Chapter 2 – Ricardian Model

 

1. David Ricardo’s model, which provided an explanation of why nations trade, was based on:
2. A) total production
3. B)
4. C)
5. D) government control.

 

 

2. What is the marginal product of labor (MPL)?
3. A) the average output of a unit of labor
4. B) the extra output obtained by using one more unit of labor
5. C) the average output obtained by using one more unit of labor
6. D) the total output obtained by using one more unit of labor

 

 

3. Assume the MPL_t = 5 tennis rackets and MPL_b = 4 baseball bats. If the economy has 100 workers, then the economy can produce:
4. A) a maximum of 500 tennis rackets.
5. B) a maximum of 350 baseball bats.
6. C) 500 tennis rackets and 400 baseball bats.
7. D) either 100 tennis rackets or 100 baseball bats only.

 

 

 

4. The slope of the PPF can be expressed as:
5. A) the ratio of abundance of capital to labor.
6. B) the preferences of consumers in terms of marginal utility.
7. C) the ratio of the quantities of good 1 and good 2.
8. D) the negative of the ratio of the marginal products of labor in producing each good.

 

 

 

 

 

 

 

5. International trade allows countries to:
6. A) produce outside their PPF.
7. B) produce inside their PPF.
8. C) consume inside their PPF.
9. D) consume outside their PPF.

 

 

 

6. Moving to a lower indifference curve means that a country is:
7. A) better off.
8. B) worse off.
9. C)
10. D) lowering production.

 

7. According to the principle of comparative advantage, specialization and trade increase a nation’s total output because:
8. A) resources are directed to their highest productivity.
9. B) the output of the nation’s trading partner declines.
10. C) the nation can produce outside its production possibilities frontier.
11. D) the problem of unemployment is eliminated.

 

 

Use the following to answer questions 8-10.

 

SCENARIO: ABSOLUTE AND COMPARATIVE ADVANTAGE

Poland requires 4 hours of labor to produce a ton of coal and 10 hours of labor to produce 10 bushels of wheat. The Czech Republic requires 6 hours of labor to produce a ton of coal and 10 hours of labor to produce 10 bushels of wheat.

 

Poland:  Output per Labor Hour :  Coal – 0.25 tons  Wheat – 1 Bushel

Czech Republic : Output per Labor Hour :  Coal – 0.17 tons  Wheat – 1 Bushel

 

 

8. (Scenario: Absolute and Comparative Advantage) Which country has an absolute advantage in the production of wheat?
9. A) Poland
10. B) the Czech Republic
11. C) neither country
12. D) both countries

 

 

9. (Scenario: Absolute and Comparative Advantage) Which country has an absolute advantage in the production of coal?
10. A) Poland
11. B) the Czech Republic
12. C) neither country
13. D) both countries

 

 

10. (Scenario: Absolute and Comparative Advantage) Which country has a comparative advantage in the production of coal?
11. A) Poland
12. B) the Czech Republic
13. C) neither country
14. D) both countries

 

 

Use the following to answer questions 11-20.

 

SCENARIO: CHILE AND ARGENTINA

Chile and Argentina each produce jellybeans and peanut butter using labor as their only resource. Each country has 1,000 hours of labor. In Chile, 1 hour produces 1 pound of jellybeans and 2 hours produce 1 pound of peanut butter. In Argentina, 1 hour produces 1 pound of jellybeans and 3 hours produces 1 pound of peanut butter. When they do not trade with each other, Chile consumes 600 pounds of jellybeans and 200 pounds of peanut butter, and Argentina consumes 400 pounds of jellybeans and 200 pounds of peanut butter.

