Practice Multiple Choice Questions Chapter 4: Model

1.

The Applications of the Heckscher-Ohlin

The concept terms of trade means A. the amount of exports sold by a country. B. the price conditions bargained for in international markets. C. the price of a country's exports divided by the price of its imports. D. the quantities of imports received in free trade. E. None of the above. Answer: C

2.

A country cannot produce a mix of products with a higher value than where A. the isovalue (relative price) line intersects the production possibility frontier. B. the isovalue line is tangent to the production possibility frontier. C. the isovalue line is above the production possibility frontier. D. the isovalue line is below the production possibility frontier. E. the isovalue line is tangent with the indifference curve. Answer: B

3.

Tastes of individuals are represented by A. the production possibility frontier. B. the isovalue (relative price) line. C. the indifference curve. D. the production function. E. None of the above. Answer: C

4.

If PC / PF were to increase in the international marketplace, then A. all countries would be better off. B. the terms of trade of cloth exporters improve. C. the terms of trade of food exporters improve. D. the terms of trade of all countries improve. E. None of the above Answer: B

5.

If P C / PF were to increase, A. the cloth exporter would increase the quantity of cloth exports. B. the cloth exporter would increase the quantity of cloth produced. C. the food exporter would increase the quantity of food exports. D. Both A and C.

E.

None of the above.

Answer: B 6. If PC / PF were to increase, A. world relative quantity of cloth supplied and demanded increases. B. world relative quantity of cloth supplied and demanded decreases. C. world relative quantity of cloth supplied increases.. D. world relative quantity of cloth demanded decreases . E. None of the above. Answer: C 7. When the production possibility frontier shifts out relatively more in one direction, we have A. biased growth. B. unbiased growth. C. immiserizing growth. D. balanced growth. E. imbalanced growth. Answer: A 8. Export-biased growth in Country H will A. improve the terms of trade of Country H. B. trigger anti-bias regulations of the WTO. C. worsen the terms of trade of Country F (the trade partner). D. improve the terms of trade of Country F. E. decrease economic welfare in Country H. Answer: D 9. Immiserizing growth is A. likely to occur if the exporting country is poor. B. likely to occur if the exporting country is rich. C. likely to occur when terms of trade change. D. likely to occur if relative supplies are elastic. E. None of the above. Answer: E

10.

A country will be able to consume a bundle which is not attainable solely from domestic production only if A. the world terms of trade differ from its domestic relative costs. B. the country specializes in one product. C. the country avoids international trade. D. the world terms of trade equal the domestic relative costs. E. None of the above.

Answer: A 11. Terms of trade refers to A. what goods are imported. B. what goods are exported. C. the volume of trade. D. the prices at which trade occurs. E. None of the above. Answer: D If points a and b are both on the production possibility frontier of a country, then A. consumers are indifferent between the two bundles. B. producers are indifferent between the two bundles. C. at any point in time, the country could produce both. D. Both cost the same. E. The country could produce either of the two bundles. Answer: E 13. If the economy is producing at point a on its production possibility frontier, then A. all of the country's workers are specialized in one product. B. all of the county's capital is used for one product. C. all of the county's workers are employed. D. all of its capital is used, but not efficiently. E. None of the above. Answer: C 14. If at point A on the production possibility frontier, and the community indifference curve cuts through point a from northwest to southeast, then the optimal autarky production bundle is A. at point A. B. to the right of point A. C. to the left of point A. D. to the northeast of point A. E. to the southwest of point A. Answer: B 15. A bundle indicated by a point to the northeast of the production possibility frontier is A. unattainable at a point in time. B. unattainable at a point in time without international trade. C. unattainable at a point in time without domestic trade. D. unattainable as a consumption point. E. None of the above. Answer: B

12.

16.

If two countries with diminishing returns and different marginal rates of substitution between two products were to engage in trade, then A. the shapes of their respective production possibility frontiers would change. B. the marginal rates of substitution of both would become equal. C. the larger of the two countries would dominate their trade. D. the country with relatively elastic supplies would export more. E. None of the above. Answer: B

17.

If a country began exporting product A and importing product B, then, as compared to the autarky (no-trade) situation, the marginal cost of product A will A. increase. B. decrease. C. shift outward. D. shift inward. E. None of the above. Answer: A

18.

If, beginning from a free trade equilibrium, the terms of trade improve for a country, then it will A. increase production of its import competing good. B. increase consumption of its export good. C. increase the quantity of its imports. D. experience an export-biased shift in its production possibility frontier. E. None of the above. Answer: C During the 19th Century, economic growth of the major trading countries was biased toward manufactures and away from food. The less developed countries of that time were net exporters of food. From this information, we would expect to have observed A. falling terms of trade for the less developed countries. B. improving (rising) terms of trade for the less developed countries. C. no change at all in the terms of trade of the less developed countries. D. a decrease in the relative price of food. E. None of the above. Answer: B

19.

20.

Immiserizing growth could occur to A. a poor country experiencing export-biased economic growth. B. a poor country experiencing import-biased economic growth. C. a poor country experiencing growth in its non-traded sector. D. a poor country experiencing capital-intensive biased growth.

E.

None of the above.

Answer: A 21. A large country experiencing import-biased economic growth will tend to experience A. positive terms of trade. B. deteriorating terms of trade. C. improving terms of trade. D. immiserizing terms of trade. E. None of the above. Answer: C Questions 22, 23, and 24 below pertain to the following information: India and Nepal operate in an H-O world. Each country produces two goods: coal and jute, using two factors of production land and labor. Coal is the relatively labor intensive activity and Nepal is the relatively land abundant country. The two countries are engaged in free trade.

22. Suppose the amount of labor increases in India. As a result: A. The TOT of India would deteriorate and its net welfare may fall B. The TOT of Nepal would improve and its net welfare would fall C. The TOT of India would improve and its welfare would increase as well D. The TOT of India would improve but the effect on welfare is ambiguous (depends on the elasticity of demand for Indias export good) Answer: A 23. Suppose the amount of arable land in India increases. As a result: A. The TOT of India would improve and its welfare would increase as well B. The TOT of Nepal would fall and its welfare would also decline C. The TOT of India would fall but its welfare would only fall if the demand for its export good is elastic. D. Both a. and b. above. Answer: D 24. Suppose now that the amount of labor in Nepal increases. As a result: A. The TOT of Nepal will improve and its welfare level will fall B. The TOT of India will deteriorate and its welfare level will fall C. The TOT of India will improve and its welfare level will rise D. Both a. and c. Answer: B