Review questions
Please note:
These review questions are to be used as an additional source of material to review for the exam.
I plan to go over these questions/answers in class on Monday, October 3. Everything we have
covered in class, homework, and chapters (2 through 6) in the textbook is legitimate material for
exam 1. Exam 1 will include 20 multiple-choice questions and 5 true/false questions.
Chapter 2
1.
Consumer surplus is the:
a. net economic gain to consumers of purchasing the equilibrium quantity of a good.
b. total value to consumers of the equilibrium quantity of a good.
c. the sum of the total value to consumers of the equilibrium quantity of the good and the total
payments made to purchase the equilibrium quantity.
d. none of the above.
ANSWER: A
2.
Consumer surplus is:
a. the net gain in economic well-being that results from the purchase and consumption of a
good.
b. the sum of the total value to consumers and the total payments made by consumers to
purchase the equilibrium quantity of the good.
c. found on the graph as the area above the demand curve and below the equilibrium price.
d. all of the above.
ANSWER: A
3.
Price elasticity of demand is:
a. a measure of the responsiveness of consumers to changes in income.
b. a measure of the responsiveness of consumers to changes in price.
c. the slope of the demand curve.
d. a measure of the amount by which the demand curve shifts as a result of a change in price.
ANSWER: B
4. Which of the following statements are true about which country gains more from
international trade in a two-country world?
(1)
The gains from trade are divided in proportion to the price changes that trade brings to the
two countries.
(2)
The country with the steeper trade curve gains more.
(3)
The country that experiences the larger price change as a result of trade has the larger
value of net gains from trade.
a. (1) + (2)
b. (1) + (3)
c. (2) + (3)
d. (1) + (2) + (3)
ANSWER: D
1
Figure 2.4
P($)
32
17
11
D
Q1=5
Q2=7
Q
5.
Refer to Figure 2.4. The dollar amount of consumer surplus associated with Q2 units of the good is:
a. 17.5.
b. 50.
c. 73.5.
d. 140
ANSWER: C
6.
Refer to Figure 2.4. The dollar amount of consumer surplus associated with Q1 units of the good is:
a. 37.5.
b. 50.
c. 70.
d. 122.5.
ANSWER: A
Figure 2.9
P($)
P($)
Sx
Sc
a
b
c
600
400
800
d
j+k
600
e
e
m
Dm
Dc
10 20 30
China
P($)
Q
20
International Market
Sf
f
800
600
g
jk
h
Df
6 16 26
Rest of the World
Q
.
2
Q
Refer to Figure 2.9. The markets for widgets in China and the Rest of World are depicted
in the three-graph diagram. Answer questions 7-11 based on the figure.
7. Before trade opens, China consumes and produces _______ widgets.
a. 20
b. 30.
c. 10.
d. 400
e. 600
ANSWER: A
8. Before trade opens, consumers pay $_______ per widget in China.
a. 20
b. 30.
c. 10.
d. 400
ANSWER: D
9. With free trade, producers in China produce _______ widgets.
a. 20
b. 30.
c. 10.
d. 600
ANSWER: B
10. With free trade, consumers in China consume _______ widgets
a. 20
b. 30.
c. 26.
d. 400
e. None of the above is the correct answer
ANSWER:
E
11. As a result of trade, overall economic welfare in China will (increase/decrease) by $_______.
a. increase; 2000
b. increase; 4000
c. decrease; 4000
d. increase; 200
ANSWER:
A
Chapter 3
Table 3.1
Productivity
Umbrellas per labor hour
Bushels of corn per labor hour
In the United Kingdom
In the Rest of the World
1.00
0.20
0.50
0.70
3
12.
Refer to Table 3.1. The number of labor hours to make 1 umbrella in the United Kingdom is:
a. 0.5.
b. 1.
c. 1.43.
d. 2.
ANSWER: B
13.
Refer to Table 3.1. The number of labor hours to produce 1 bushel of corn in the Rest of the
World is:
a. 0.5.
b. 1.
c. 1.43.
d. 2.
ANSWER: C
14.
Refer to Table 3.1. Given the productivity information in Table 3.1, the rest of the world has an
absolute advantage in the production of _______ and the United Kingdom has an absolute
advantage in the production of _______.
a. umbrellas; corn
b. corn; umbrellas
c. corn; neither good
d. neither good; umbrellas
ANSWER: B
15.
