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CHAPTER2FOUNDATIONSOFMODERNTRADETHEORY:COMPARATIVEADVANTAGEMULTIPLE-CHOICEQUESTIONS1.Themercantilistswouldhaveobjectedto:a.Exportpromotionpoliciesinitiatedbythegovernmentb.Theuseoftariffsorquotastorestrictimportsc.Tradepoliciesdesignedtoaccumulategoldandotherpreciousmetalsd.Internationaltradebasedonopenmarkets2.Unlikethemercantilists,AdamSmithmaintainedthat:a.Tradebenefitsonenationonlyattheexpenseofanothernationb.Governmentcontroloftradeleadstomaximumeconomicwelfarec.Allnationscangainfromfreeinternationaltraded.Theworld’soutputofgoodsmustremainconstantovertime3.ThetradingprincipleformulatedbyAdamSmithmaintainedthat:a.Internationalpricesaredeterminedfromthedemandsideofthemarketb.Differencesinresourceendowmentsdeterminecomparativeadvantagec.Differencesinincomelevelsgovernworldtradepatternsd.Absolutecostdifferencesdeterminetheimmediatebasisfortrade4.UnlikeAdamSmith,DavidRicardo’stradingprincipleemphasizesthe:a.Demandsideofthemarketb.Supplysideofthemarketc.Roleofcomparativecostsd.Roleofabsolutecosts5.Whenanationrequiresfewerresourcesthananothernationtoproduceaproduct,thenationissaidtohavea(n):a.Absoluteadvantageintheproductionoftheproductb.Comparativeadvantageintheproductionoftheproductc.Lowermarginalrateoftransformationfortheproductd.Loweropportunitycostofproducingtheproduct6.Accordingtotheprincipleofcomparativeadvantage,specializationandtradeincreaseanation’stotaloutputsince:a.Resourcesaredirectedtotheirhighestproductivityb.Theoutputofthenation’stradingpartnerdeclinesc.Thenationcanproduceoutsideofitsproductionpossibilitiescurved.Theproblemofunemploymentiseliminated7.Inatwo-product,two-countryworld,internationaltradecanleadtoincreasesin:a.Consumerwelfareonlyifoutputofbothproductsisincreasedb.Outputofbothproductsandconsumerwelfareinbothcountriesc.Totalproductionofbothproducts,butnotconsumerwelfareinbothcountriesd.Consumerwelfareinbothcountries,butnottotalproductionofbothproducts8.Asaresultofinternationaltrade,specializationinproductiontendstobe:a.Completewithconstantcosts—completewithincreasingcostsb.Completewithconstantcosts—incompletewithincreasingcostsc.Incompletewithconstantcosts—completewithincreasingcostsd.Incompletewithconstantcosts—incompletewithincreasingcosts9.Anationthatgainsfromtradewillfinditsconsumptionpointbeinglocated:a.Insideitsproductionpossibilitiescurveb.Alongitsproductionpossibilitiescurvec.Outsideitsproductionpossibilitiescurved.NoneoftheaboveUsingthedatainTable2.1,answerQuestions10–15.Table2.1.OutputPossibilitiesfortheU.S.andtheU.K.OutputperWorkerperDayCountryTonsofSteelTelevisionsUnitedStates545UnitedKingdom102010.RefertoTable2.1.TheUnitedStateshastheabsoluteadvantageintheproductionof:a.Steelb.Televisionsc.Bothsteelandtelevisionsd.Neithersteelnortelevisions11.RefertoTable2.1.TheUnitedKingdomhasacomparativeadvantageintheproductionof:a.Steelb.Televisionsc.Bothsteelandtelevisionsd.Neithersteelnortelevisions12.RefertoTable2.1.IftradeopensupbetweentheUnitedStatesandtheUnitedKingdom,Americanfirmsshouldspecializeinproducing:a.Steelb.Televisionsc.Bothsteelandtelevisionsd.Neithersteelnortelevisions13.RefertoTable2.1.TheopportunitycostofproducingonetonofsteelintheUnitedStatesis:a.3televisionsb.10televisionsc.20televisionsd.45televisions14.RefertoTable2.1.MutuallyadvantageoustradewilloccurbetweentheUnitedStatesandtheUnitedKingdomsolongasonetonofsteeltradesfor:a.Atleast1television,butnomorethan2televisionsb.Atleast2televisions,butnomorethan3televisionsc.Atleast3televisions,butnomorethan4televisionsd.Atleast4televisions,butnomorethan5televisions15.RefertoTable2.1.TheUnitedKingdomgainsmostfromtradeif:a.1tonofsteeltradesfor2televisionsb.1tonofsteeltradesfor3televisionsc.2tonsofsteeltradefor4televisionsd.2tonsofsteeltradefor5televisions16.Concerninginternationaltraderestrictions,whichofthefollowingisfalse?Traderestrictions:a.Limitspecializationandthedivisionoflaborb.Reducethevolumeoftradeandthegainsfromtradec.Causenationstoproduceinsidetheirproductionpossibilitiescurvesd.Mayresultinacountryproducingsomeoftheproductofitscomparativedisadvantage17.Ifaproductionpossibilitiescurveisbowedout(i.e.,concave)inappearance,productionoccursunderconditionsof:a.Constantopportunitycostsb.Increasingopportunitycostsc.Decreasingopportunitycostsd.Zeroopportunitycosts18.Increasingopportunitycostssuggestthat:a.Resourcesarenotperfectlyshiftablebetweentheproductionoftwogoodsb.Resourcesarefullyshiftablebetweentheproductionoftwogoodsc.Acountry’sproductionpossibilitiescurveappearsasastraightlined.Acountry’sproductionpossibilitiescurveisbowedinward(i.e.,convex)inappearance19.Thetrading-triangleconceptisusedtoindicateanation’s:a.Exports,marginalrateoftransformation,termsoftradeb.Imports,termsoftrade,marginalrateoftransformationc.Marginalrateoftransformation,imports,exportsd.Termsoftrade,exports,imports20.Assumingincreasingcostconditions,tradebetweentwocountrieswouldnotbelikelyiftheyhave:a.Identicaldemandconditionsbutdifferentsupplyconditionsb.Identicalsupplyconditionsbutdifferentdemandconditionsc.Differentsupplyconditionsanddiffere