QUESTION 10

AnswerQuestions 10-14based on the information in this input-output table.

Greece Portugal

______________________________________________

Grapes15 hrs/unit 8 hrs/unit

Textiles*5 4

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Question 10

Specify the direction of absolute advantage between Greece and Portugal.

1. Greece has an absolute advantage in grapes
2. Greece has an absolute advantage in textiles.
3. Portugal has the absolute advantage in both grapes and textiles.
4. Greece has absolute advantage in both grapes and textiles.

QUESTION 11

Which country has the comparative advantage in Grapes?

1. Greece
2. Portugal.
3. Both Greece and Portugal.
4. No country has a comparative advantage in Grapes.

QUESTION 12

Once trade begins, apossibleinternational terms of tradeITOT_Gforgrapesin

terms of textiles is

1. 5
2. 4
3. 4/5
4. 7/3

QUESTION 13

Therelative wage rateof Portugal (Port) to Greece (Gree) is in the range of: (Hint: W^Port/E*W^Greebased on relative efficiencies). You may ignore the exchange rateE.

1. 8/15 < W^Port/E*W^Gree< 4/5
2. 1.25 < W^Port/E*W^Gree< 1.88
3. 2 < W^Port/E*W^Gree< 3
4. 4/8 < W^Port/E*W^Gree< 8/5

QUESTION 14

IfGreecehas a labor force of 90,000 hours of labor, thenafter trade beginsit will produce based on your answers above: (Hint: where is Greece's comparative advantage? Is complete specialization possible?)

1. 5,000 units of grapes
2. 5,000 units of grapes and 16,000 of textiles.
3. 18,000 units of textiles
4. None of the above.

QUESTION 15

In the classical model, suppose the pre-trade relative price for CountryYis 1 and for CountryZis 3. If theITOTis 2.95 then

1. CountryYgains more from free trade.
2. CountryZgains more from free trade
3. Both countries gain equally.
4. Neither country gains from free trade.

QUESTION 16

Suppose the autarky relative price forgrapes(G) in terms of honey (H) is (P_G/P_H) = 6 for country A and 9 for country B.

1. Country A has a comparative advantage in honey and a comparative disadvantage in grapes.
2. Both countries have a comparative advantage in honey and grapes.
3. Country B has a comparative advantage in honey and a comparative disadvantage in grapes.
4. Neither country has a comparative advantage in honey.

QUESTION 17

Suppose Country A's autarky (P_S/P_T)^Ais 2, while country B's autarky(P_S/P_T)^Bis 3.

1. Country A is an importing country of S.
2. Country B is an importing country of S.
3. Country A is an exporting country of S.
4. (b) and (c).

QUESTION 18

In the case of an economy withconstantopportunity cost (i.e., PPF is a straight line), then

1. The demand or consumers determine the equilibrium relative price.
2. The demand or consumers determine the equilibrium combination of
3. outputs.
4. The producers determine the equilibrium relative price.
5. Both (b) and (c).

QUESTION 19

The Dutch disease where the booming natural resource sector gains at the expense of the declining manufacturing sector is an application of:

1. The H-O theorem
2. The Rybcnski theorem
3. The Samuelson-Stolper theorem
4. Factor price equalization theorem

QUESTION 20

The HO model rules out the classical model's basis for trade by assuming that ___________ is or are identical between countries:

1. Technology
2. Factor endowment
3. Factor intensities
4. Opportunity costs