Refer to Table 3.1. If the United Kingdom shifts 1 hour of labor from the production of corn to
the production of umbrellas and the rest of the world shifts 1 hour of labor from the production of
umbrellas to the production of corn, total world production of corn will ____ by _____ bushels
and total world production of umbrellas will _____ by _____.
a. increase; 1; decrease; 1
b. increase; 1.43; increase 1
c. increase; 0.5; increase; 0.5
d. decrease; 0.5; increase; 0.7
ANSWER: C
16.
If a country exports the good that it can produce at a low opportunity cost and imports those
goods that it would otherwise produce at a high opportunity cost, we say that such trade is based
upon _______.
a. absolute advantage
b. arbitrage
c. labor productivity differences
d. comparative advantage
ANSWER: D
17.
Which of the following is NOT true about a nation’s production-possibility curve?
a. The production-possibility curve shows all the amounts of different products that an economy
can produce when its resources are fully employed.
b. Points inside the production-possibility curve are feasible, but represent unemployment of
some of the economy’s resources.
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c. Points outside the production-possibility curve are not feasible production points given the
resources in the economy.
d. The production-possibility curve shows the points that are preferred by the economy.
ANSWER: D
Chapter 4
18.
Heckscher-Ohlin theory predicts that trade occurs because of differences in:
a. the availability of factor inputs to production across countries.
b. the proportions of factor inputs used in the production of different
products.
c. the composition of the work force in a country.
d. both a and b.
ANSWER: D
19.
Which of the following is not true about trade?
a. Trade will cause expansion in the export-oriented sector.
b. Trade will cause contraction in the import-competing sector.
c. Trade occurs because of similarities in the availability of factor inputs across countries and
differences in the proportions of those factors that are used in producing different products.
d. None of the above is the correct answer.
ANSWER: C
20.
If the price of corn increases by 15% and the price of shoes remains constant, the StolperSamuelson theorem predicts that:
a. the rental rate of land increases by less than 15%.
b the rental rate of land increases by more than 15%.
c. the wage rate will increase.
d. the wage rate will stay the same.
ANSWER: B
21. With free trade, if Country X is relatively land abundant and relatively labor scarce and Country Y is
relatively land scarce and relatively labor abundant, the factor-price equalization theorem predicts
that:
a. wages will rise in Country X and fall in Country Y until they equalize.
b. wages will rise in Country Y and fall in Country X until they equalize.
c. wages will rise in Country X and land rents will fall in Country X until they equalize.
d. wages will fall in Country X and land rents will rise in Country X until they equalize.
ANSWER: B
22.
With free trade, if Country X is relatively labor abundant and relatively land scarce and Country
Y is relatively labor scarce and relatively land abundant, the factor-price equalization theorem
predicts that:
a. land rents will rise in Country X and fall in Country Y until they equalize.
b. land rents will fall in Country X and rise in Country Y until they equalize.
c. wages will rise in Country X and fall in Country Y until they equalize.
d. both a and c
ANSWER: A
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23.
The factor-price equalization theorem predicts that even without the migration of factors between
countries, free trade will cause:
a. workers with the same skill levels to earn the same wage rate in both countries.
b. land of comparable quality will earn the same rent in both countries.
c. both a and b.
d. none of the above.
ANSWER: C
24.
Which of the following is not a product whose (U.S.) trade is consistent with Heckscher-Ohlin
theory?
a. wheat
b. aircraft
c. toys
d. steel
ANSWER: D
25.
Which of the following is an export-oriented factor in the United States?
a. physical capital
b. mineral rights
c. unskilled labor
d. skilled labor
ANSWER: D
Chapter 5
26.
Which of the following is not an example of intra-industry trade?
a. Europe exports Airbus airplanes and imports Boeing airplanes.
b. Americans export Jeeps and import Jaguars.
c. Japan exports cars and imports oil.
d. America exports films to the rest of the world and imports foreign films.
ANSWER: C
27.
Which of the following statements about intra-industry trade is accurate?
(1)
(2)
(3)
Intra-industry trade occurs primarily between developed countries.
Intra-industry trade is less prevalent where trade barriers are low.
Intra-industry trade has become more prominent over the last 50 years.
a. (1) + (2)
b. (2) + (3)
c. (1) + (3)
d. (1) + (2) + (3)
ANSWER: C
28.
