Revision midterm Ch.

1,2,3
MCQ 1
1) In the study of international economics we use the tools of,
a) Microeconomic theory only
b) Macroeconomic theory only
c) Neither micro nor macro theory
d) Both micro and macro theory, but we also extend, adapt, and integrate them

2) With which of the following topics does international economics deal?

a) The pure theory of trade

b) The theory of commercial policy

re

c) Adjustment to disequilibria in the balance of payments

te

d) All of the above

a) Differences in language

is

3) One similarity between international and interregional trade is that

d) Tastes

nR

c) Distance or space

eg

b) Differences in currencies and monetary systems

4) To which of the following would the mercantilists have objected?

a) Free trade

b) Stimulating exports
c) Restricting imports
d) Accumulation of gold by their nation

5) We can best understand smith's view on trade if we regard them as a reaction to

a) The law of comparative advantage
b) The mercantilist view on trade
c) Ricardo's view on trade
d) All of the above
Mr. Ashraf Amin

6) What proportion of trade is based on absolute advantage?

a) All
b) Most
c) Some (very small)
d) None
7) The commodity in which a nation has the least absolute disadvantage represents its area
of
a) Comparative disadvantage
b) Comparative advantage
c) Absolute advantage

re

d) Cannot say without additional information

te

8) Ricardo's law of comparative advantage is based on

b) The labor theory of value

is

a) The opportunity cost theory

nR

d) All of the above

eg

c) The law of diminishing returns

U.K

Wheat (bushels/man-hour)

Cloth (yards/man-hour)

9)

U.S

With reference to the table, we can say that U.S has a comparative advantage over U.K
in the production of wheat because one labor hour in the U.S. is
a) Twice as productive in C than in W
b) Twice as productive in W than in C
c) 1.5 times more productive in W but 6 times more productive in C than U.K
d) 6 times more productive in W but only 1.5 times more productive in C than the
U.K

Mr. Ashraf Amin

10) With reference to the table indicates which of the following statements is correct
a) The rate at which W exchange for C in production in the U.S is 2:1
b) The rate at which W exchanges for C in production in the U.K is 1:2
c) The rate at which W exchanges for C in trade between the U.S and the U.K is 1:1
d) All of the above

11) With reference to the table indicates which of the following statements is correct
a) The U.S gain 3C by trading 6W for 6C with U.K
b) The U.K gains 6C by exchanging 6 of its 12C for 6W with the U.S
c) The increase in the combined output of the U.S and the U.K when 6W are
exchanged for 6C is 9C and 0W

te

re

d) All of the above

12) With respect to the production possibilities curve, we can say that

is

a) A point inside or below it implies that the economy is either not utilizing fully all

eg

of its resources or not using the best technology available to it

b) A point on it involves the full employment of the economy's resources and the use

nR

of the best technology available

c) A point above it cannot be reached with the resources and technology presently
available to the nation

d) All of the above

13) A straight-line production possibilities curve refers to

a) Constant cost
b) Increasing cost
c) Decreasing cost
d) Any of the above

14) With cloth measured along the horizontal axis and wheat along the vertical axis, the
absolute slope of a straight-line production possibilities curve gives,
a) The MRTcw
Mr. Ashraf Amin

b) The Pc/Ps
c) Both MRTcw and the Pc/Ps
d) Neither the MRTcw nor the Pc/Ps

15) If in the absence of trade the internal equilibrium Pc/Pw is lower in the U.K than in the
U.S., then
a) The U.K has a comparative advantage in cloth with respect to the U.S
b) The U.K has a comparative advantage in wheat
c) The U.S has a comparative advantage in wheat and the U.S has a comparative
disadvantage in cloth

te

a) On its production possibilities frontier

re

16) If a nation gains from trade, its consumption point is

d) All of the above

b) Inside its production possibilities frontier

is

c) Above its production possibilities frontier

eg

d) Any of the above

nR

17) Increasing opportunity cost to produce more and more units of a commodity is given by
a production possibilities curve that is
a) Concave to the origin

b) Convex to the origin

c) A straight line

d) Any of the above

18) With cloth measured along the horizontal axis and wheat along the vertical axis, the
absolute slope of the concave production possibilities curve gives
a) The MRTcw
b) The internal equilibrium Pc/Pw in isolation
c) Both the MRTcw and the internal equilibrium Pc/Pw
d) Neither MRTcw nor the internal equilibrium Pc/Pw
Mr. Ashraf Amin