 

Production Efficiency:

 

Chile:                          Jelly Beans – 1 pound per hr              Peanut Butter – 0.5 pound per hr

Argentina :      Jelly Beans – 1 pound per hr              Peanut Butter – 0.33 pound per hr

 

1000 hrs in each country

 

Consumption in Autarky:

 

Chile:                          Jelly Beans – 600 pounds                   Peanut Butter – 200 pounds

Argentina :      Jelly Beans – 400 pounds                   Peanut Butter – 200 pounds

 

Trade:  Chile specializes in PB and Argentina in JB

 

 

11. (Scenario: Chile and Argentina) Which country has an absolute advantage in jellybean production?
12. A) Chile
13. B) Argentina
14. C) both Argentina and Chile
15. D) neither Argentina nor Chile

 

 

12. (Scenario: Chile and Argentina) Which country has a comparative advantage in jellybean production?
13. A) Chile
14. B) Argentina
15. C) both Argentina and Chile
16. D) neither Argentina nor Chile

 

 

13. (Scenario: Chile and Argentina) What are the endpoints of Chile’s production possibilities frontier?
14. A) 1,000 pounds of jellybeans and 500 pounds of peanut butter
15. B) 1,000 pounds of jellybeans and 2,000 pounds of peanut butter
16. C) 600 pounds of jellybeans and 200 pounds of peanut butter
17. D) There are no endpoints to Chile’s production possibilities frontier.

 

 

14. (Scenario: Chile and Argentina) What is the price of peanut butter in Argentina before the two countries begin to trade with each other?
15. A) ¹/₃ pound of jellybeans per pound of peanut butter
16. B) ¹/₂ pound of jellybeans per pound of peanut butter
17. C) 2 pounds of jellybeans per pound of peanut butter
18. D) 3 pounds of jellybeans per pound of peanut butter

 

 

15. (Scenario: Chile and Argentina) In order for Chile to gain from trade, the price of jellybeans must be less than:
16. A) 2 pounds of peanut butter per pound of jellybeans.
17. B) 3 pounds of peanut butter per pound of jellybeans.
18. C) 8 pounds of peanut butter per pound of jellybeans.
19. D) 50 pounds of peanut butter per pound of jellybeans.

 

 

16. (Scenario: Chile and Argentina) Argentina’s gains from trade will be largest when the price of jellybeans is:
17. A) 2 pounds of peanut butter per pound of jellybeans.
18. B) 3 pounds of peanut butter per pound of jellybeans.
19. C) 33 pounds of peanut butter per pound of jellybeans.
20. D) 50 pounds of peanut butter per pound of jellybeans.

 

 

17. (Scenario: Chile and Argentina) What is the opportunity cost of a pound of peanut butter in Chile?
18. A) 2 pounds of jellybeans per pound of peanut butter
19. B) 3 pounds of jellybeans per pound of peanut butter
20. C) 33 pounds of jellybeans per pound of peanut butter
21. D) 50 pounds of jellybeans per pound of peanut butter

 

 

18. (Scenario: Chile and Argentina) Now suppose that the two countries begin to trade with one another. Each completely specializes in the product in which it finds its comparative advantage. How many pounds of peanut butter and jellybeans do the two countries jointly produce?
19. A) 1,000 pounds of jellybeans and 400 pounds of peanut butter
20. B) 1,000 pounds of jellybeans and 500 pounds of peanut butter
21. C) 500 pounds of jellybeans and 1,000 pounds of peanut butter
22. D) 33 pounds of jellybeans and 500 pounds of peanut butter

 

 

19. (Scenario: Chile and Argentina) Now suppose that the two countries begin to trade with each other. Each completely specializes in the product in which it finds its comparative advantage. How many more pounds of peanut butter and jellybeans do the two countries jointly produce compared with production before they began to trade?
20. A) 1,000 pounds of jellybeans and 500 pounds of peanut butter
21. B) 0 pounds of jellybeans and 500 pounds of peanut butter
22. C) 1,000 pounds of jellybeans and 0 pounds of peanut butter
23. D) 0 pounds of jellybeans and 100 pounds of peanut butter

 

 

20. (Scenario: Chile and Argentina) Which group will benefit from trade between Chile and Argentina?
21. A) Chilean consumers
22. B) Argentinean peanut butter producers
23. C) Argentine consumers
24. D) Chilean consumers, Argentinean peanut butter producers, and Argentine consumers
25. E) Chilean consumers, Chilean peanut butter producers, Argentine Jellybean Producers and Argentine consumers

 

 

21. Suppose that there are two countries (Home and Foreign) that produce two goods. Home wages are 100% greater than Foreign wages. Will trade be possible between Home and Foreign?
22. A) No, because Foreign wages are lower than Home wages.
23. B) Yes, Foreign will be able to export both products to Home.
24. C) Yes, as long as Home marginal productivity of labor in one product is higher or lower than Foreign marginal productivity of labor in the same product.
25. D) No, because prices will be the same in each country.

