Question

1. Which of the following is true for trade based on increasing returns?

A) the two countries differ in their production technologies

B) the two countries differ in their factor endowments

C) the pattern of trade is undetermined

D) there is no benefit from trade

2. If Japan is relatively capital rich and the United States is relatively land rich, then trade between those two formerly autarkic countries will:

A) lead to perfect specialization with Japan alone producing manufactures

B) create a world relative price of food that is lower than that of the US

C) lower the price of food in both countries

D) raise the price of food in both countries

E) none of the above

3. Which of the following is true?

A) for external economics, average cost decrease with industry level output; for internal returns to scale, average cost decreases with firm's level of output

B) for external economics, average cost increases with industry level output; for internal returns to scale, average cost increases with a firm's level of output

C) external economics is the same as internal returns to scale

D) for external economics, average cost decreases with firm level of output; for internal returns to scale, average cost decreases with industry level of output

4. For the monopolistic competition model:

A) it takes collusion among firms into consideration

B) it takes firms' strategic behavior into consideration

C) it takes both collusion and strategic behavior into consideration

D) it does not take strategic behavior into consideration

5. For the Ricardian Model:

A) the relative derived demand for home labor increases when the ratio of home to foreign wage increases

B) the relative derived demand for home labor does not change when the ratio of home to foreign wage increase

C) the relative derived demand for home labor decreases when the ratio of home to foreign wage increases as home labor becomes more expensive relative to foreign labor, goods produced in home also become more expensive, and world demand for these goods fall

D) there is no systematic relationship between the relative derived demand for home labor and the ratio of home to foreign wage

6. The Ricardian model is based on all of the following EXCEPT:

A) only two nations and two products

B) no diminishing returns

C) labor is the only factor of production

D) product quality varies among nations

E) none of the above

7. In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ----- unit labor requirements.

A) 1

B) 2

C) 3

D)4

E)5

8. The simultaneous export and import of widgets by the United States is an example of:

A) decreasing returns to scale

B) perfect competition

C) intra-industry trade

D) inter-industry trade

E) none of the above

Answer 1

1. If trade based on increasing return then  

C) the pattern of trade is undetermined.

this is because many different equilibrium are possible in the pure IRS model.

2. If Japan is relatively capital rich and the United States is relatively land rich, then trade between those two formerly autarkic countries will:

B) create a world relative price of food that is lower than that of the US

Because food is relatively land intensive.

3. True statement is

A) for external economics, average cost decrease with industry level output; for internal returns to scale, average cost decreases with firm's level of output

External economics occur within the industry. whereas, Internal return to scale are firm specific. Both are responsible for decrease in per unit cost.

4. For the monopolistic competition model:

B) it takes firms' strategic behavior into consideration.

With monopolistic competition several firms are each aware that their sales depend on the price they charge and possibly other actions they take, such as advertising. So strategic behavior becomes important.

6. The Ricardian model is based on all of the following EXCEPT:

D) product quality varies among nations.

Because in Recardian theory it is assumed that there is perfect competition in all the market. so products are homogeneous.

7. In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ----- unit labor requirements.

D. 4

The simultaneous export and import of widgets by the United States is an example of:

C) intra-industry trade

Because it refers to the exchange of similar products belonging to the same industry.