1. Bela Balassa sought to explain why:

a. durable goods are more expensive in some countries than in other countries.

b. labor productivity was higher in some countries than in other countries.

c. services seemed to have essentially the same prices in all countries.

d. services are more expensive in some countries than in other countries.

2. Which of the following true facts demonstrates that the purchasing power parity theorem does not hold for hair cuts?

a. When adjusted for the quality of the haircut, haircuts in Mexico and in Norway have the same price.

b. the payment a Mexican barber receives for a haircut can purchase more goods in Mexico that can be purchase in Norway for the amount paid to a Norwegian barber for a hair cut.

c. the price of a hair cut in Mexico in pesos is higher than the price of a haircut in Norway in Norwegian krone.

d. A given quantity of U.S. dollars can by more haircuts in Mexico than it can in Norway.

3. According to Bela Balassa, the difference between the currency adjusted prices of a Mexican haircut and a Norwegian haircut had to do with:

a. the relative inflation rates in Mexico and Norway

b. the labor productivity of barbers.

c. average labor productivity in the countries.

d. exchange rates between Mexican pesos and Norwegian krone.

4. Mexican barbers charge lower prices than Norwegian barbers in part because:

a. Mexican barbers have lower opportunity costs.

b.Mexican barbers have lower fixed costs.

c. Mexican haircuts are worse on average than Norwegian haircuts.

d. Mexican haircuts can be more easily exported.

5. Bela Balassa's explanation for why haircuts are cheaper in Mexico than in Norway also explains why personal servants are cheaper in Mexico than in Norway because:

a. the hourly wages of barbers and personal servants are equal in Mexico and equal in Norway

b. the explanation is based on average productivity in the entire economy, not just among barbers

c. the productivity disadvantage that Mexican barbers face is about equal to the productivity disadvantage that Mexican personal servants face.

d. the explanation is based on inflation rates for the whole economy.

6. Which of the following is true about personal servants in Mexico and Norway?

a. It is equally likely that a middle class Mexican family would employ servants as it is that a middle class Norwegian Family would employ servants.

b. It is more equally likely that a middle class Mexican family would employ servants as it is that a middle class Norwegian Family would employ servants.

c. It is less likely that a middle class Mexican family would employ servants as it is that a middle class Norwegian Family would employ servants.

d. Almost all middle class Norwegian families employ servants, and almost no middle class Mexican families employ servants

7. As a result of the phenomenon observed by Bela Balassa regarding the price of services in poor countries versus rich countries:

a. official statistics may understate how poor the people in poor countries are.

b. official statistics may overstate how poor the people in poor countries are.

c. official statistics may understate how rich the people in rich countries are.

d. it may be the case that there really is no difference between living in a poor country and living in a rich country.

8. which of these is NOT one of the lessons or conclusions from Bela Balassa's theories about exchange rates and relative prices?

a. If labor productivity in one sector is lower in one country than in another, then the same is true for all sectors.

b. Be careful about using economic statistics because countries differ in many ways.

c. Get your hair cut in poorer countries.

d. If you live in a poorer country, you are more likely to employ personal servants.

9. If haircuts could be easily and cheaply exported and imported, which of the following would probably happen as a result?

a. Demand for both Mexican and Norwegian haircuts would fall.

b. Demand for Mexican haircuts would fall, and demand for Norwegian haircuts would rise.

c. Demand for both Mexican and Norwegian haircuts would rise.

d. Demand for Mexican haircuts would rise, and demand for Norwegian haircuts would fall.

10. If haircuts could be easily and cheaply export and imported, then over time the price of Mexican haircuts and the price of Norwegian haircuts would:

a. be closer than they are today.

b. be further apart than they are today.

c. both fall

d. both rise.