Question 1

The simultaneous import and export of computers by Germany is an example of:
A) Intra-industry trade
B) Inter-industry trade
C) Perfect competition
D) Imperfect competition

Accepted Answer

Intra-industry trade refers to the simultaneous import and export of goods within the same industry. The fact that Germany both imports and exports computers suggests that this is an example of intra-industry trade. Imperfect competition or perfect competition do not apply in this context, and there is insufficient information to determine inter-industry trade.

Question 2

For the United States,empirical studies indicate that over the past two decades the cost of international transportation relative to the value of U.S.imports has:
A) Increased
B) Decreased
C) Not changed
D) None of the above

Accepted Answer

Empirical studies indicate that over the past two decades, the cost of international transportation relative to the value of U.S. imports has decreased.

Question 3

The trade model of the Swedish economists Heckscher and Ohlin maintains that:
A) Absolute advantage determines the distribution of the gains from trade
B) Comparative advantage determines the distribution of the gains from trade
C) The division of labor is limited by the size of the world market
D) A country exports goods for which its resource endowments are most suited

Accepted Answer

The Heckscher-Ohlin theory states that a country exports the goods for which it has abundant resources, and imports goods for which it has scarce resources. This is based on the idea that countries differ in their resource endowments, such as labor, land, and capital. Therefore, the best choice is D.

Question 4

Boeing aircraft company was able to cover its production costs of the first "jumbo jet" in the 1970s because Boeing could market it to several foreign airlines in addition to domestic airlines.This illustrates:
A) How economies of scale make possible a larger variety of products in international trade
B) A transfer of wealth from domestic consumers to domestic producers as the result of trade
C) How a natural monopoly is forced to behave more competitively with international trade
D) How a natural monopoly is forced to behave less competitively with international trade

Accepted Answer

By being able to market the jumbo jet to both domestic and foreign airlines, Boeing was able to achieve economies of scale and spread its production costs over a larger number of units. This allowed them to offer a larger variety of products in international trade.

Question 5

That the division of labor is limited by the size of the market best applies to which explanation of trade?
A) Factor endowment theory
B) Product life cycle theory
C) Economies of scale theory
D) Overlapping demand theory

Accepted Answer

Economies of scale theory

Question 6

According to the factor endowment model,countries heavily endowed with land will:
A) Devote excessive amounts of resources to agricultural production
B) Devote insufficient amounts of resources to agricultural production
C) Export products that are land-intensive
D) Import products that are land-intensive

Accepted Answer

The factor endowment model suggests that countries with abundant land resources will tend to specialize in and export products that are land-intensive. This is because they have a comparative advantage in producing such goods and can do so at a lower opportunity cost compared to other goods. Therefore, the correct answer is C, as they will export products that are land-intensive.

Question 7

Legislation requiring domestic manufacturers to install pollution abatement equipment tends to promote:
A) Higher production costs and an increase in output
B) Higher production costs and a decrease in output
C) Lower production costs and an increase in output
D) Lower production costs and a decrease in output

Accepted Answer

Legislation requiring domestic manufacturers to install pollution abatement equipment will increase the cost of production as the equipment and its maintenance will add to the production costs. This, in turn, may result in a decrease in output as the manufacturers may pass on the cost to the consumers or reduce their production levels to maintain their profits. Therefore, option B is the most likely outcome.

Question 8

A larger variety of products results from international trade especially if:
A) International trade affords producers monopoly power
B) National governments levy import tariffs and quotas
C) Producing goods entails increasing costs
D) Economies of scale exist for producers

Accepted Answer

Economies of scale allow producers to increase output and lower their costs per unit. When they can produce more efficiently, they can expand their product lines and offer a greater variety of goods in the international market. This ultimately benefits consumers who have more options to choose from.

Question 9

Among the determinants underlying a country's international competitiveness in business services (e.g.,construction)are:
A) The potential scale economies afforded by a market's size
B) Abundance of equipment including data processing facilities and computers
C) Skills and capabilities of employees and their wage rates
D) All of the above

Accepted Answer

All of the above factors are important determinants of a country's international competitiveness in business services such as construction. Potential scale economies can be achieved through a larger market size. Equipment availability, including data processing facilities and computers, is crucial in providing efficient and timely services. The skills and capabilities of employees, as well as their wage rates, also contribute significantly to a country's competitiveness in the industry.

Question 10

Proponents of ____ maintain that government should enact policies that encourage the development of emerging,"sunrise" industries.
A) Product life cycle policy
B) Static comparative advantage policy
C) Intra-industry trade policy
D) Industrial policy

Accepted Answer

The best choice is Industrial policy as it refers to the government's efforts to promote the growth and development of specific industries through a variety of measures such as subsidies, tax incentives, investment in research and development, and protectionist measures. Industrial policy is often advocated by those who believe that certain industries, such as those in emerging or "sunrise" sectors, are critical to a country's economic growth and prosperity.

Question 11

Stringent governmental regulations (e.g.,air quality standards)imposed on domestic steel manufacturers tend to:
A) Enhance their competitiveness in the international market
B) Detract from their competitiveness in the international market
C) Increase the profitability and productivity of domestic manufacturers
D) Reduce the market share of foreign firms selling steel in the domestic market

Accepted Answer

Stringent regulations increase costs for domestic steel manufacturers, making them less competitive in the international market. This is because their products will be more expensive than those produced in countries without such regulations. Therefore, domestic manufacturers may lose market share to foreign firms that can produce and sell steel at a lower cost.