Which of the following refers to the situation that arises when consumers view products produced
in an industry as similar, but not perfect substitutes for each other?
a. product differentiation
b. net trade
c. intra-industry trade
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d. constant returns to trade
ANSWER: A
29.
_______ exist if increasing expenditures on all inputs increases the output quantity by a larger
percentage.
a. Constant returns to scale
b. Economies of scale
c. Product differentiations
d. Monopolies
ANSWER: B
30.
If the expansion of the size of a firm is responsible for a decline in average cost, then _______ are
present.
a. internal scale economies
b. external scale economies
c. product differentiations
d. constant returns to scale
ANSWER: A
31.
When the average cost of the typical firm declines as the output of the industry within a
geographic area increases we call that:
a. internal scale economies
b. external scale economies
c. product differentiations
d. constant returns to scale
ANSWER: B
32.
Which of the following is the basis for trade in a monopolistically competitive market?
a. scale economies
b. product differentiation
c. constant returns to scale
d. net trade
ANSWER: A
33.
Which of the following is most probably a cause of net trade in an industry’s products?
(1)
(2)
(3)
differences between countries and their firms
differences in international marketing capabilities
shifting consumer tastes towards or away from specific varieties produced by each
country
a. (1)
b. (1) + (2)
c. (2) + (3)
d. (1) + (2) + (3)
ANSWER: D
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Chapter 6
34.
(1)
(2)
(3)
Which of the following statements it true?
If a country’s endowment of only one of its productive inputs increases, production of
some products produced in that country will decline.
An improvement in the productive capacity in a country’s export sector can make that
country either better off or worse off.
Increases in technology and increases in the endowments of productive inputs can both
cause the production-possibility curve to shift outward.
a. (1)
b. (2) + (3)
c. (1) + (2)
d. (1) + (2) + (3)
ANSWER: D
Figure 6.1
wine
wine
Graph A
guns
wine
Graph B
wine
guns
Graph D
Graph C
35.
guns
guns
Refer to Figure 6.1. Which of the graphs above represents balanced growth?
a. A
b. B
c. C
d. D
ANSWER: B
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36.
Refer to Figure 6.1. Which of the graphs above represents growth biased towards wine
production?
a. A
b. B
c. C
d. D
ANSWER: C
37.
Which of the following could lead to balanced growth?
(1)
Proportionate increases in the endowments of all of a country’s productive inputs
(2)
Technological improvements in one sector of production
a.
(1)
b. (1) + (2)
c. (2)
d. neither (1) nor (2)
ANSWER: A
38.
Assume a country that produces cloth and coal. Assume that cloth production requires significant
amounts of labor and capital, but relatively little land. Assume that coal production requires
relatively little labor and capital, but relatively large amounts of coal-rich land. Given increases in
the country’s endowments of capital and labor, we can expect that:
a. both cloth and coal production will increase.
b. cloth production will increase, but coal production will remain constant.
c. coal production will increase, but cloth production will remain constant.
d. cloth production will increase, but coal production will decline.
ANSWER: D
39.
Which of the following statements is true?
(1)
Development of a newly found natural resource such as oil and gas can diminish growth
of production in other industries.
(2)
Significant increases in worker skills and capital can result in a significant increase in the
production of manufactures and can retard production of natural resources.
(3)
Immiserizing growth exists when an increase in production in a country’s export industry
will result in an increase in economic welfare in that country.
a. (1) + (3)
b. (2) + (3)
c. (1) + (2)
d. (3)
ANSWER: C
40.
A large country is defined as a country:
a.
that is larger in geographic size than the average member of the United Nations.
b.
whose trade is greater than the trade of the 100 smallest member countries in the United
Nations.
c.
whose trade can have an impact on the relative international price ration.
d.
that is a member of the G-8.
ANSWER:
C
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True/False Questions
1.
Factor-price equalization theory predicts that the price of labor and land within a country will
equalize.
ANSWER:
FALSE
2.
In the absence of any costs of transportation or other barriers, free trade will result in two
countries having the same price for a product.
ANSWER: TRUE
3.
While international trade will benefit both the importing and exporting country in a two-country
world, the gains from trade in the exporting country will usually be greater than the gains from
trade in the importing country.
ANSWER:
FALSE
4.
In the short-run after trade opens, wages and land rents can be expected to rise in the expanding
sector.
ANSWER:
TRUE
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