International Economics

Chapter 1, 2, 3, 4, 5, 6, and 7
STUDY
PLAY
generally false
"Trade is generally harmful if there are large disparities between countries in wages."
has been a major preoccupation of international economics.
Who sells what to whom...
David Ricardo
The insight that patterns of trade are primarily determined by international differences in labor productivity was first proposed by:
removing barriers to international trade
After WWII, the US has pursed a broad policy of...
the US has run huge trade deficits in every state since 1982
The balance of payments has become a central issue for the US b/c:
an acceptable degree of harmony among the international trade
A fundamental problem in international economics is how to produce...
GATT
For the 70 years preceding 1994, international trade policies have been governed by the:
a set of arrangements by which individuals and firms exchange money now for promises to pay in the future
The international capital market is:
the risk of exchange rate fluctuations
International capital markets experience a kind of risk not faced in domestic capital markets, namely:
WTO
Since 1994, trade rules have been enforced by
most international trade involves monetary transactions
The distinction between international trade and international money is not entirely clear because
Intra-European trade exceeds international trade by the European Union
The gravity model offers a logical explanation for the fact that
trade between Sweden and Germany exceeds that between Sweden and Spain
The gravity model explains why
the distance between them
According to the gravity model, a characteristic that tends to affect the probability of trade existing between any two countries is
linguistic/cultural affinity, historical ties, larger economies, mutual membership in preferential trade agreements
4 things that increase trade between 2 countries
gravity model
The two neighbors of the US do a lot more trade with the US than European economies of equal size.
increased
Since WWII, the likelihood that the job of a new college graduate wil be directly or indirectly affect by world trade:
decreased
Since WWII, the relative importance of raw materials, including oil, in total world trade:
manufactured goods
In the present, most of the exports from China are
each country exports that good in which it has a comparative advantage
Trade between two countries can benefit both countries if
4
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
in producing imports indirectly more efficiently than it could domestically
A country engaging in trade according to the principles of comparative advantage gains from trade because it
David Ricardo
The earliest statement of the principle of comparative advantage is associated with
differences in labor productivity
The Ricardian model attributes the gains from trade associated with the principle of comparative advantage result to
trade between 2 countries may benefit both if each exports the product in which it has a comparative advantage
The Ricardian model demonstrates that
output of both products and consumer welfare in both countries
In a 2 product 2 country world, international trade can lead to increases in
outside its production possibilities frontier
A nation engaging in trade according to the Ricardian model will find its consumption bundle
limited specialization and division of labor, reduced volume of trade and gains from trade, a country to produce some of the product of a comparative disadvantage, raised costs as more diverse product is produced internally
In the Ricardian model, if a country's trade is restricted, this will cause:
labor productivity is relatively high
According to Ricardo, a country will have a comparative advantage in the product in which its
US labor productivity equaled 40 unites per hour and Japan's 15 units per hour
Assume that labor is the only factor of production and that wages in the US equal $20 per hour while wages in Japan are $10 per hour. Production costs would be lower in the US as compared to Japan if:
labor productivity differences
In the Ricardian model, comparative advantage is likely to be due to
France having a comparative advantage over Germany in ships
In a 2 country, 2 product world, the statement "Germany enjoys a comparative advantage over France in autos relative to ships" is equivalent to:
the Ricardian Model of comparative advantage
Mahatama Ghandi exhorted his followers in India to promote economic welfare by decreasing imports, This is not consistent with:
the relative wage ratio will determine the patter of trade
The 2 country, multi product model differs from the 2 country, 2 product model in that, in the former
trade may be impossible between the 2 countries
Assume that transportation costs are especially high for Widgets in the 2 country, 2 product Ricardian model, and Country A enjoys a comparative advantage in Widgets, then
hair cuts
Which of the following is most likely to be an untraded good in a Ricardian 2 country, multi good model?
steel, textile, haircuts, petroleum, telemarketer services
companies tend to export goods in which they have a relatively high level of productivity
Which of the following had been confirmed by empirical test of the Ricardian model?