 

 

 

22. Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant cost production. Home produces 1 ton of wheat or 0.5 ton of corn with a day of labor. Without trade (in autarky), Home’s daily production is 20 tons of wheat and 10 tons of corn. How large is Home’s labor force?
23. A) 50 workers
24. B) 40 workers
25. C) 30 workers
26. D) 20 workers

 

 

23. Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant cost production. Home produces 0.5 ton of corn or 1 ton of wheat with a day of labor. Without trade (in autarky), Home’s daily production is 20 tons of wheat and 10 tons of corn. Now suppose that Home has the opportunity to trade with Foreign at an international price of corn equal to 1 ton of wheat per ton of corn. In which product will Home find its comparative advantage?

 

Home :  Pc x 0.5 = Pw x 1  è  Pw/Pc = 0.5  i.e each ton of wheat costs 2 tons of corn

International Price  è  Pw/Pc = 1 i.e each ton of wheat costs 1 ton of corn

 

 

1. A) wheat
2. B) corn
3. C) both corn and wheat
4. D) neither corn nor wheat

 

 

24. Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant cost production. Home produces 0.5 ton of corn or 1 ton of wheat with a day of labor. Without trade (in autarky), Home’s daily production is 20 tons of wheat and 10 tons of corn. Suppose that Home completely specializes, and it consumes 20 tons of wheat after it begins trading with Foreign. Home trades with Foreign at a 1 to 1 ratio of corn for wheat. How many tons of corn does it consume when it trades with Foreign?

 

Home specializes :  Produces 40 tons of wheat  Consumes 20 tons of wheat Imports 20 tons of corn

 

 

1. A) 10 tons of corn
2. B) 20 tons of corn
3. C) 30 tons of corn
4. D) 40 tons of corn

 

 

25. Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant cost production. Home produces 0.5 ton of corn or 1 ton of wheat with a day of labor. Foreign produces 1 ton of corn and 0.5 ton of wheat. Without trade (in autarky), Home’s daily production is 20 tons of wheat and 10 tons of corn. At which international price will Home’s gains from trade be largest?

 

Home Specializes in wheat.  So should sell wheat at highest price.

 

1. A) 5 ton of wheat per ton of corn
2. B) 1 ton of wheat per ton of corn
3. C) 5 tons of wheat per ton of corn
4. D) 2 tons of wheat per ton of corn

 

 

26. Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant cost production. Home produces 0.5 ton of corn or 1 ton of wheat with a day of labor. Without trade (in autarky), Home’s daily production is 20 tons of wheat and 10 tons of corn. Suppose that, after trade occurs, the international price actually becomes 1.5 tons of wheat per ton of corn. Which statement is true?

 

Gains from trade as long as price per wheat is less than 2 tons of corn per ton of wheat.

 

1. A) Both Home and Foreign will gain from trade.
2. B) Neither Home nor Foreign will gain from trade.
3. C) Home will gain from trade but Foreign will not.
4. D) Foreign will gain from trade but Home will not.

 

 

 

27. Assume that Germany and China can produce beer and cloth. If the MPL_c/MPL_b for Germany is 2/5 and MPL_c/MPL_b for China is 1, then China should:

 

Germany:        MPL_c/MPL_b  = 2/5    è  5. MPL_c  =  2. MPL_b  è MPL_c<MPL_b

 

Chin:               MPL_c/MPL_b  = 1     è  1. MPL_c  =  1. MPL_b  è MPL_c = MPL_b

 

 

1. A) specialize in producing beer and export beer.
2. B) specialize in producing cloth and export cloth.
3. C) not specialize, because they will not benefit from it.
4. D) specialize in producing cloth and import cloth.

