in need of the correct answers.

1. According to the theory of comparative advantage, which of the following is not a reason why countries trade? a. Comparative advantage. b. Costs are higher in one country than in another. c. Prices are lower in one country than in another. d. The productivity of labor differs across countries and industries. e. Exports give a country a political advantage over other countries that export less.

2. Which of the following statements would a mercantilist not agree with? a. Imports are desirable. b. Trade is a zero-sum activity. c. The purpose of trade is to amass revenues from exports. d. A country can benefit by granting monopoly rights to individuals. e. Policies should promote exports and discourage imports.

3. If all prices in one country (country A) are higher than all prices in another country (B) when compared at the wage rates that happen to prevail in the two countries, and if the countries share the same currency, then if the nominal wage rate in country B remains fixed a. The nominal wage rate in country A will have to fall. b. Unemployment must be higher in country B than in country A. c. The real wage in country A must be higher than in country B. d. Workers in country A must be less productive than workers in country B. e. Trade cannot be beneficial for country A.

4. According to the theory of comparative advantage, a country will export a good only if a. It can produce it using less labor than other countries. b. Its productivity is higher in producing the good than the productivity of other countries in producing it. c. Its wage rate in producing the good is lower than in other countries. d. Its cost of producing the good, relative to other goods, is at least as low as in other countries. e. All of the above. Suppose that Austria and Belgium have the unit labor requirements for producing steel and brooms shown in the table at the right. Then a. Belgium has a comparative advantage in brooms. b. Austria has a comparative advantage in steel. c. Austria has an absolute advantage in steel. d. Belgium has an absolute advantage in brooms. e. All of the above.

6. Suppose that Australia and Brazil have the outputs per worker in producing sleds and clarinets shown in the table at the right. Then Brazil has a a. Comparative advantage in sleds. b. Comparative advantage in clarinets. c. Absolute advantage in sleds. d. Absolute advantage in clarinets. e. None of the above.

7. According to the theory of comparative advantage, countries gain from trade because a. Trade makes firms behave more competitively, reducing their market power. b. All firms can take advantage of cheap labor. c. Output per worker in each firm increases. d. World output can rise when each country specializes in what its does relatively best. e. Every country has an absolute advantage in producing something. 8. If international trade takes place as a result of comparative advantage, it will cause which of the following effects in the participating countries? a. Inequality among households will be reduced. b. All individuals in each country will be better off. c. The average well-being of people in both countries will increase. d. Both countries will grow faster over time. e. All of the above. Ans: c 9. Scholars at MIT recently tested the theory of comparative advantage. One problem with doing this is that a. The theory was never meant to apply after the 19th century. b. One cannot observe productivity in industries that are not producing. c. Countries keep their data on international trade secret. d. The theory is only valid if the world really only produces two goods. e. The theory turned out to be incorrect. 10. Bernhofen and Brown tested the theory of comparative advantage by looking at data from 19th century Japan. This allowed them to observe which of the following data that would not normally be available? a. Worker productivity across sectors. b. Wages of labor. c. Exports minus imports. d. Consumer preferences for foreign and domestic goods. e. Autarky prices.

11. Clyde Prestowitz, in his assigned reading, cites a study that measures various costs of US trade with China. Which of the following is not one of those costs? a. Unemployment compensation paid by government b. The income lost by workers who become unemployed c. Food stamps d. Lost tax receipts e. School budgets (It is because the study does not include these that Prestowitz argues that the cost of trade is larger than the study says.) 12. In the Embargo Act mentioned in the Costinot and Rodriguez-Clare reading, the US banned trade with a. Britain and France b. Mexico and Canada c. Russia and China d. Germany and Austria e. Japan and Korea

1. (25 points) Suppose two countries: Zimbabwe and Zambia, use only capital (K) and labor (L) for production. Zimbabwe has 2,075 units of capital and 932 units of labor, and Zambia has 832 units of capital and 295 units of labor. Both countries produce two goods: Cloth and Phone. In Zambia, there are 384 units of capital and 176 units of labor employed in the phone industry. In Zimbabwe, there are 956 units of capital and 632 units of labor employed in the phone industry. a. (4 points) Which country is labor abundant? Which country is capital abundant? Which good is labor intensive? Which good is capital intensive? b. (4 points) Assume identical preferences and technologies between the two countries. Use graphical analysis to present the autarky equilibrium in each country. Which country will have lower relative price of phone in autarky? c. (4 points) Use graphical analysis of the relative demand and relative price of labor in terms of capital for each industry to show how the equilibrium relative price of labor and the equilibrium relative quantities of labor in each industry are determined in Zambia. d. (4 points) Suppose now that the countries open to trade. What will happen to the relative price of phone in Zambia? Show the new trade equilibrium in Zambia on your graph. Clearly indicate how much phone will be produced and consumed in Zambia after the country opens up to trade. What is the good that Zambia will export? e. (4 points) Use graphical analysis to show the effects of trade on the relative factor prices and relative factor demands in Zambia. Put relative wage on the Y-axis and relative labor on the X-axis. Write a clear statement about the direction of the relative factor price change and the changes in relative labor demand in each sector. What will happen to real wages and real rental on capital in Zambia? f. (5 points) (Standalone question): (True/False) According to the standard Heckscher-Ohlin model with two factors (capital and labor) and two goods, the movement of Turkish migrants to Germany would decrease the amount of capital-intensive products produced in Germany. Explain.