done :)
1st packet, #26
the price of a country's exports divided by the price of its imports Pe/Pi
"Terms of trade"
the isovalue line is tangent to the production possibilities frontier
A country cannot produce a mix of products with a higher value than where
the terms of trade of cloth exporters will improve
If the ratio of PC/PF increases in the international marketplace, then
the world terms of trade differ from its domestic relative costs
A country will be able to consume a combination of goods that is not attainable solely from domestic production if
all of the country's workers are employed
If the economy is producing at a point on its production possibility frontier, then
the marginal rates of substitution of both would become equal
If 2 countries with diminishing returns and different marginal rates of substitution between two products were to engage in trade, then
biased growth
When the production possibility frontier shifts our relatively more in one direction, we have
this will tend to worsen the country's terms of trade
Suppose that a country experiences growth strongly biased toward its export, cloth,
improve the terms of trade of the US
If the US (a large country) imposes a tariff on its imported goods, this wil tend to
have no effect on its terms of trade
If Slovenia is a small country in world terms, then if it imposes a large series of tariffs on many of its imports, this would
done, but gotta write more on it!!! do it....or you won't make it to the game
# 11-14 on 3rd hmw set (also pg. 66 of answer key)
intertemporal trade
International borrowing and lending may be interpreted as one form of
future income
Rapidly growing developing countries tend to be borrowers on the international capital markets. From this information we may surmise that they have a comparative advantage in
falls as the industry grows larger and rises as the average firm grows larger
External economies of scale arise when the cost per unit
falls as the average firm grows larger
Internal economies of scale arise when the cost per unit
increasing returns to scale
If a firm's output more than doubles when all inputs are doubled, production is said to occur under conditions of
scale economies
One advantage of the specialization that results from international trade is that countries can take advantage of
b/c once one firm will become bigger than another, of it one firm began the industry, then no other firm will be able to match it per unit cost, so that they would be driven out of the industry. the firm would become a natural monopoly
Why is it that if an industry is operating under conditions of internal scale economies then the resultant equilibrium cannot be consistent with the pure competition model?
Yes. If the scale economies were external to the firm, then there is no reason why the firms may not be in perfect competition.
Is it possible for an equilibrium that is consistent with purely competitive conditions to arise in an industry with positive scale economies?
reduce; increased;the industry
External economies of scale will ____ average cost when output is ____ by ___.
may be associated with a perfectly competitive industry
The existence of external economies of scale
cannot be associated with a perfectly competitive industry
The existence of internal economies of scale
increase the number of firms and lower the price per unit
When there are external economies of scale, an increase in the size of the market will
industrial district
geographical concentrations of industry such as Manhattan
3 main sources of the economic advantages here: knowledge spillovers, labor market pooling, specialized suppliers
_
27 from 3rd packet
locate in the same geographic region
External economies of scale often arise b/c similar firms
external economies of scale
The Internet has made transactions between businesses (B2B trading) fast and easy. Any business in any location can access specialized knowledge, labor, and materials. It is likely that these virtual economic communities will result in...
higher;increase; 100%
if 2 countries begin trade and both produce a product subject to external economies of scale, then the country with the ____ rate of production will _____ production until it controls ___ of the market.
non traded; traded; external economies
Restaurant meals are an example of a _____ good and clothing is an example of a ______ good. The pattern of interregional trade is determined primarily by _______.
some resources are immobile in the short term
international trade can have important effects on the distribution of income because
different industries employ different factors of production
international trade can have important effects on the distribution of income because
specific factor
A factor of production that cannot be used outside of a particular sector of an economy is a
mobile factor
A factor of production that can be used in any sector of an economy is a
two;three
A specific factors model assumes that there are ____ goods and ____ factors of production
the amount of time required to redeploy the factors having more specificity
The degree of a factor's specificity is directly related to
a curved line; diminishing marginal returns
In the specific factors model, a country's production possibilities frontier is ______ because of_______
production possibilities frontier
In the four-quadrant diagram of the specific factors model, the graph in the upper right quadrant is a country's
-MPLF/MPLC; becomes steeper
The slope of a country's ppf with cloth measured on the horizontal and food measured on the vertical axis in the specific factors model is equal to ______ and it________ as more cloth is produced.
the marginal product of labor in the production of cloth times the price of cloth
Under perfect competition, the equilibrium price of labor used to produce cloth will be equal to
will be the same in both sectors
When a country's labor market is in the equilibrium in the specific factors model, the wage rate
an increase in the price of cloth relative to that of food
In the specific factors model, which of the following will increase the quantity of labor used in cloth production?
increase;decrease;increase
in the specific factors model, the effect of an increase in the productivity of labor in the production of cloth will cause an _________in the quantity of labor used to produce cloth, a_______in the quantity of labor used to produce food and an______in the wage rate.