19) With cloth measured along the horizontal axis and wheat along the vertical axis, a
movement down the production possibilities curve results in
a) A decrease in MRTcw
b) An increase in MRTcw
c) Any of the above
20) With trade, specialization in production is likely to be
a) Complete with increasing costs and incomplete with constant costs
b) Complete with constant costs and incomplete with increasing costs
c) Complete with constant costs and increasing costs

te

a) The production condition in the nation

re

21) Community indifference curve introduces

d) Incomplete with both constant costs and increasing costs

b) The taste or demand preference of the nation

is

c) Both the production conditions and the tastes of the nation

eg

22) As we move down a community indifference curve MRS

a) Declines

nR

b) Rises
c) Remain unchanged

23) For which of the following group of products does U.S. rely exclusively on imports?
a) Petroleum, coal, natural gas, wood
b) Coffee, tea, cocoa, tin
c) Copper, aluminum, iron, steel
d) Computers, typewriters, airplanes, cars

MCQ 2
1. Which of the following products are not produced at all in the United States?
a. Coffee, tea, cocoa
b. steel, copper, aluminum
Mr. Ashraf Amin

c. petroleum, coal, natural gas

d. typewriters, computers, airplanes
2. International trade is most important to the standard of living of:
a. the United States
b. Switzerland
c. Germany
d. England
3. Over time, the economic interdependence of nations has:
a. grown
b. diminished
c. remained unchanged

d. cannot say

re

4. A rough measure of the degree of economic interdependence of a nation is given by:

te

a. the size of the nations' population

b. the percentage of its population to its GDP

is

c. the percentage of a nation's imports and exports to its GDP

eg

d. all of the above

5. Economic interdependence is greater for:

b. large nations

nR

a. small nations

c. developed nations

d. developing nations

6. The gravity model of international trade predicts that trade between two nations is larger
a. the larger the two nations
b. the closer the nations
c. the more open are the two nations
d. all of the above
7. International economics deals with:
a. the flow of goods, services, and payments among nations
b. policies directed at regulating the flow of goods, services, and payments
c. the effects of policies on the welfare of the nation
Mr. Ashraf Amin

d. all of the above

8. International trade theory refers to:
a. the microeconomic aspects of international trade
b. the macroeconomic aspects of international trade
c. open economy macroeconomics or international finance
d. all of the above
9. Which of the following is not the subject matter of international finance?
a. foreign exchange markets
b. the balance of payments
c. the basis and the gains from trade
d. policies to adjust balance of payments disequilibria

10. Economic theory:

re

a. seeks to explain economic events

te

b. seeks to predict economic events

c. abstracts from the many detail that surrounds an economic event

is

d. all of the above

eg

11. Which of the following is not an assumption generally made in the study of international
economics?

nR

a. two nations
b. two commodities

c. perfect international mobility of factors

d. two factors of production

12. In the study of international economics:

a. international trade policies are examined before the bases for trade
b. adjustment policies are discussed before the balance of payments
c. the case of many nations is discussed before the two-nations case
d. none of the above
13. International trade is similar to interregional trade in that both must overcome:
a. distance and space
b. trade restrictions
c. differences in currencies
Mr. Ashraf Amin

d. differences in monetary systems

14. The opening or expansion of international trade usually affects all members of society:
a. positively
b. negatively
c. most positively but some negatively
d. most negatively but some positively
15. An increase in the dollar price of a foreign currency usually:
a. benefit U.S. importers
b. benefits U.S. exporters
c. benefit both U.S. importers and U.S. exporters
d. harms both U.S. importers and U.S. exporters

16. Which of the following statements with regard to international economics is true?

re

a. It is a relatively new field

te

b. it is a relatively old field

c. most of its contributors were not economists

is

d. none of the above

eg

MCQ 3

a. free trade

nR

1. The Mercantilists did not advocate:

b. stimulating the nation's exports

c. restricting the nations' imports

d. the accumulation of gold by the nation
2. According to Adam Smith, international trade was based on:
a. absolute advantage
b. comparative advantage
c. both absolute and comparative advantage
d. neither absolute nor comparative advantage
3. What proportion of international trade is based on absolute advantage?
a. All
b. most
Mr. Ashraf Amin

c. some
d. none
4. The commodity in which the nation has the smallest absolute disadvantage is the commodity
of its:
a. absolute disadvantage
b. absolute advantage
c. comparative disadvantage
d. comparative advantage
5. If in a two-nation (A and B), two-commodity (X and Y) world, it is established that nation A
has a comparative advantage in commodity X, then nation B must have:
a. an absolute advantage in commodity Y

te

d. a comparative advantage in commodity Y

re

c. a comparative disadvantage in commodity Y

b. an absolute disadvantage in commodity Y

6. If with one hour of labor time nation A can produce either 3X or 3Y while nation B can

is

produce either 1X or 3Y (and labor is the only input):

eg

a. nation A has a comparative disadvantage in commodity X

b. nation B has a comparative disadvantage in commodity Y

nR

c. nation A has a comparative advantage in commodity X

d. nation A has a comparative advantage in neither commodity
7. If with one hour of labor time nation A can produce either 3X or 3Y while nation B can

produce either 1X or 3Y (and labor is the only input):

a. Px/Py=1 in nation A
b. Px/Py=3 in nation B
c. Py/Px=1/3 in nation B
d. all of the above
8. With reference to the statement in Question 6, if 3X is exchanged for 3Y:
a. nation A gains 2X
b. nation B gains 6Y
c. nation A gains 3Y
d. nation B gains 3Y
Mr. Ashraf Amin

9. With reference to the statement of Question 6, the range of mutually beneficial trade between
nation A and B is:
a. 3Y < 3X < 5Y
b. 5Y < 3X < 9Y
c. 3Y < 3X < 9Y
d. 1Y < 3X < 3Y
10. If domestically 3X=3Y in nation A, while 1X=1Y domestically in nation B:
a. there will be no trade between the two nations
b. the relative price of X is the same in both nations
c. the relative price of Y is the same in both nations
d. all of the above

11. Ricardo explained the law of comparative advantage on the basis of:

re

a. the labor theory of value

te

b. the opportunity cost theory

c. the law of diminishing returns

is

d. all of the above

eg

12. Which of the following statements is true?

a. The combined demand for each commodity by the two nations is negatively sloped

nR

b. the combined supply for each commodity by the two nations is rising stepwise
c. the equilibrium relative commodity price for each commodity with trade is given by
the intersection of the demand and supply of each commodity by the two nations

d. all of the above

13. A difference in relative commodity prices between two nations can be based upon a
difference in:
a. factor endowments
b. technology
c. tastes
d. all of the above
14. In the trade between a small and a large nation:
a. the large nation is likely to receive all of the gains from trade
b. the small nation is likely to receive all of the gains from trade
Mr. Ashraf Amin

10

c. the gains from trade are likely to be equally shared

d. we cannot say
15. The Ricardian trade model has been empirically
a. verified
b. rejected
c. not tested
d. tested but the results were inconclusive
16. If nation A can produce 5 units of good X or 10 units of good Y and nation B can produce 4
units of good X or 12 units of good Y we can conclude that nation A has a
a. Comparative advantage in X and an absolute advantage in Y
b. Comparative advantage in X and an absolute advantage in X

c. Comparative advantage in Y and an absolute advantage in X

re

d. Comparative advantage in Y and an absolute advantage in Y

te

18. If nation A can produce 5 units of good X or 10 units of good Y and nation B can produce 4
units of good X or 12 units of good Y we can conclude that both nations would gain from trade

is

if nation A sold _____ units of good _____ for one unit of good _____

eg

a. 0.4; Y; X
b. 2.5; Y; X

d. 0.4; X; Y

nR

c. 2.5; X; Y

19. The Mercantilists believed in

a. running trade surpluses

b. balanced trade

c. the logic of Adam Smith

d. both (b) and (c) are correct
20. The theory of Comparative Advantage was first proposed by
a. Smith
b. Ricardo
c. Haberler
d. Krugman

Mr. Ashraf Amin

11

MCQ 4
1. A production frontier that is concave from the origin indicates that the nation incurs
increasing opportunity costs in the production of:
a. commodity X only
b. commodity Y only
c. both commodities
d. neither commodity
2. The marginal rate of transformation (MRT) of X for Y refers to:
a. the amount of Y that a nation must give up to produce each additional unit of X
b. the opportunity cost of X

c. the absolute slope of the production frontier at the point of production

re

d. all of the above

te

3. Community indifference curves:

a. are negatively sloped

is

b. are convex to the origin

d. all of the above

eg

c. should not cross

nR

4. The marginal rate of substitution (MRS) of X for Y in consumption refers to the:

a. amount of X that a nation must give up for one extra unit of Y and still remain on the
same indifference curve

b. amount of Y that a nation must give up for one extra unit of X and still remain on the
same indifference curve
c. amount of X that a nation must give up for one extra unit of Y to reach a higher
indifference curve
d. amount of Y that a nation must give up for one extra unit of X to reach a higher
indifference curves
5. Which of the following statements is true with respect to the MRS of X for Y?
a. It is given by the absolute slope of the indifference curve
b. declines as the nation moves down an indifference curve
c. rises as the nation moves up an indifference curve
Mr. Ashraf Amin

12

d. all of the above

MCQ 5
1) In many developing nations, _________ provide employment opportunities
and ____________ to pay for the many products that cannot be produced
in the home country.
A)

imports, earnings

B)

exports, earnings

C)

exports, outputs

D)

imports, outputs

Answer: B
microeconomics

B)

economic interdependence

C)

macroeconomics

D)

open economies

te

A)

re

2) The economic relationship and integration among nations is defined as:

is

Answer: B

eg

3) The ratio between a countrys imports and exports of goods or services to

their gross domestic product (GDP) is a measure of that countrys:

nR

A) microeconomics

B) openness as an economy

C) macroeconomics

D) economic interdependence
Answer: D

4) The total value of all goods and services produced within a nations
borders is called:
A)

GDP

B)

net exports

C)

current account balance

D)

GNP

Answer: A
Mr. Ashraf Amin

13

5) The economic interdependence among nations has ___________ over

recent history.
A)

decreased

B)

remained the same

C)

increased

D)

none of the above

Answer: C
6) In 2001, the world GDP ______________, while the world trade level
decreased, increased

B)

increased, decreased

C)

decreased, decreased

D)

increased, increased

re

A)

____________ by 1 percent.

te

Answer: B

7) Which of the following analyzes the basis for and gains from trade?
Balance of payments

B)

Foreign exchange market

C)

International trade policy

D)

International trade theory

nR

eg

is

A)

Answer: D

8) Which of the following examines the reasons for and effects of trade
restrictions?
A)

Balance of payments

B)

Foreign exchange market

C)

International trade policy

D)

International trade theory

Answer: C
9) International trade theory and policies as they relate to individual
nations are the _____________________ aspects of international economics.
A)

International finance

B)
microeconomic
Mr. Ashraf Amin

14

C)

national income accounting

D)

macroeconomic

Answer: B
10)

_____________ has grown at a faster rate than ________________,

indicating an increase in economic interdependence among nations.

A)

World trade, world production

B)

US GDP, world GDP

C)

World production, world trade

D)

Output in the US, incomes in the US

Answer: A
Balance of payments issues

B)

International trade theory and polices

C)

Adjustments in the balance of payments

D)

GDP

te

A)

is

Answer: B
A)
B)

allows private ownership of capital

has flexible exchange rates
has fixed exchange rates

D)

trades with other nations

C)
Answer: D
13)

eg

A nation that has an open economy:

nR

12)

What are the microeconomic aspects of international economies?

re

11)

The most effective trade policy would be _______________, which

allows each nation to specialize in efficient production of commodities.

