International Economics, 7e (Husted/Melvin) Chapter 3 The Classical Model of International Trade
International Economics, 7e (Husted/Melvin) Chapter 3 The Classical Model of International Trade
International Economics, 7e (Husted/Melvin) Chapter 3 The Classical Model of International Trade
Mercantilism
A)
Both A and C.
Answer
:
2)
3)
says that the price of a good is determined by the amount of labor required to produce it.
D)
4)
Given constant returns to scale between labor and output, if it takes 10 hours to make 1
yard of cloth, then 100 yards of cloth can be made in
A)
10 hours.
B)
100 hours.
C)
1000 hours.
D)
2
Answer the question(s) below based on the information in the following table
Country
Goods A B
X 3 9
Y 4 2
5)
Good X.
B)
Good Y.
C)
Neither X nor Y.
D)
Both X and Y.
Answer
:
6)
Good X.
B)
Good Y.
C)
Neither X nor Y.
D)
Both X and Y.
Answer
:
3
7)
Refer to the table above. If countries were to trade along the lines of absolute advantage
A)
A would export X to B.
B)
8)
Refer to the table above. If countries were to trade along the lines of comparative
advantage
A)
A would export X to B.
B)
9)
Refer to the table above. In autarky the relative price of X (in terms of Y) in A would be
A)
3/4
B)
4
4/3
C)
3/9
D)
$3
Answer
:
5
Answer the question(s) below based on the information in the following table
Country
Goods A B
Beer 3 9
Wine 1 2
10)
beer.
B)
wine.
C)
11)
beer.
B)
wine.
C)
6
12)
Refer to the table above. For trade to occur along the lines of comparative advantage,
wages in A relative to wages in B (measured in the same currency)
A)
13)
Refer to the table above. If each country were to reduce production of its comparative
disadvantage good by 1 unit, world output of wine would rise by
A)
1.5 units.
B)
2 units.
C)
3 units.
D)
3.5 units.
Answer
:
14)
Refer to the table above. The relative price of beer in terms of wine in B is
A)
$4.50.
7
B)
2.
C)
4.5.
D)
$2.00.
Answer
:
8
Answer the question(s) below based on the following diagram of a country in international
trade equilibrium.
15)
Refer to the figure above. This country has comparative advantage in good
A)
S.
B)
T.
C)
Y.
D)
Z.
Answer
:
16)
B.
B)
C.
C)
9
D.
D)
E.
Answer
:
17)
B.
B)
C.
C)
D.
D)
E.
Answer
:
18)
OA units of Z.
B)
AB units of Z.
C)
AC units of Y.
D)
AD units of Y.
Answer
:
B
10
11
19)
OA units of Z.
B)
AB units of Z.
C)
AC units of Y.
D)
AD units of Y.
Answer
:
20)
considerable trade will occur between countries with different levels of technology.
C)
small countries could obtain all of the gains from trade when trading with large countries.
D)
21)
12
how much the autarky price differs from the international price (i.e. the terms of trade).
C)
22)
countries with high wages will have higher relative prices of all goods.
D)
23)
absolute advantage.
B)
comparative advantage.
C)
physical advantage.
D)
24)
Both A and B.
D)
Neither A nor B.
Answer
:
25)
Both A and B.
D)
Neither A nor B.
Answer
:
Answer the question(s) below based on the information in the following table, where the
numbers represent the number of labor hours it will take to produce a unit of the given
good
14
Spain France
Grapes 3 9
Textiles 1 2
The numbers represent the number of labor hours it will take to produce a unit of the given
good.
26)
grapes.
B)
textiles.
C)
27)
grapes.
B)
textiles.
C)
28)
15
Refer to the table above. Once trade begins, a possible international price (i.e. terms of
trade) for textiles in terms of grapes is
A)
$5.
B)
2/5.
C)
2.
D)
4/5.
Answer
:
29)
Refer to the table above. If complete specialization occurs, and France has a labor force of
30,000 hours of labor, then after trade begins it will produce
A)
30)
Refer to the table above. France will gain from trade so long as the international price of
grapes measured in terms of textiles is below
A)
$15.
B)
16
3.
C)
5.
D)
8.
Answer
:
17
True or False Questions
1)
An international division of labor will have no effect on total world output because
resources are limited.
Answer
:
False
Explanatio
n:
None Given
2)
True
Explanatio
n:
None Given
3)
A country must have absolute advantage in a good in order to have comparative advantage
in that good.
Answer
:
False
Explanatio
n:
None Given
4)
A country must have comparative advantage in a good in order to have absolute advantage
in that good.
Answer
:
18
False
Explanatio
n:
None Given
5)
False
Explanatio
n:
6)
Countries with low wages will always be able to export to countries with high wages.
Answer
:
False
Explanatio
n:
7)
If country A has a larger trade triangle than country B, reciprocal demand will lead to an
increase in the relative price of A's imports.
Answer
:
True
Explanatio
n:
In a two country world, at least one country must lose from trade.
Answer
:
False
Explanatio
n:
None Given
9)
Once trade begins, a country will tend to specialize completely in the production of its
export good.
Answer
:
True
Explanatio
n:
None Given
10)
A country gains more from international trade the more its terms of trade differ from its
autarky price.
Answer
:
True
Explanatio
n:
None Given
20
Essay Questions
1)
Countries
A B
Goods
X 8 4
Y 4 1
(a) Which country has absolute advantage in which good and why?
(b) Which country has comparative advantage in which good and why?
(c) If A is endowed with 8000 hours of labor, how much X will it produce after trade
begins? How much Y? Explain.
(d) What is the allowable range on A's wages relative to B's if trade is flowing between
these two countries according to comparative advantage?
Answer
:
2)
Explain how trade will tend to emerge along the lines of comparative advantage if markets
are allowed to work freely.
Answer
:
Comparative advantage is determined by autarky prices. Foreign demand will tend to drive
up (down) the autarky price of a country's comparative advantage (disadvantage) good,
raising short term profits and attracting resources to that industry. These resources come
from the import competing comparative disadvantage sector.
3)
Starting from a situation where country A which exports good S and imports good T has a
larger trade triangle than country B, explain how the process of reciprocal demand leads to
international trade equilibrium.
Answer
:
If A has a larger trade triangle than B it wants to trade more than B. Consider the S
market. A's desired exports exceed B's desired imports. The price of S must fall. As this
occurs, the two trade triangles move toward congruency.
4)
Suppose that workers in A can produce 1 unit of S in 3 hours and 1 unit of T in 9 hours.
Suppose further that the relative price of S in B is 2. Graph the PPF for country A. Indicate
the exact slope of the PPF. Show how the autarky equilibrium is determined. Illustrate a
hypothetical international trade equilibrium, including production and consumption points,
and trade volumes for a given (your assumption-be explicit) but permissible value of the
international terms of trade.
21
Answer
:
The autarky price of S in A is 1/3, so that must be the slope of its PPF. A has
comparative advantage in S, so once trade begins it must completely specialize in
S. The international terms of trade must lie between 1/3 and 2.
22