 

28. Assume that before trade MPLc in China is 10 yards of cloths, and MPLb in China is10 bottles of beer, while those in Germany are 2 and 5 respectively. After trade the international price is 0.6 yards of cloths for a bottle of beer.  The real wages could be

 

1. A) 10 yards of cloths in China and 5 cases of beer in Germany
2. B) 10 yards of cloths in China and 6 cases of beer in Germany
3. C) 10 yards of cloths or 6 cases of beer in China
4. D) Both A and C are correct

 

 

Chapter 3 Specific Factor model

 

29. Because of the “law of diminishing marginal returns” to a factor, as more labor is employed, its marginal product:
30. A)
31. B)
32. C) stays constant.
33. D) rises disproportionally.

 

30. Recalling the marginal product theory of wages, a worker’s “real” wage is:
31. A) twice the amount of the “money” wage.
32. B) what the “money” wage will purchase in terms of products.
33. C) what she earns after taxes.
34. D) what she would earn if her employer paid her fairly.

 

 

31. Suppose that the Home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. Will workers be better or worse off following the opening of trade with other countries?
32. Workers will be better off because the nominal wage increases.
33. Workers will be worse off because the nominal wage decreases.
34. Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls.
35. Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.

 

 

32. Suppose that there is an improvement in a country’s terms of trade between 2010 and 2011. This improvement means that:

Terms of trade = export price/import price

 

2010. A) it can purchase more imports in 2011 with the same volume of exports as in 2010.
2011. B) it can purchase more exports in 2011 with the same volume of exports as in 2010.
2012. C) it needs to increase its exports in order to purchase the same volume of imports as in 2011.
2013. D) with regard to its international trade, it is worse off in 2011 than it was in 2010.

 

 

 

33. The argument that trade generates gains for all workers may not be true because:
34. A) a more realistic assumption includes capital and land as factors of production and recognizes that trade will generate gains for some factors and losses for others.
35. B) greedy corporations exploit workers.
36. C) technology gains are concentrated among low-skill workers.
37. D) some workers lack skills and training and cannot find jobs.

 

 

34. In contrast to the Ricardian model, international trade in the specific-factors model will:
35. A) lead to gains for all resources.
36. B) lead to losses for all resources.
37. C) lead to gains for some resources and losses for other resources.
38. D) not cause changes in the returns of any resources.

 

 

 

35. As relative prices in various industries change due to trade, the marginal product of the mobile resources used in the expanding industry __________, and the marginal product of the mobile resources used in the contracting industry __________.
36. A) rises; falls
37. B) falls; rises
38. C) remains the same; remains the same
39. D) changes by exactly the same percentage; changes by exactly the same percentage

 

 

36. In the specific-factors model, suppose that a country has a comparative advantage in manufacturing output. Will workers be better or worse off following the opening of trade with other countries?
37. A) Workers will be better off because the nominal wage increases.
38. B) Workers will be better off because both nominal and real wages increase.
39. C) Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good
40. D) Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.

 

Use the following to answer questions 37-39.

 

Table: Production and Prices in Two Industries

 

Marginal Product of Labor in Agriculture (MPLa)	Marginal Product of Labor in Manufacturing (MPLm)	Price of Agriculture Good (Pa)	Price of Manufacturing Good (Pm)
5	3	$10	$10

 

 

 

37. (Table: Production and Prices in Two Industries) According to the information provided in the table, the wage rate in the agriculture sector is:
38. A) $50.
39. B) $15.
40. C) $30.
41. D) $10.

 

 

38. (Table: Production and Prices in Two Industries) According to the information provided in the table, the wage rate in the manufacturing sector is:
39. A) $50.
40. B) $10.
41. C) $100.
42. D) $30.

 

 

39. (Table: Production and Prices in Two Industries) Using the information from the table, we can expect the following to happen in the economy:
40. A) Labor will migrate from the agriculture to the manufacturing sector.
41. B) Labor will migrate from the manufacturing to the agriculture sector.
42. C) The marginal product of labor in the agriculture sector will increase.
43. D) The marginal product of labor in the manufacturing sector will decrease.

 

 

40. The Trade Adjustment Assistance program is:
41. A) an unemployment insurance program regardless of the reason for job loss.
42. B) an unemployment insurance program that pays for job loss due to import competition.
43. C) a subsidy program for the producers.
44. D) a tax on importers of foreign goods.