A)
B)

free trade
protectionism

C)

a closed economy

D)

none of the above

Answer: A
14)

Trade

___________
Mr. Ashraf Amin

restrictions

usually

benefit

large

majority

of

the

in the nation at the expense of a silent majority of

15

_________________.
A)

consumers, producers

B)

producers, consumers

C)

importers, exporters

D)

exporters, importers

Answer: B
15)

The world usually breaks up into which three primary trading

blocs?
A)
B)

NAFTA, EU, and EFTA

North American, European, and Asian
NAFTA, EU and Benelux

D)

North American, European, and South American

C)

16)

re

Answer: B

te

Which of the following countries are members of the North

American trading bloc?

D)

United States, Mexico, and Central America

nR

United States, Canada, and Mexico

The field of international economics:

A)

United States, Canada, and Greenland

C)
Answer: C
17)

is

B)

United States, Mexico, and Brazil

eg

A)

is a relatively new branch of economic study

B)

includes contributions from distinguished economists like Adam

Smith, David Ricardo and Alfred Marshall

C)

includes macroeconomics, but not microeconomics, issues.

D)

includes microeconomics, but not macroeconomics, issues.

Answer: B
18)
A)

With respect to international trade in the real world:

most nations impose some restrictions limiting the free flow of

goods.
B)
most nations have eliminated all barriers to free trade.
Mr. Ashraf Amin

16

C)

most nations have a completely closed economy.

D)

None of the above

Answer: A
19)
A)

Globalization ____________:
Is inevitable in a world with converging tastes for consumer goods.

B)

increases efficiency

C)

is often blamed for increasing inequalities in income distribution in

the world.
D)

All of the above

Answer: D

MCQ 6
between two nations is referred to as:

te

losses from trade

C)

gains from trade

D)

pattern of trade

Answer: A

is

B)

basis for trade

eg

A)

re

1) The economic force giving rise to the existence and degree of trade

nR

2) The increase in consumption in each nation resulting from specialization

in production and trading is referred to as:
B)

basis for trade

A)

losses from trade

C)

gains from trade.

D)

pattern of trade

Answer: C
3) The commodities exported and imported by each nation constitute the:
A)

basis for trade

B)

losses from trade

C)

gains from trade

D)

pattern of trade

Mr. Ashraf Amin

17

Answer: D
4) The school of thought during the seventeenth and eighteenth centuries
proposing that the way for a nation to become richer was to restrict
imports and stimulate exports was :
A)

Mercantilist.

B)

Classical School

C)

Laissez Faire

D)

Opportunity cost

Answer: A
5) _____________ explains how mutually beneficial trade can take place even

when one nation is less efficient than another nation in the production of

B)

Mercantilism
The law of comparative advantage
The labor theory of value

D)

The law of absolute advantage

is

C)

te

A)

re

all commodities.

eg

Answer: B

6) ______________ states that the cost or price of a commodity is determined

B)

Mercantilism

The law of comparative advantage

A)

nR

by, or can be inferred exclusively from, its labor content.

C)

The labor theory of value

D)

The opportunity cost theory

Answer: C
7) ______________ states that the true cost of a commodity is the amount of
a second commodity that must be given up to release just enough
resources to produce one more unit of the first commodity:
A)
B)

Mercantilism
The law of comparative advantage

C) The labor theory of value

Mr. Ashraf Amin

18

D)

The opportunity cost theory

Answer: D
8) The ability of one nation to produce a commodity using fewer resources
than another nation is:
A)
B)

absolute advantage
comparative advantage

C)

mercantilism

D)

specialization

Answer: A
9) When the amount of a commodity that must be given up to produce each

additional unit of another commodity, regardless of the amount of the

commodity foregone, is the same at every level of production, which of

B)

absolute advantage
comparative advantage
constant opportunity costs

D)

increasing opportunity costs.

eg

is

C)

Answer: C

The mercantilists would have objected to:

nR

10)

te

A)

re

the following exists?

the use of tariffs or quotas to restrict imports

B)

international trade based on open markets

A)
C)

export promotion policies initiated by the government

D)

trade policies designed to accumulate gold

Answer: B
11)

______________ is the utilization of all of a trading nations resources

in the production of only one commodity.