Question 12

Intra-industry trade can be explained in part by:
A) Adam Smith's principle of absolute advantage
B) Perfect competition in product markets
C) Diseconomies of large scale production
D) Transportation costs between and within nations

Accepted Answer

Intra-industry trade refers to the exchange of similar products within the same industry between countries. Transportation costs play a significant role in facilitating or hindering intra-industry trade, as they affect the ability of firms to import and export goods. Therefore, option D, which highlights transportation costs between and within nations, is the best choice. Options A, B, and C are not entirely relevant to explaining intra-industry trade.

Question 13

The theory of overlapping demands predicts that trade in manufactured goods is unimportant for countries with very different:
A) Tastes and preferences
B) Expectations of future interest rate levels
C) Per-capita income levels
D) Labor productivities

Accepted Answer

The answer of The theory of overlapping demands predicts that...

Question 14

Which trade theory contends that a country that initially develops and exports a new product may eventually become an importer of it and may no longer manufacture the product?
A) Theory of factor endowments
B) Theory of overlapping demands
C) Economies of scale theory
D) Product life cycle theory

Accepted Answer

The product life cycle theory contends that a country that initially develops and exports a new product may eventually become an importer of it and may no longer manufacture the product as the product goes through its life cycle of introduction, growth, maturity, and decline. As the product becomes mature and demand slows down, production moves to countries with lower production costs, making the original producer an importer of the product.

Question 15

Which trade theory suggests that comparative advantage tends to shift from one nation to another as a product matures?
A) Interindustry trade theory
B) Intraindustry trade theory
C) Product life cycle theory
D) Overlapping demand theory

Accepted Answer

Product life cycle theory suggests that comparative advantage tends to shift from one nation to another as a product matures. This theory explains that a product initially developed and produced in a developed country will eventually shift to developing countries as it becomes standardized and production becomes more efficient. The developed country will then specialize in developing and producing new products, while the developing country will specialize in producing the matured product.

Question 16

The Leontief paradox provided:
A) Support for the principle of absolute advantage
B) Support for the factor endowment model
C) Evidence against the factor endowment model
D) Evidence against the principle of absolute advantage

Accepted Answer

The Leontief paradox provided evidence against the factor endowment model, which suggested that countries would export goods that they had abundant factors of production for and import goods that they had scarce factors of production for. However, the data showed that the US, which was abundant in capital, was exporting labor-intensive goods and importing capital-intensive goods. This contradicted the factor endowment model and became known as the Leontief paradox.

Question 17

Linder's theory of overlapping demand provides an explanation of:
A) Product life cycle theory
B) Factor endowment model
C) Economies of large-scale production
D) Intra-industry trade

Accepted Answer

Linder's theory of overlapping demand explains the phenomenon of intra-industry trade, where countries with similar levels of per capita income trade similar types of goods and services with each other. The theory suggests that demand for certain products is influenced by consumer preferences which are shaped by income and cultural factors. As a result, countries with similar levels of development and cultural preferences tend to trade with each other, leading to intra-industry trade.

Question 18

The Heckscher-Ohlin theory explains comparative advantage as the result of differences in countries':
A) Economies of large-scale production
B) Relative abundance of various resources
C) Relative costs of labor
D) Research and development

Accepted Answer

The Heckscher-Ohlin theory explains comparative advantage as the result of differences in countries' relative abundance of various resources, specifically factors of production like land, labor, and capital.

Question 19

With economies of scale and decreasing unit costs,a country has the incentive to:
A) Specialize completely in the product of its comparative advantage
B) Specialize partially in the product of its comparative advantage
C) Specialize completely in the product of its comparative disadvantage
D) Specialize partially in the product of its comparative disadvantage

Accepted Answer

With economies of scale and decreasing unit costs, a country can produce its specializations more efficiently and at lower costs. Therefore, it would be logical for the country to completely specialize in the product of its comparative advantage to maximize its output and minimize its costs.

Question 20

Should international transportation costs decrease,the effect on international trade would include:
A) An increase in the volume of trade
B) A smaller gain from trade
C) A decline in the income of home producers
D) A decrease in the level of specialization in production.

Accepted Answer

Lower transportation costs would make international trade more cost-effective, leading to an increase in the volume of trade as a result. With lower costs, countries will have more opportunity to engage in import and export, thereby increasing the amount of trade.

Quiz 3: Sources of Comparative Advantage

The simultaneous import and export of computers by Germany is an example of:

For the United States,empirical studies indicate that over the past two decades the cost of international transportation relative to the value of U.S.imports has:

The trade model of the Swedish economists Heckscher and Ohlin maintains that:

Boeing aircraft company was able to cover its production costs of the first "jumbo jet" in the 1970s because Boeing could market it to several foreign airlines in addition to domestic airlines.This illustrates:

That the division of labor is limited by the size of the market best applies to which explanation of trade?

According to the factor endowment model,countries heavily endowed with land will:

Legislation requiring domestic manufacturers to install pollution abatement equipment tends to promote:

A larger variety of products results from international trade especially if:

Among the determinants underlying a country's international competitiveness in business services (e.g.,construction) are:

Proponents of ____ maintain that government should enact policies that encourage the development of emerging,"sunrise" industries.

Stringent governmental regulations (e.g.,air quality standards) imposed on domestic steel manufacturers tend to:

Intra-industry trade can be explained in part by:

The theory of overlapping demands predicts that trade in manufactured goods is unimportant for countries with very different:

Which trade theory contends that a country that initially develops and exports a new product may eventually become an importer of it and may no longer manufacture the product?

Which trade theory suggests that comparative advantage tends to shift from one nation to another as a product matures?

The Leontief paradox provided:

Linder's theory of overlapping demand provides an explanation of:

The Heckscher-Ohlin theory explains comparative advantage as the result of differences in countries':

With economies of scale and decreasing unit costs,a country has the incentive to:

Should international transportation costs decrease,the effect on international trade would include: