1. Increase in world trade volume in last 80 years has been around---- percent and world GDP has increased by around ---percent.

a 1800, 100

b. 2000, 800

c. 300, 3000.

d. 1000, 200

2. The leading trading partner (most favorite) in international trade for the United States is-----. One of the most closed economies of the world is-----

a. Canada, North Korea

b. Japan, Singapore

c. Germany, North Korea

d. Mexico, China

3. In terms of the dollar value (in billions of dollars) the top most exported and imported item by the USA has been ------

a. vehicles, automobiles and parts of automobiles

b. garments

c. aircraft and space craft

d. beef

4. If assumption of constant cost conditions held true, then production is said to be subject to--------- and ----marginal productivity for resources

a. constant average cost, constant

b. decreasing average cost, constant

c. first increasing and then decreasing average cost, increasing

d. increasing average cost, diminishing

5: Which one of the following is NOT the assumption made by Ricardian model of comparative advantage?

a. The world is explained by 2 x 2 x 1 model

b. there is a free trade between two countries

c. productions occur under increasing cost conditions

d. only goods are traded, labor is not

6. While Adam Smith's argument of absolute advantage makes sense, it does not help us explain why trade can be beneficial when one country's labor has------

a. absolute advantage in both goods

b. higher wage rate than the other

c. higher productivity than other in one good production but not the other good production

d. better education and more skills in one country

7. The main gain of trade Adam Smith argued as the ability of the labor for ------

a. specialization

b. higher enterprise

c. capital possession

d. better quality education

8. Mercantilism-----

a. is the philosophy of free international trade.,

b. was a philosophy and arguments of export promotion and barriers to imports as the policy actions.

c. was praised by Adam Smith as a valid argument.

d. was supported by David Hume in 1752.

9. In Ricardian model, the price ratio is same as------

1. Ratio of comparative labor benefits
2. comparative labor costs
3. indicator for determining the comparative advantage
4. none of the above

Table for Q.10-13

Countries: A B

Goods

X 3 12

Y 4 8

These are the numbers of labor units needed to produce one unit of the output. Usual assumptions of absolute advantage theory and comparative advantage theory apply.

10. From the above table, it is clear that Country A's labor has absolute advantage in the

production of

a. Good X.

b. Good Y.

c. Neither X nor Y.

d. Both X and Y.

11. From the above table it is clear that Country B's labor has absolute advantage in the production of

a. Good X.

b. Good Y.

c. Neither X nor Y.

d. Both X and Y.

12. If countries were to trade along the lines of absolute advantage, (according to the Adam Smith argument)

a. A would export X to B.

b. B would import Y from A.

c. the answer is unknown to Adam Smith, at least he did not consider this case

d. both countries would like to specialize in both goods

13. If countries were to trade along the lines of comparative advantage, then (according to the Ricardian argument)

a. A would export X to B.

b. B would import Y from A.

c. neither country would want to trade.

d. more information is needed to determine the pattern.

1. Consider the Ricarding world and the assumptions. When in absolute terms the rest of the world price ratio (Px/Py)ROW is higher than the Domestic price ratio, (Px/Py), then we can easily conclude that------

1. Rest of the world produces good X cheaper than good Y in comparison with the home country
2. Home country has comparative advantage in the production of good X, and it will export good X to the Rest of the World.
3. Home country would export good Y to the rest of the world
4. After trade begins with the rest of the world, the home country producers would incompletely specialize in the production of good Y
5. All of the above are correct arguments.

15. The gains from international trade (in general) are closely related to---

a. the labor cost of production being same in both countries willing to trade

b. how much the domestic price differs from international price of the good.

c. the fact that one country must lose from trade.

d. same demand conditions such as tastes and expectations of the consumers

16. In the Ricardian model, the direction of trade is determined by-----and after trade there is------

a. absolute advantage, incomplete specialization

b. comparative advantage, complete specialization

c. physical advantage, incomplete specialization

d. which way the wind blows, complete specialization

17. In Ricardian model, after trade, countries have production situation that is very-----

a. realistic and relevant

b. demand side oriented without much regard to labor costs

c. realistic as the countries produce more than one good in reality

d. unrealistic and unconvincing.

18. The main concept of David Hume that serves as the criticism of mercantilists' argument is called----

a. price wage spiral.

b. price indexing.

c. pricespecie flow mechanism.

d. money supply augmentation.

e. none of the above.

19. The realistic productions go through-------, and ---------average cost conditions

1. Diminishing marginal productivity, increasing
2. Diminishing marginal utility, decreasing
3. Variable proportions, constant
4. Diminishing relativity, decreasing

20. Which one of the following IS NOT an assumption made for the Adam Smith's Absolute Advantage Theory?

1. 2 x 2 x 1 world
2. Labor as the only factor of production
3. No transportation costs or no hurdles for free trade by either country
4. Perfectly competitive markets in all productions

21. Under perfectly competitive market, in the long run profit is zero for an individual firm, because there is -----

a. a large number of firms in an industry

b. a free entry and free exit for firms into an industry

c. a complete information to the consumers

d. a free supply of labor

22. Extensions of Ricardian model showed that the model will predict that the price ratio of international exchange be---

a. smaller than domestic price ratio of one country

b. greater than domestic price ratio of one country

c. equal to the domestic price ratio of one country

d. in between two domestic price ratios of two countries.

