Berkeley College
International Economics Quiz 1
Student name: Class
& Session
(Type all your answers in the parenthesis)
Multiple Choice Questions (75 points)
1. The person credited with the first
systematic expression of the principle of comparative advantage was ( )
A. Alan Greenspan.
B. John
Maynard Keynes.
C. David
Ricardo.
D. Adam
Smith.
2. A
regulation that sets the highest price at which it is legal to trade a good is
a ( )
A. Production
quota
B. Price
floor
C. Price
ceiling
D. Tax
ceiling
3. In
Country J, it takes one hour to knit a pair of socks, and five hours to brew a
gallon of cider. In Country K, it takes
three hours to knit a pair of socks, and six hours to brew a gallon of cider. If trade were to open between the two countries,
Ricardo would predict that ( )
A. Country
J will export cider and Country K will export socks.
B. Country
J will export socks and Country K will export cider.
C. Country
J will export both socks and cider.
D. Country
K will export both socks and cider.
4. If
Nation A can produce either 3x or 3y with one hour of labor, while nation B can
produce either 1x or 1y with one hour of labor, and if labor is the only input,
then ( )
A. Nation
A has an absolute advantage in both goods.
B. Nation
B has an absolute advantage in both goods.
C. Nation
A has a comparative disadvantage in both goods.
D. Nation
A has a comparative advantage in both goods.
5. Mutually beneficial trade
A. Allows
both countries to consume a larger bundle of goods than before trade occurred.( )
B. Allows
only the more productive country to consume a larger bundle of goods than
before trade occurred.
C. Allows
only the less productive country to consume a larger bundle of goods than
before trade occurred.
D. Causes
changes only in production, not consumption.
6. In
the absence of trade, the consumption points available to a nation ( )
A. Are
above the production possibility curve.
B. Are
on or inside the production possibility curve.
C. Lie
on the production possibility curve.
D. Cannot
be identified.
7. For Heckscher-Ohlin, the most important
cause of the differences in relative commodity prices is the difference between
countries in ( )
A. Factor
endowments.
B. National
income.
C. Technology.
D. Tastes.
8. Country J has 1 million
machines and 1 million workers, while country K has 2 million machines and 3
million workers. If computers are produced mostly by capital and beer is
produced mostly by labor, the H-O model predicts that ( )
A. Country
K will export computers in exchange for beer.
B. Country
J will export computers in exchange for beer.
C. Country
J is too small to be of economic interest to Country K.
D. Computers
and beer don’t mix, so trade cannot increase either country’s well-being.
9. Mexico
is an unskilled‑ labor abundant country, while the United States is a skilled‑
labor abundant country. With the opening of trade, you would expect that, in
the long run, wages for unskilled workers (
)
A. Decline
in both countries.
B. Decline
in the United States and rise in Mexico.
C. Rise
in the United States and decline in Mexico.
D.
Rise in both countries
10. According
to trade theory, if a nation has a comparative advantage in a
capital-intensively produced good, and the rate of growth of capital is greater
than the rate of growth of other inputs (e.g., labor), the pattern of growth
which results will be ( )
A. Import‑replacing.
B. Neutral
as between capital‑intensive and other products.
C. Export‑expanding.
D. None
of the above.
11. Arguments
in favor of having developing countries focus on exporting manufactured goods
include ( )
A. Strong
support in industrialized countries for free trade in manufactured goods.
B. Very low tariffs on manufactured textiles,
apparel, and footwear in industrialized countries.
C. Political preference for VERs among importing
countries.
D. A downward trend in the prices of primary
products.
12. Which
group definitely loses from international migration of labor? ( )
A. The migrants.
B. The migrants’ new employers in the receiving
country.
C. The migrants’ old employers in the sending
country.
D. The migrants’ fellow workers who did not
emigrate.
13.
As technology advances, ( )
A. All
opportunity cost decreases
B. The
PPF shift outward
C. A country moves toward the midpoint along its
PPF
D. The
PPF shift inward because unemployment occurs
14.
If a country is operating at a point of
production efficiency ( )
A. It
enjoys growth when increasing production
B. It
produces on its production possibility frontier curve
C. It
must specialize in the production of a good
D. It
operates on its trade line
15. A
cartel is ( )
A. Another name for a firm in an oligopoly
B. A collusive agreement among a number of firms
C. A government body that regulates an industry
D. An antitrust law
(Type
and show your work)
Practicum
Question (25 points)
Two
countries, Haiti and the Dominican Republic, produce fruits and timber. Each
island has a labor force of 1200 and the monthly productivity of each worker is
as follow
Basket
of fruit Board feet of
timber
Haiti 10 5
Dominican
Republic 30 10
- Which
county has an absolute advantage in the production of fruit? Timber?
- Which
country has a comparative advantage in the production of fruit? Timber?
- Sketch the
production possibility frontier (PPF) of both countries
- Both
countries want to produce an equal amount of baskets of fruit and feet of
timber. How should they allocate their workers to the two sectors?
- How can
free trade move both countries beyond their respective PPF
Extra credits (10
points)
The
demand and supply curves of the market for DVD at the local (US) market are as
follow: P = 30 – Qd/2and P= -1.5 + Qs/4
a. Find
the equilibrium price and the equilibrium quantity when there is no
international trade ( hint: solve for Qd and Qs And then
make Qd=Qs to solve for Price and quantities)
b. What
are the equilibrium quantities when the nations trade freely at price of $15?
Explain your rationale.
c. How
many units are exported?
d. What
is the resulting national gain?
e. Do
consumers and producers gain or lose from the free trade?