-PX/PY; -MPLY/MPLX
The slope of a country's ppf is equal to_______and the optimal ppf point is located where the slope is equal to______. Assume that output of good Y is measured on the vertical axis, output of good X is measured on the horizontal axis, MPL is the marginal product of labor with a subscript indicating which good, P is the price of a good, and w is the horizontal rate.
increase by less then 5%; increase; decrease
In the specific factors model, a 0% , increase in the price of food accompanied by a 5% increase in the price of cloth will cause wages to ____, the production of cloth to_______, and the production of food to________.
an ambiguous change; a decrease; an increase
In the specific factors model, a 5% increase in the price of food accompanied by a 10% increase in the price of cloth will cause __________ in the welfare of labor, ________in the welfare of the fixed factor in the production of food, and____in the welfare of the fixed factor in the production of cloth.
done :)
2nd set #17, 18, 19
food; immobile;food
The relative price of a unit of cloth in the small isolated country of Moribundia is 5 unites of food. When the central city puts in an airstrip, the country is able to engage n trade. If the relative price of cloth in the outside world i 3 units of food, the this country will export ______and_______factors used in the production of ______will benefit.
ambiguous; positive; negative
In the specific factors model, the effects of trade on welfare are____for mobile factors,_____ for fixed factors used to produce the exported good, and ___for fixed factors used to produce the imported goods
positive; positive
In the specific factors model, the effects of trade on welfare overall are_____and for fixed factors used to produce the exported good they are_____
positive; negative
In the specific factors model, the effects of trade on welfare over all______and for fixed factos used to produce the imported good they are _____
cloth; immobile; cloth
The relative price of a unit of cloth int he small isolated country of Moribundia is 5 unites of food. When then central city, ...blah blah...price of cloth outside is 8 units of food
ambiguous; positive; negative
In the specific factors model, the effects of trade on welfare are______for mobile factors,_____for fixed factors used to produce exported goods, and ______for fixed factors used to produce imported goods.
positive; positive
In the specific factors model, the effects of trade on welfare overall are________and for fixed factors used to produce the exported good they are_____.
positive; negative
In the specific factors model, the effects of trade on welfare overall are________and for fixed factors used to produce the imported good they are_____.
immobile; exported
Those who will unambiguously gain from free trade are ________factors in sectors that produce goods that are______
less; those who are harmed can be compensated by those who gain
Economists consider the effects of free trade on income distribution to be_______important than the effects on overall welfare because_______________
restrictions on international labor mobility are common
In modern economies
shift the production possibility curve outward and decrease the production of the capital-intensive product
In the 2-factor, 2 good Heckscher-Ohlin model, an influx of workers from across the boarder would
relative abundance of factors of production
In the 2-factor, 2 good Heckscher-Ohlin model, the 2 countries differ in
technology
One way in which the H O model differs from the Ricardo model of comparative advantage is by assuming that ______ is identical in all countries
has 2 factors of production
One way in which the H O model differs from the Ricardo model of comparative advantage is that the HO model has
labor; labor intensive
In the 2 factor, 2 good HO model, the country with a relative abundance of ____ will have a ppf that is biased toward production of the _____good.
pg. 6, #35 of 2nd packet
"no country is abundant in everything"
benefit; abundant; export
In the 2 factor, 2 good H O model, trade will_____the owners of a country's_______factor and will _____ the good that uses the factor intensively
factor endowments
According the HO model, the source of comparative advantage is a country's
harm; abundant; import
In the 2 factor, 2 good H O model, trade will_____the owners of a country's_______factor and will _____ the good that uses the factor intensively
countries will not be fully specialized in one product
the assumption of diminishing returns in the HO model means that, unlike in the Ricardian model, it is likely that
factor endowments
In the HO model, countries are assumed to differ only in terms of their
country B will export good S
If country B is 20 labor force, 10 capital stock and A is 45 labor force and 15 capital stock
the relative price of the land intensive product would increase in Australia
If Australia has relatively more land per worker, and Belgium has relatively more capital per worker, then if trade begane between these 2 countries
an increase in the relative price of food in the US
If Japan is relatively capital rich and the US is relatively land rich, and if food is relatively land intensive then trade between these two, formerly autarkic countries will result in
increasing available consumption choices
Trade benefits a country by
wages should rise and rents should fall in H
Starting from an autarky situation with HO model, in country H is relatively labor abundant, then once trade begins
will tend to hurt some groups in trading countries
international trade has strong effects on income distributions. Therefore, international trade
refers to the finding that US exports were more labor intensive than its imports
the Leonteif Paradox
support the validity of the HO model
Empirical observations on actual North-South trade patters tend to
read!
#52 N/N and N/S trade in 2nd packet
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