 

41. The specific-factors model concludes that if there is a decrease in relative price in one industry, the factor specific to that industry will:
42. A) experience an increase in its marginal product.
43. B) experience a decrease in its marginal product.
44. C) be transferred to other industries.
45. D) have competition as additional units of that specific factor are hired from other industries.

 

Use the following to answer questions 42-47.

 

Table: Sales and Payments

 

Manufacturing sales revenue = $1000

Total wages paid to labor in manufacturing = $500

Total wages paid to labor in agriculture = $500

Total payments to land = $500

 

 

 

42. (Table: Sales and Payments) What is the total payment to capital in the manufacturing sector?
43. A) $1,500
44. B) $1,000
45. C) $500
46. D) $0

 

 

43. (Table: Sales and Payments) What is the total revenue (Price x Quantity) of the agricultural sector?
44. A) $400
45. B) $500
46. C) $600
47. D) $1,000

 

 

44. (Table: Sales and Payments) Now suppose that the price of the manufactured good rises by 20% with no change in the price of the agricultural good. Wages in both sectors rise by 10%.  Find the new value of the payment to capital.
45. A) $700
46. B) $650
47. C) $600
48. D) $500

 

 

45. (Table: Sales and Payments) Find the new value of the rental on land with the same changes in the price of the manufactured good and wages as in the previous question.
46. A) $550
47. B) $500
48. C) $450
49. D) $400

 

 

46. (Table: Sales and Payments) What is the correct ordering (from highest to lowest) of changes in the real wage, real rental on capital, and real rental on land in the previous set of questions?
47. A) real rental on land, real wage, real rental on capital
48. B) real wage, real rental on land, real rental on capital
49. C) real rental on capital, real rental on land, real wage
50. D) real rental on capital, real wage, real rental on land

 

 

47. (Table: Sales and Payments) Suppose that the price of the agricultural good increases with no change in the price of the manufactured good. Which resource will gain the most?
48. A) capital
49. B) labor
50. C) land
51. D) capital and labor

 

 

Chapter 4 – H-O Model

 

48. The conclusion that a labor-abundant country exports the good using labor intensively used in production and a capital-abundant country exports the good using capital intensively in production is known as:
49. A) factor-intensity reversal.
50. B) the Heckscher-Ohlin theorem.
51. C) Ricardian comparative advantage.
52. D) the Stolper-Samuelson theorem.

 

 

49. Suppose that country 1 is capital abundant relative to country 2. Both produce two goods (X and Y). Factor-intensity reversal occurs whenever:
50. A) X is capital intensive in country 1 and labor intensive in country 2.
51. B) X is capital intensive in both countries.
52. C) Y is capital intensive in both countries.
53. D) X is capital intensive in country 1, and Y is labor intensive in country 2.

 

50. Suppose that the United States and China each produce steel and cloth. In the Heckscher-Ohlin model, if the United States enjoys a comparative advantage in steel production, then:
51. A) China must have an absolute advantage in cloth production.
52. B) the United States will also have a comparative advantage in cloth production.
53. C) China must have a comparative advantage in cloth production.
54. D) the United States must have an absolute advantage in steel production.

 

 

Use the following to answer questions 51-52.

 

Table: Factor Use in Trade

 

	Exports	Imports
Capital ($ million)	$3.55	$5
Labor (person-years)	192	160
Capital/Labor ($/person)

 

 

 

51. (Table: Factor Use in Trade) In the hypothetical economy provided, what is the capital-to-labor ratio for exports?
52. A) $1,849
53. B) $35,500
54. C) $18,490
55. D) $1,920

 

 

52. (Table: Factor Use in Trade) In the hypothetical economy provided, what is the capital-to-labor ratio for imports?
53. A) $31,250
54. B) $21,500
55. C) $1,600
56. D) $3,125

 

 

53. Assume that Home is relatively abundant in labor and relatively scarce in land. The Heckscher-Ohlin model predicts that trade with other countries will cause increased returns to:
54. A) Home’s labor.
55. B) Home’s land.
56. C) both Home’s labor and land.
57. D) neither Home’s labor nor land.

 

54. The wage paid to labor should increase when:
55. A) the capital/labor ratio increases.
56. B) the capital/labor ratio decreases.
57. C) a country’s labor force increases.
58. D) a country’s capital stock decreases.