A)

Laissez-faire policy

B)

Complete specialization

C)

Incomplete specialization

D)

Mercantilism

Answer: B
Mr. Ashraf Amin

19

12)
A)

A laissez-faire policy is one in which:

The government regulates all aspects of economic activity

B)

The government interferes with economic activity to a moderate

level
C)

The government keeps regulation of economic activity to a minimum

D)

The governments interference in economic activity is completely

non-existent
Answer: C
13)

Which of these economists considered absolute advantage in

production to be the basis for trade between nations?

B)

Adam Smith
Alfred Marshall
David Ricardo

D)

David Hume

te

C)

re

A)

Answer: A

Which of these economists considered comparative advantage in

is

14)

B)

Adam Smith
Alfred Marshall

nR

A)

David Ricardo

D)

David Hume

Answer: C
A)

C)

15)

eg

production to be the basis for trade between nations?

According to the mercantilists:

Only one nation can gain from trade, and it is at the expense of

other nations.
B)

All nations can gain mutually from trade without any reduction in

welfare to any nation.

C)

No nations gain from trade, as it is necessary for each country to

sacrifice more than they gain.

D)

Trade has nothing to do with a nations wealth or well-being.

Answer: A
Mr. Ashraf Amin

20

16)
A)

Adam smith advocated a policy in which:

The government regulates all aspects of economic activity

B)

The government interferes with economic activity to a moderate

level
C)

The government keeps regulation of economic activity to a minimum

D)

The governments interference in economic activity is completely

non-existent
Answer: C
A)

David Ricardo

B)

Adam Smith

C)

The Mercantilists

D)

Alfred Marshall

The Wealth of Nations was published in 1776 by:

re

17)

18)

te

Answer: B

Essays and pamphlets on international trade, maintaining that the

is

only way for a nation to become rich and powerful was to export more
centuries by:
David Ricardo

B)

Adam Smith

nR

A)

the Mercantilists

D)

Alfred Marshall

Answer: C

C)

19)

eg

than it imported, were written during the seventeenth and eighteenth

According to mercantilism, the flow of _____________ would settle the

export surplus that results from trade.

A)
B)

Gold and diamonds

Diamonds and rubies

C)

Silver and copper

D)

Gold and silver

Answer: D
20)
The mercantilists measure the wealth of a nation by its stock of:
21
Mr. Ashraf Amin

A)

Gold and rubies

B)

Gold and silver

C)

Human and man-made capital

D)

Natural resources available for producing goods and services

Answer: B
21)

Mercantilists advocated a policy in which:

A)

The government regulates all aspects of economic activity

B)

The government interferes with economic activity to a moderate level

C)

The government keeps regulation of economic activity to a minimum

D) The governments interference in economic activity is completely non-

existent
Answer: A

With respect to international trade, a zero-sum game is one in

re

22)

te

which:

A) Only one nation can gain from trade, and it is at the expense of other
All nations can gain from trade mutually without any reduction in

welfare to any nation

No nations gain from trade, as it is necessary for each country to

nR

C)

eg

B)

is

nations

sacrifice more than they gain.

None of the above

Answer: A
23)

D)

The concept of absolute advantage provides that the resources of

trading partners are utilized most efficiently, and that the output of both
commodities will:
A)
B)

fall
rise

C)

stay the same

D)

increase initially, then decrease

Answer: B
24)
Japan is more efficient in the production of rice, and the United
22
Mr. Ashraf Amin

States is more efficient in the production of oranges. In the production of

rice, Japan is said to have a(n):
A)

comparative advantage

B)

absolute disadvantage

C)

absolute advantage

D)

comparative disadvantage

Answer: C
25)

Japan is more efficient in the production of rice, and the United

States is more efficient in the production of oranges. In the production of

comparative advantage

B)

absolute disadvantage
absolute advantage

D)

comparative disadvantage

te

C)

