Question 1

The 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 should invest in more widget production.
E) Rhozundia may or may not have a comparative advantage in copper.

Accepted Answer

The information provided only indicates that copper is relatively cheaper to produce in Rhozundia compared to widgets, but it does not provide information about Rhozundia's production costs or efficiency relative to other countries, which is necessary to determine comparative advantage. Comparative advantage involves comparing the opportunity costs of production between countries, not just the absolute cost in one country.

Question 2

Assume that labor is the only factor of production and that wages in the United States equal $20 per hour while wages in Japan are $10 per hour. Production costs would be lower in the United States as compared to Japan if
A) U.S. labor productivity equaled 40 units per hour and Japan's 15 units per hour.
B) U.S. labor productivity equaled 30 units per hour and Japan's 20 units per hour.
C) U.S. labor productivity equaled 20 units per hour and Japan's 30 units per hour.
D) U.S. labor productivity equaled 15 units per hour and Japan's 25 units per hour.
E) U.S. labor productivity equaled 15 units per hour and Japan's 40 units per hour.

Accepted Answer

In order for production costs to be lower in the United States compared to Japan, U.S. labor productivity must be higher than Japan's labor productivity. Choice A is the only option where U.S. productivity is significantly higher than Japan's (40 vs. 15 units per hour). This would make up for the higher wages in the U.S. and result in lower production costs.

Question 3

In 1975, wage levels in South Korea were roughly 5% of those in the United States. It is obvious that if the United States had allowed Korean goods to be freely imported into the United States at that time, this would have caused devastation to the standard of living in the United States, because no producer in this country could possibly compete with such low wages. Discuss this assertion in the context of the Ricardian model of comparative advantage.

Accepted Answer

The answer of In 1975, wage levels in South Korea...

Question 4

We 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.
E) China was unable to profit by exporting silk because it was unknown in the rest of the world.

Accepted Answer

The fact that China was the only country producing silk indicates that it had a comparative advantage in silk, meaning it could produce it at a lower opportunity cost than any other country. No other country could produce silk as efficiently, so China had a competitive edge in the international market for silk.

Question 5

The two-country, multi-product model differs from the two-country, two-product model in that, in the former
A) the relative wage ratio will determine the pattern of trade ( which good is exported by which country).
B) which country will export which product is determined entirely by labor productivity data.
C) full specialization is likely to hold in equilibrium.
D) none of the goods are potentially nontraded.
E) domestic relative prices are not relevant.

Accepted Answer

The answer of The two-country, multi-product model differs from the...

Question 6

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.
E) uncertain opportunity costs.

Accepted Answer

A straight line PPF means that resources are perfectly adaptable to the production of either good and can be shifted between them without any additional opportunity cost. This results in a constant opportunity cost of producing one good in terms of the other.

Question 7

The pauper labor and the exploitation arguments
A) are theoretical weaknesses that limit the applicability of the Ricardian concept of comparative advantage.
B) are theoretically irrelevant to the Ricardian model, and do not limit its logical relevance.
C) are not relevant because the Ricardian model is based on the labor theory of value.
D) are not relevant because the Ricardian model allows for different technologies in different countries.
E) invalidate the Ricardian model.

Accepted Answer

The answer of The pauper labor and the exploitation arguments
A)...

Question 8

An examination of the Ricardian model of comparative advantage yields the clear result that trade is (potentially) beneficial for each of the two trading partners since it allows for an expanded consumption choice for each. However, for the world as a whole the expansion of production of one product must involve a decrease in the availability of the other, so that it is not clear that trade is better for the world as a whole as compared to an initial situation of non-trade (but efficient production in each country). Are there in fact gains from trade for the world as a whole? Explain.

Accepted Answer

The answer of An examination of the Ricardian model of...

Question 9

-Given the information in the table above. What is the opportunity cost of cloth in terms of Widgets in Foreign?

Accepted Answer

The answer of 
-Given the information in the table above....

Question 10

How does the two-good, two-country version of the Ricardian model differ from the two-country, many-good model in terms of the determination which goods are produced and exported by each country?

Accepted Answer

The answer of How does the two-good, two-country version of...

Question 11

Mahatma Gandhi exhorted his followers in India to promote economic welfare by decreasing imports. This approach
A) makes no sense.
B) makes no economic sense.
C) is consistent with the the Ricardian model of comparative advantage.
D) is not consistent with the Ricardian model of comparative advantage.
E) guarantees benefits for Indian workers.

Accepted Answer

Gandhi's approach of decreasing imports is not consistent with the Ricardian model of comparative advantage, which advocates for free trade and specialization based on a country's comparative advantage in producing certain goods. By promoting self-sufficiency and decreasing imports, Gandhi's approach would lead to inefficiencies and higher costs, ultimately hurting the Indian economy.

Question 12

-Given the information in the table above, if the world equilibrium price of widgets were 40 cloths, then
A) both countries could benefit from trade with each other.
B) neither country could benefit from trade with each other.
C) each country will want to export the good in which it enjoys comparative advantage.
D) neither country will want to export the good in which it enjoys comparative advantage.
E) both countries will want to specialize in cloth.

Accepted Answer

If the world equilibrium price of widgets were 40 cloths, then Country X could sell widgets for a higher price (60 cloths) on the world market than it could in its own domestic market (50 cloths). Similarly, Country Y could sell its cloth for a higher price (80 widgets) on the world market than in its domestic market (70 widgets). Therefore, both countries could benefit from trade with each other by specializing in the good in which they have a comparative advantage and exchanging it for the other good.