 

55. The conclusion that international trade will lead to an increase in real earnings of a country’s abundant resource is known as:
56. A) factor-intensity reversal.
57. B) the Heckscher-Ohlin theorem.
58. C) Ricardian comparative advantage.
59. D) the Stolper-Samuelson theorem.

 

 

56. Suppose that the price of shoes (which are labor intensive) has risen by 10%. Then which of the following can you say for sure about Home?
57. A) Home wages will rise by more than 10%.
58. B) Home rental rates will rise by more than 10%.
59. C) Home wages will rise by no more than 10%.
60. D) Home rental rates will fall by at least 10%.

 

Chapter 5 – Factor Movements

 

 

57. The Mariel boatlift of Cuban immigrants into Miami caused the:
58. A) population of unskilled workers in Miami to decline.
59. B) population of skilled workers in Miami to decline.
60. C) supply of labor to increase, but it did not decrease the wages.
61. D) wages of all workers to decline.

 

 

58. To study labor migration using the specific-factors model, we assume ________ and ________ cannot move within the domestic economy, but we allow ________ to move both domestically and internationally.
59. A) land; capital; labor
60. B) labor; land; capital
61. C) land; loanable funds; capital
62. D) labor; capital; land

 

59. If a person leaves Sweden to work in the United States, she is said to ________from Sweden and __________to the United States.
60. A) immigrate; emigrate
61. B) emigrate; immigrate
62. C) immigrate; immigrate
63. D) emigrate; emigrate

 

60. In the specific-factors model, labor migration from Mexico to the United States will cause _________ in U.S. low-skilled wages and _________ in Mexican low-skilled wages.
61. A) increases; decreases
62. B) increases; increases
63. C) decreases; decreases
64. D) decreases; increases

 

 

61. In order to analyze migration in the long run, it is appropriate to use:
62. A) the specific-factors model with free movement of labor across borders.
63. B) the Heckscher-Ohlin model with free movement of labor across borders.
64. C) the Ricardian model with no movement of labor across borders.
65. D) the PPF modified for three goods, three factors of production (all fixed), and three nations.

 

 

62. In the long run, when there is immigration of labor and all domestic factors of production are mobile:
63. A) resources move out of the labor-intensive industry into the other sectors of the economy.
64. B) the excess labor cannot be absorbed into the economy, and eventually workers will seek to emigrate.
65. C) the excess labor is absorbed, but it raises the unemployment rate and drives down wages, and the owners of capital are the clear winners.
66. D) the capital-labor ratio in each industry is unchanged, and the additional labor in the economy is fully employed.

 

 

63. In the long run (the HO model), immigration will lead to:
64. A) an increase in the wage and a decrease in the return to capital in the receiving country.
65. B) an increase in both the wage and the return to capital in the receiving country.
66. C) a decrease in the wage and an increase in the return to capital in the receiving country.
67. D) no change in the wage and the return to capital in the receiving country.

 

 

64. The hypothesis that the results of a long-run Heckscher-Ohlin model with labor immigration will result in an increase in production for the labor-intensive industry while reducing production in the capital-intensive industry is known as the _____ theorem.
65. A) Stolper-Samuelson
66. B) specific-factors
67. C) Ricardian
68. D) Rybczynski

 

Chapter 6 – Monopolistic Competition

 

65. A differentiated product is one that:
66. A) is slightly different from the competitor’s product, although it is a close substitute.
67. B) is very different.
68. C) is traded within firms and is not for sale in retail markets.
69. D) has a shelf life of less than 1 year.

 

 

66. Which of the following features is characteristic of monopolistic competition?
67. A) many large producers
68. B) homogeneous products
69. C) differentiated products
70. D) No individual producer has any influence on the market price.

 

 

67. The monopoly equilibrium occurs when:
68. A) the monopolist has driven out all competitors.
69. B) the monopoly firm has sold the maximum number of units.
70. C) the monopoly firm produces the quantity that maximizes its profits (or minimizes loss) where MR = MC.
71. D) the monopoly firm has gotten unions to agree to wage concessions.