Answer: B

Japan is more efficient in the production of rice, and the United

is

26)

re

A)

rice, the United States is said to have a(n):

eg

States is more efficient in the production of oranges. In the production of

oranges, Japan is said to have a(n):
comparative advantage

B)

absolute disadvantage

nR

A)

absolute advantage

D)

comparative disadvantage

Answer: B
27)

C)

Japan is more efficient in the production of rice, and the United

States is more efficient in the production of oranges. In the production of

oranges, the United States is said to have a(n):
A)

comparative advantage

B)

absolute disadvantage

C)

absolute advantage

D)

comparative disadvantage

Answer: C
Mr. Ashraf Amin

23

28)

According to the following table, if the US trades 9 bushels of wheat

to the UK for 9 yards of cloth, the US gains from trade will equal:

A)
B)

U.S.

U.K.

Wheat (bushels/hr)

Cloth (yards/hr)

4 bushels of wheat
3 yards of cloth

C)

4 yards of cloth

D)

5 bushels of wheat
According to the following table, if the US trades 9 bushels of wheat

re

29)

Answer: C

te

to the UK for 8 yards of cloth, the UK gains from trade equal:

Wheat (bushels/hr)

B)

4 bushels of wheat
3 yards of cloth
4 yards of cloth

D)

5 bushels of wheat

Answer: B

C)

30)

U.K.

nR

A)

eg

Cloth (yards/hr)

is

U.S.

According to the following table, the UK can gain from trade with

the US by giving up how much cloth for 9 bushels of wheat?

A)
B)
C)

U.S.

U.K.

Wheat (bushels/hr)

Cloth (yards/hr)

Anything less than 12 yards of cloth

Anything greater than 9 yards of cloth
Only less than 5 yards of cloth

Mr. Ashraf Amin

24

D)

Only greater than 10 yards of cloth

Answer: A
31)

According to the following table, the US can gain from trade with

the UK by getting how much cloth for 9 bushels of wheat?

A)

U.S.

U.K.

Wheat (bushels/hr)

Cloth (yards/hr)

Only less than 12 yards of cloth

Only greater than 9 yards of cloth

C)

Anything less than 5 yards of cloth

D)

Anything greater than 5 yards of cloth

B)

32)

re

Answer: D

According to the following table, the US has a comparative

eg

Wheat (bushels/hr)

Wheat.

B)

Cloth
Both

D)

Neither

U.K.

C)

U.S.

nR

Cloth (yards/hr)
A)

is

te

advantage in:

Answer: A
33)

According to the following table, the UK has a comparative

advantage in:
U.S.

U.K.

Wheat (bushels/hr)

Cloth (yards/hr)

A)

Wheat

B)

Cloth.

Mr. Ashraf Amin

25

C)

Both

D)

Neither

Answer: B

MCQ 7
1) ______________________ cause a nation to give up more and more of one
commodity in order to produce each additional unit of another.
A)

Increasing opportunity costs

B)

Decreasing opportunity costs

C)

Constant opportunity costs

D)

Costs of production

Answer: A

re

2) Increasing opportunity costs result in a production possibilities frontier

that is ___________ from the origin.
concave

C)

linear

D)

horizontal

Answer: B

is

B)

te

convex

eg

A)

nR

3) _____________ is the amount of one commodity that a nation must give up

to produce each additional unit of another.
marginal cost

A)
B)

marginal rate of transformation (MRT)

C)

production frontier

D)

marginal rate of return

Answer: B
4) What is another name for the opportunity cost of a commodity?
A)
B)

marginal rate of substitution (MRS)

marginal rate of transformation (MRT)

C)

revealed comparative advantage

D)

marginal rate of return

Mr. Ashraf Amin

26

Answer: B
5. In the Mercantilist view of international trade (in a two-country world),
a) both countries could gain from trade at the same time, but the
distribution of the gains depended upon the terms of trade.
b) both countries could gain from trade at the same time, and the terms of
trade were of no sequence for the distribution of the gains.
c) neither country could ever gain from trade.
d) one country's gain from trade was associated with a loss for the other

country.

re

6. If the demand for traded goods is price-inelastic, the price-specie-flow

mechanism will result in

te

a) gold movements between countries that remove trade deficits and

is

surpluses.

eg

b) gold movements between countries that worsen trade deficits and

surpluses.

nR

c) negligible movements of gold between countries and hence little or no

adjustment of trade deficits and surpluses.

d) a removal of the basis for trade between countries.