23. Main benefits of trade for any country according to Adam Smith is/are-----

1. Ability to produce a good that has lower absolute labor cost
2. International division of labor
3. Specialization of labor in each country in that production which has lower absolute labor cost
4. All of the above

24. When one country has absolute advantage in production of both goods, Adam Smith would argue------

1. Nothing, he did not consider such case
2. There is no possibility of beneficial international trade
3. Trade can still be beneficial with specialization
4. We need to calculate the tastes and preferences of consumers

25. If difference in technology of production of same good across countries is non-existent, then trade is-----

a. impossible to occur, since there is no benefit to either countries

b. not possible as one country would refuse to trade

c. still possible and can be mutually beneficial due to difference in factor endowments

d. very small almost zero

26. In Ricardian model, (using the notations introduced in our class) domestic relative price ratio can be shown to be equal to---, and it can also be proved that from international trade, small country benefits-----than the large country.

a. alX/alY, more

b. comparative labor cost ratio, less

c. relative number of labor units needed to produce one unit of good X to good Y, less

d. ratio of quantities of good X and Y, more

27. Gains from trade in Heckscher Ohlin model occur due to differences in countries ----

1. Technology of production
2. Factor endowments
3. Factor productivities
4. A deficit in balance of trade after trade

28. In Heckscher-Ohlin model on international trade, the assumption about the demand conditions is that---

1. (They are) different in both countries
2. (They are) same in both countries
3. (They are) biased towards imported good
4. (They are) biased towards exported good

29. Which one of the following assumptions is responsible for complete specialization in production in both countries (after trade) in Ricardian model?

1. Same technology of production across countries
2. Increasing cost conditions
3. Perfectly competitive markets
4. Constant cost conditions in both productions

30. In comparison to earlier theories (Say Ricardo's), Heckscher-Ohlin model is more convincing, because it worked with-----

1. More than one factor of production
2. Increasing cost conditions in all productions
3. Same technology of production of same good across countries
4. All of the above are correct which makes H-O model more realistic

31. Which one of the following IS NOT an assumption made for the David Ricardo's Comparative Advantage Theory?

a. 2 x 2 x 1 world

1. Labor as the only factor of production
2. No transportation costs or no hurdles for free trade by either country
3. Countries produce more than 4 goods.

32. If international trade occurs according to Heckscher-Ohlin model, then after trade under full employment assumption there is -----

a. a factor price equalization

b. a higher production of imported good

c. a lower production of exported good

d. a free supply of imported good

33. Extensions of Ricardian model showed that the model will predict that the international trade is decided purely on----

a. demand side, by such things as preferences of consumers

b. demand side such as expectations of consumers

c. supply side such as number of producers changes for more than two foods

d. supply side, such as differences in labor cost conditions.

34. Main benefits of trade for any country according to mercantilists were-----

a Ability to produce a good that has lower absolute labor cost

1. International division of labor
2. Specialization of labor in each country in that production which has lower absolute labor cost
3. Acquisition of outside gold for the kingdoms by exporting goods

35. When one country has absolute advantage in production of both goods, David Ricardo would argue------

1. Trade can still be beneficial with complete specialization
2. Nothing, he did not consider such case
3. There is no possibility of trade
4. We need to calculate the tastes and preferences of consumers

36. In Heckscher- Ohlin theorem of international trade, factor abundance is defined for---------- and factor intensity is defined for-----

a) countries, goods b) goods, countries c) goods, goods d) countries, countries

37. The findings of James MacDougall confirms the arguments of-------theory and concludes that------out of 26 industries tested show the evidence.

a)Ricardian comparative advantage, 26 b) Heckscher-Ohlin, 22 c) Ricardian comparative advantage, 22 d) Adam Smith's absolute advantage, 20

38. Using his---- Leontief tested---economy's data----for the year---

a)input-output table, UK, 1955 b) tools of research, US, 1988 c) Input-Output table, USA, 1947 d) Index numbers, USA, 1987

39. In Heckscher-Ohlin test, Leontief found out that US exports were ----percent more----. This finding has been known as-----

a. 45, labor intensive, Leontief Paradox

b. 30, capital intensive, Leontief Complex

c. 30, labor intensive, Leontief Paradox

d. 30, capital intensive, Leontief Paradox

40. In explanation of his findings, Leontief argued that USA is a ----abundant country as the labor productivity in USA was---times higher than labor productivity abroad at that time

a)labor, 3 b) capital, 2 c) capital, 5 d) labor, 2