 

68. When there are increasing returns to scale, average costs must be:
69. A)
70. B)
71. C)
72. D) falling, then rising.

 

SCENARIO: A MONOPOLIST’S MARKET

A monopolistically competitive firm faces demand given by this equation: P = 50 – Q. It has no fixed costs and its marginal cost is $20 per unit.

 

 

69. (Scenario: A Monopolist’s Market ) What quantity will the firm produce when it is maximizing its profits?
70. A) 10
71. B) 15
72. C) 20
73. D) 25

 

 

70. (Scenario: A Monopolist’s Market ) What price will the firm charge when it is maximizing its profits?
71. A) $20
72. B) $25
73. C) $30
74. D) $35

 

 

71. (Scenario: A Monopolist’s Market ) What is the value of the firm’s monopoly profits when it sets a price that maximizes its monopoly profits if the average cost equals marginal cost?
72. A) $125
73. B) $300
74. C) $425
75. D) $225

 

 

72. In the long run, a monopolistically competitive firm:
73. A) will earn normal profits.
74. B) will earn excess profits.
75. C) will earn no profits.
76. D) will produce where marginal cost equals price.

 

73. In the short run trade equilibrium a monopolistically competitive firm:
74. A) produces more output.
75. B) earns monopoly profits.
76. C) reduces its average costs.
77. D) produces more output, reduces its average costs, but makes losses.

 

 

74. In the long run trade equilibrium, a monopolistically competitive firm:
75. A) produces more output and earns monopoly profits.
76. B) produces less output and earns monopoly profits.
77. C) produces more output, reduces its average costs, but makes zero profits.
78. D) produces less output and increases its average costs.

 

 

Chapter 7 – Offshoring

 

 

75. Which of the following is an example of offshoring?
76. A) Intel undertakes direct foreign investment in China to produce computer chips.
77. B) Ford Motor Company establishes a factory in Germany to produce automobiles for the European market.
78. C) General Motors moves assembly operations for Chevrolets to its plant in Mexico.
79. D) Nike contracts with an Indonesian factory to produce tennis shoes for the U.S. market.

 

76. Which of the following activities in the value chain is most likely to be offshored?
77. A) R&D
78. B) sales
79. C) component production
80. D) assembly

 

77. When two countries open up for offshoring, skilled labor in which country tends to gain relative to unskilled labor?
78. A) the skilled-labor-abundant country
79. B) the unskilled-labor-abundant country
80. C) both countries
81. D) neither country

 

 

78. The offshoring of unskilled work from home country to a foreign country will cause:
79. A) an increase in the wages for unskilled workers in the home country.
80. B) a decrease in the wages for skilled workers in the home country.
81. C) an increase in the wages for skilled workers in the home country.
82. D) a decrease in the wages for skilled workers in the foreign country.

 

 

79. Which of the following groups of Ford Motor Company employees will be most adversely affected by Ford’s offshoring of part of its operations to Mexico?
80. A) Ford engineers and scientists
81. B) Ford accountants
82. C) Ford managers
83. D) Ford assembly line workers

 

80. When countries open up for offshoring, which will tend to specialize in research and development?
81. A) the skilled-labor-abundant country
82. B) the unskilled-labor-abundant country
83. C) both countries
84. D) neither country

 

 

Use the following to answer questions 80-86.

 

Figure: Production I: With and Without Offshoring

 

 

 

81. (Figure: Production I: With and Without Offshoring) Which line shows the initial level of production for the economy?
82. A) line A
83. B) Y₀ (the curved-in line)
84. C) the bowed-out curved line
85. D) the vertical axis

 

 

82. (Figure: Production I: With and Without Offshoring) In “no-offshoring” equilibrium, how many units of component production will occur?
83. A) 60
84. B) 80
85. C) 100
86. D) 120

 

 

83. (Figure: Production I: With and Without Offshoring) In a “no-offshoring” equilibrium, how many units of R&D production will occur?
84. A) 60
85. B) 80
86. C) 100
87. D) 120

 

 

84. (Figure: Production I: With and Without Offshoring) Which line shows the relative prices of skilled versus unskilled workers?
85. A) line A
86. B) Y₀ (the curved-in line)
87. C) the bowed-out curved line
88. D) the vertical axis

