Question : 3.4   Misconceptions Comparative Advantage 1) If a production possibilities frontier bowed : 1303483

 

 

3.4   Misconceptions About Comparative Advantage

 

1) If a production possibilities frontier is bowed out (concave to the origin), then production occurs under conditions of

A) constant opportunity costs.

B) increasing opportunity costs.

C) decreasing opportunity costs.

D) infinite opportunity costs.

E) uncertain opportunity costs.

 

 

2) If the production possibilities frontier of one trade partner (“Country A”) is bowed out (concave to the origin), then increased specialization in production by that country will

A) increase the economic welfare of both countries.

B) increase the economic welfare of only Country A.

C) decrease the economic welfare of Country A.

D) decrease the economic welfare of Country B.

E) not affect the economic welfare of either country.

 

 

3) If two countries have identical production possibility frontiers, then trade between them is likely to be beneficial if

A) their supply curves are identical.

B) their cost functions are identical.

C) their demand conditions are identical.

D) their incomes are identical.

E) their demand functions differ.

 

 

4) If one country’s wage level is very high relative to the other’s (the relative wage exceeding the relative productivity ratios), then if they both use the same currency

A) neither country has a comparative advantage.

B) only the low wage country has a comparative advantage.

C) only the high wage country has a comparative advantage.

D) consumers will still find trade worth while from their perspective.

E) it is possible that both will enjoy the conventional gains from trade.

 

5) If one country’s wage level is very high relative to the other’s (the relative wage exceeding the relative productivity ratios) then it is probable that

A) free trade will not improve either both countries welfare.

B) free trade will result in no trade taking place.

C) free trade will result in each country exporting the good in which it enjoys comparative advantage.

D) free trade will result in each country exporting the good in which it suffers the greatest comparative disadvantage.

E) free trade will not affect the economic welfare of either country.

 

 

6) In a two-country, two-product world, the statement “Germany enjoys a comparative advantage over France in autos relative to ships” is equivalent to

A) France having a comparative advantage over Germany in ships.

B) France having a comparative disadvantage compared to Germany in autos and ships.

C) Germany having a comparative advantage over France in autos and ships.

D) France having no comparative advantage over Germany.

E) France should produce autos.

 

 

7) If the United States’ production possibility frontier was flatter to the widget axis, whereas Germany’s was flatter to the butter axis, we know that

A) the United States has no comparative advantage

B) Germany has a comparative advantage in butter.

C) the U.S. has a comparative advantage in butter.

D) Germany has comparative advantages in both products.

E) the U.S. has a comparative disadvantage in widgets.

 

 

8) Suppose the United States’ production possibility frontier was flatter to the widget axis, whereas Germany’s was flatter to the butter axis. We now learn that the German mark sharply depreciates against the U.S. dollar. We now know that

A) the United States has no comparative advantage

B) Germany has a comparative advantage in butter.

C) the United States has a comparative advantage in butter.

D) Germany has a comparative advantage in widgets.

E) Germany has lost its comparative advantage.

 

9) Suppose the United states production possibility frontier was flatter to the widget axis, whereas Germany’s was flatter to the butter axis. We now learn that the German wage doubles, but U.S. wages do not change at all. We now know that

A) the United States has no comparative advantage.

B) Germany has a comparative advantage in butter.

C) the United States has a comparative advantage in butter.

D) Not enough information is given.

E) Germany gains a comparative advantage in widgets.

 

 

10) Which of the following statements is TRUE?

A) Free trade is beneficial only if your country is strong enough to stand up to foreign competition.

B) Free trade is beneficial only if your competitor does not pay unreasonably low wages.

C) Free trade is beneficial only if both countries have access to the same technology.

D) Free trade is never beneficial for developing countries.

E) Free trade can be beneficial to economic welfare of all countries involved.

 

 

11) Mahatma Gandhi exhorted his followers in India to promote economic welfare by decreasing imports. This approach

A) makes no sense.

B) makes no economic sense.

C) is consistent with the the Ricardian model of comparative advantage.

D) is not consistent with the Ricardian model of comparative advantage.

E) guarantees benefits for Indian workers.

 

 

12) The Country of Rhozundia is blessed with rich copper deposits. The cost of copper produced (relative to the cost of widgets produced) is therefore very low. From this information we know that

A) Rhozundia has a comparative advantage in copper.

B) Rhozundia should import copper and export widgets.

C) Rhozundia should export both widgets and copper.

D) Rhozundia should invest in more in widget production.

E) Rhozundia may or may not have a comparative advantage in copper.

 

13) We know that in antiquity, China exported silk because no one in any other country knew how to produce this product. From this information we know that

A) China had a comparative advantage in silk.

B) China had an absolute advantage, but not a comparative advantage in silk.

C) no comparative advantage could exist because the technology was not diffused.

D) China exported silk for political reasons even though it had no comparative advantage.

E) China was unable to profit by exporting silk because it was unknown in the rest of the world.

 

 

14) The pauper labor theory, and the exploitation argument

A) are theoretical weaknesses that limit the applicability of the Ricardian concept of comparative advantage.

B) are theoretically irrelevant to the Ricardian model, and do not limit its logical relevance.

C) are not relevant because the Ricardian model is based on the labor theory of value.

D) are not relevant because the Ricardian model allows for different technologies in different countries.

E) invalidate the Ricardian model.

 

 

15) If labor productivities were exactly proportional to wage levels internationally, this would

A) not negate the logical basis for trade in the Ricardian model.

B) render the Ricardian model theoretically correct but practically useless.

C) negate the logical basis for trade in the Ricardian model.

D) negate the applicability of the Ricardian model if the number of products were greater than the number of trading partners.

E) demonstrate the validity of the Ricardian model.