States is both exporting and importing airplanes, which are part of the same industry. This can be due to factors such as differences in production costs, differing demand patterns in different markets, or the need for specialized components that are not available domestically.

Quiz 5: Tests of Trade Models: the Leontief Paradox and Its After-math

Intraindustry trade is most common in the trade patterns of

If output more than doubles when all inputs are doubled, production is said to occur under conditions of

The finding that U.S. exports tend to come from labor-intensive industries, while U.S. imports are produced using relatively capital intensive techniques is known as

One of the leading alternative theories to the HO model of international trade is the Human Skills theory, which was developed by