 

 

85. (Figure: Production I: With and Without Offshoring) Assuming skilled workers are needed for R&D and unskilled workers are needed for components, if there is an increase in the price for research and development products, the firm will ________ those products, the demand for __________ will increase, their wages will rise, and the price line above will __________.
86. A) import; unskilled workers; become steeper
87. B) export; skilled workers; become flatter
88. C) neither import nor export; both workers in the same proportion; not change
89. D) import; unskilled workers; become flatter

 

 

86. (Figure: Production I: With and Without Offshoring) If component parts become relatively cheaper abroad, the firm will have an incentive to:
87. A) offshore (import) components and export R&D.
88. B) import R&D products along with the skilled workers.
89. C) export both R&D and component parts.
90. D) make few changes in the trading regime because of the delicate international balance.

 

 

87. (Figure: Production I: With and Without Offshoring) If this nation offshores its component production and exports R&D, how many units of each will it be consuming?
88. A) 60 R&D; 120 components
89. B) 80 R&D; 80 components
90. C) 100 R&D; 100 components
91. D) 80 R&D; 200 components

 

 

Chapter 8 – Import tariff

 

 

88. Most favored nation status requires:
89. A) a WTO member that reduces a tariff on imports from one WTO trading partner to apply the lower tariff to imports from all other WTO members.
90. B) a WTO member that reduces a tariff on imports from one WTO trading partner to apply the lower tariff to imports from all other countries.
91. C) a WTO member that increases a tariff on imports from one WTO trading partner to raise the tariff on imports from all other WTO members.
92. D) a WTO member that increases a tariff on imports from one WTO trading partner to raise the tariff on imports from all other countries.

 

89. A customs union is different from a free-trade area, in that:
90. A) the latter allows for free movement of factors, whereas the former does not.
91. B) the latter allows for uniform tariffs, whereas the former does not.
92. C) the latter removes trade barriers between member countries, whereas the former adopts identical tariffs with the rest of the world.
93. D) the former removes trade barriers between member countries, whereas the latter adopts identical tariffs with the rest of the world.

 

 

Use the following to answer questions 90-96.

 

SCENARIO: GUATEMALA’S TELEVISION MARKET

This table gives the hypothetical supply and demand of television sets in Guatemala. Guatemala is a small country that is unable to affect world prices. The world price (free-trade price) is $300 per TV set.

 

Price	Quantity Demanded	Quantity Supplied
$100	3,200	200
$200	2,800	400
$300	2,400	600
$400	2,000	800
$500	1,600	1,000
$600	1,200	1,200
$700	800	1,400

 

 

 

90. (Scenario: Guatemala’s Television Market) In the absence of trade, how many TV sets will Guatemala produce?
91. A) 1,400
92. B) 1,200
93. C) 1,000
94. D) 800

 

 

91. (Scenario: Guatemala’s Television Market) With free trade, how many TV sets will Guatemala produce?
92. A) 800
93. B) 600
94. C) 400
95. D) 200

 

 

92. (Scenario: Guatemala’s Television Market) With free trade, how many TV sets will Guatemala import?
93. A) 1,800
94. B) 1,200
95. C) 800
96. D) 600

 

 

93. (Scenario: Guatemala’s Television Market) Suppose that Guatemala now imposes a 100% tariff on imported TVs. How many TVs will it now import?
94. A) 0
95. B) 200
96. C) 400
97. D) 600

 

 

94. (Scenario: Guatemala’s Television Market) How much total tariff revenue will Guatemala collect when it imposes the 100% tariff on imported TVs?
95. A) $300
96. B) $0
97. C) $240,000
98. D) $360,000

 

 

95. (Scenario: Guatemala’s Television Market) What is the value of the total welfare losses that Guatemala will suffer as a result of the 100% tariff on imported TVs?
96. A) $270,000
97. B) $360,000
98. C) $540,000
99. D) $720,000

 

 

96. (Scenario: Guatemala’s Television Market) Who will benefit from Guatemala’s 100% tariff on imported TVs?
97. A) Guatemala’s consumers
98. B) Guatemala’s TV producers
99. C) Guatemala’s TV importers
100. D) foreign TV manufacturers