Question 13

A nation engaging in trade according to the Ricardian model will find its consumption bundle
A) inside its production possibilities frontier.
B) on its production possibilities frontier.
C) outside its production possibilities frontier.
D) inside its trade-partner's production possibilities frontier.
E) on its trade-partner's production possibilities frontier.

Accepted Answer

According to the Ricardian model, a nation will specialize in producing the good in which it has a comparative advantage and trade with other countries to acquire other goods that it cannot produce as efficiently. This allows the nation to consume a combination of goods that is beyond its production possibilities frontier, therefore the consumption bundle will be outside its production possibilities frontier.

Question 14

-Given the information in the table above, if the world equilibrium price of widgets were 4 cloth, then
A) both countries could benefit from trade with each other.
B) neither country could benefit from trade with each other.
C) each country will want to export the good in which it enjoys comparative advantage.
D) neither country will want to export the good in which it enjoys comparative advantage.
E) both countries will want to specialize in cloth.

Accepted Answer

If the world equilibrium price of widgets were 4 cloth, both countries could benefit from trade with each other. Country A would have a comparative advantage in producing widgets, and country B would have a comparative advantage in producing cloth. By specializing in the production of the good in which they have a comparative advantage, each country can produce more of both goods and then trade with each other. This will allow both countries to consume beyond their production possibilities frontier and benefit from the gains from trade.

Question 15

Many countries in sub-Saharan Africa have very low labor productivities in many sectors, for example in manufacturing and agriculture. They often despair of even trying to attempt to build their industries unless it is done in an autarkic context, behind protectionist walls because they do not believe they can compete with more productive industries abroad. Discuss this issue in the context of the Ricardian model of comparative advantage.

Accepted Answer

The answer of Many countries in sub-Saharan Africa have very...

Question 16

In a two-product, two-country world, international trade can lead to increases in
A) consumer welfare only if output of both products is increased.
B) output of both products and consumer welfare in both countries.
C) total production of both products but not consumer welfare in both countries.
D) consumer welfare in both countries but not total production of both products.
E) prices of both goods in both countries.

Accepted Answer

International trade can benefit both countries by increasing the output of both products and improving consumer welfare in both countries. By specializing in the production of the goods they have a comparative advantage in, both countries can produce more efficiently, leading to increased output and lower prices. This benefits consumers in both countries as they can purchase goods at a lower cost or have access to a greater variety of goods. Therefore, option B is the best choice.

Question 17

According to Ricardo, a country will have a comparative advantage in the product in which its
A) labor productivity is relatively low.
B) labor productivity is relatively high.
C) labor mobility is relatively low.
D) labor mobility is relatively high.
E) labor is outsourced to neighboring countries.

Accepted Answer

Ricardo's theory of comparative advantage is based on the idea that a country should specialize in the production of goods in which it has a lower opportunity cost. This means that a country will have a comparative advantage in the product in which its labor productivity is relatively high, allowing them to produce more of the product with the same amount of resources as another country. Therefore, choice B is the correct answer.

Question 18

Which of the following statements is TRUE?
A) Free trade is beneficial only if your country is strong enough to stand up to foreign competition.
B) Free trade is beneficial only if your competitor does not pay unreasonably low wages.
C) Free trade is beneficial only if both countries have access to the same technology.
D) Free trade is never beneficial for developing countries.
E) Free trade can be beneficial to the economic welfare of all countries involved.

Accepted Answer

Free trade can be beneficial to the economic welfare of all countries involved, as it allows for specialization and efficient allocation of resources. However, it is important to note that there may be certain conditions or factors that could impact the extent to which free trade is beneficial in a particular situation.

Question 19

If labor productivities were exactly proportional to wage levels internationally, this would
A) not negate the logical basis for trade in the Ricardian model.
B) render the Ricardian model theoretically correct but practically useless.
C) negate the logical basis for trade in the Ricardian model.
D) negate the applicability of the Ricardian model if the number of products were greater than the number of trading partners.
E) demonstrate the validity of the Ricardian model.

Accepted Answer

The answer of If labor productivities were exactly proportional to...

Question 20

-Given the information in the table above. What is the opportunity cost of Cloth in terms of Widgets in Foreign?

Accepted Answer

The answer of 
-Given the information in the table above....

Quiz 3: Labor Productivity and Comparative Advantage: the Ricardian Model

The 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

Assume that labor is the only factor of production and that wages in the United States equal $20 per hour while wages in Japan are $10 per hour. Production costs would be lower in the United States as compared to Japan if

We 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

The two-country, multi-product model differs from the two-country, two-product model in that, in the former

If a production possibilities frontier is a straight line, then production occurs under conditions of

The pauper labor and the exploitation arguments

-Given the information in the table above. What is the opportunity cost of cloth in terms of Widgets in Foreign?

How does the two-good, two-country version of the Ricardian model differ from the two-country, many-good model in terms of the determination which goods are produced and exported by each country?

Mahatma Gandhi exhorted his followers in India to promote economic welfare by decreasing imports. This approach

-Given the information in the table above, if the world equilibrium price of widgets were 40 cloths, then

A nation engaging in trade according to the Ricardian model will find its consumption bundle

-Given the information in the table above, if the world equilibrium price of widgets were 4 cloth, then

In a two-product, two-country world, international trade can lead to increases in

According to Ricardo, a country will have a comparative advantage in the product in which its

Which of the following statements is TRUE?

If labor productivities were exactly proportional to wage levels internationally, this would

-Given the information in the table above. What is the opportunity cost of Cloth in terms of Widgets in Foreign?