7. According to the labor theory of value,
a) The value of labor is determined by its value in production.
b) The value of a good is determined by the amount of labor with which
each unit of capital in an industry works.
c) The price of a good A compared to the price of good B bears depends on
the relative amounts of labor used in producing each good.

Mr. Ashraf Amin

27

d) The values of two minerals such as coal and gold with similar production
costs may be very different.
8. In the price-specie-flow doctrine, a deficit country will _____ gold, and this
gold flow will ultimately lead to _____ in the deficit country's exports.
a) Lose, a decrease
b) lose, an increase
c) gain, a decrease
d) gain, an increase

9. Which of the following policies would NOT be consistent with the

re

Mercantilist balance-of -trade doctrine?

is

b) Import duties on final products.

te

a) Payment of high wages to labor.

eg

c) Export subsidies.

d) Prohibition of imports of manufactured goods.

nR

10. In Adam Smith's view, international trade,

a) Benefited both trading countries.

b) Was based on absolute cost differences.
c) Reflected the resource based of the countries in question.
d) all of the above.
11. The policy of minimum government interference in or regulation of
economic activity, advocated by Adam Smith and the Classic economists, was
known as,
a) The law of comparative advantage.
Mr. Ashraf Amin

28

b) laissez-faire.
c) The labor theory of value.
d) Mercantilism.
12. The price-specie-flow mechanism suggested that
a) a country could easily maintain a balance of payments surplus for a long
period of time.
b) a deficit country would experience an increase in its money supply and
its price level.

c) a surplus country would experience an increase in its money supply and

re

its price level.

te

d) a country's internal price level has no relation to the country's foreign

is

trade activities.

13. A Mercantilist policymaker would be in favor of which of the following

eg

policies or events pertaining to his/her country?

nR

a) A decrease in the size of the population.

b) A minimum wage bill to protect the standard of living of workers.

c) A prohibition on the export of manufactures goods.

d) A decrease in the percentage of factors of production devoted to raw
material extraction and an increase in the percentage devoted to
production of manufactured goods.

Mr. Ashraf Amin

29

14. Given the following Ricardo-type table showing the amount of labor input
needed to produce one unit of output of the two goods in the two countries.
Steel

Cloth

United Kingdom

4 days

8 days

Germany

6 days

9 days

a) The UK has an absolute advantage in both goods and comparative

advantage in cloth.
b) The pre-trade price ratio in UK is 1 steel = 2 cloth.
c) The UK has an absolute advantage in neither good but comparative
advantage in steel.

re

d) The pre-trade price ratio in Germany is 1 cloth = 1.5 steel.

te

15. Given the following Ricardo-type table showing the amount of labor input

wheat

India

Chairs

3 days

2 days

10 days

8 days

eg

Malaysia

is

needed to produce one unit of output in each industry in each country:

nR

a) A terms of trade of 1 wheat: 1.25 chairs is not a feasible equilibrium

terms of trade.
to India.

b) A terms of trade 1 wheat: 1.5 chairs would give all the gains from trade
c) Malaysia has an absolute advantage in both goods and a comparative
advantage in wheat.
d) India has an absolute advantage in both goods and a comparative
advantage in wheat.
16. In the Classical (Ricardo) analysis,
a) If a country has an advantage in a good, it also has a comparative
advantage in the good.
b) If a country has a comparative in a good, it cannot have an absolute
Mr. Ashraf Amin

30

advantage in the good.

c) A country can have a comparative advantage in a good at the same time
that it has an absolute advantage in that good.
d) A country with an absolute advantage in all goods cannot gain from

nR

eg

is

te

re

trade.

Mr. Ashraf Amin

31