Chapter 3 – The Standard Trade Model
Multiple Choice
______________________ cause a nation to give up more and more of one commodity in order to produce each additional unit of another.
A)Increasing opportunity costs
B)Decreasing opportunity costs
C)Constant opportunity costs
D)Costs of production
Answer: A pg. 55
Increasing opportunity costs result in a production possibilities frontier that is ___________ from the origin.
A)convex
B)concave
C)linear
D)horizontal
Answer: B pg. 55
_____________ is the amount of one commodity that a nation must give up to produce each additional unit of another.
A)marginal cost
B)marginal rate of transformation (MRT)
C)production frontier
D)marginal rate of return
Answer: B pg. 56
The marginal rate of transformation (MRT) of X for Y refers to:
A)the amount of X that a nation must give up to produce each additional unit of Y.
B)the amount of X that consumers are willing to give up to consume each additional unit of Y.
C)the amount of Y that consumers are willing to give up to consume each additional unit of X.
D)the amount of Y that a nation must give up to produce each additional unit of X.
Answer: D pg. 56
What is another name for the opportunity cost of a commodity?
A)marginal rate of substitution (MRS)
B)marginal rate of transformation (MRT)
C)revealed comparative advantage
D)marginal rate of return
Answer: B pg. 56
When countries engage in international trade, specialization tends to be:
A)complete with constant costs, and complete with increasing costs
B)incomplete with constant costs and incomplete with increasing costs
C)incomplete with constant costs and complete with increasing costs
D)complete with constant costs and incomplete with increasing costs
Answer: C pg. 57
Why do increasing opportunity costs of production occur?
A)Factors of production are homogeneous
B)Factors of production are not being used in the same fixed proportion
C)Factors of production are completely adaptable to every use
D)None of the above
Answer: B pg. 57
Nations will have different production possibilities frontiers because of which characteristic?
A)differences in marginal costs of production
B)differences in degree of industrialization
C)differences in factor endowments
D)differences in community indifference curves
Answer: C pg. 57
The tastes or demand preferences of a nation are given by:
A)production frontiers
B)community indifference curves
C)marginal rate of transformation(MRT)
D)consumption possibilities curves
Answer: B pg. 57
A ____________________ shows the various combinations of two commodities that yield equal satisfaction to the community or nation.
A)community indifference curve
B)production frontier
C)consumption possibilities curve
D)marginal rate of transformation curve
Answer: A pg. 57
Community indifference curves that are ______________ show greater satisfaction, while community indifference curves _____________ show less satisfaction.
A)Closer to the origin, further from the origin
B)Concave to the origin, convex to the origin
C)Convex to the origin, concave to the origin
D)Further from the origin, closer to the origin
Answer: D pg. 57
Community indifference curves are __________________ sloped and _____________ to the origin.
A)positively, concave
B)negatively, convex
C)positively, convex
D)negatively, concave
Answer: B pg. 57
The ________________________ of X for Y in consumption refers to the amount of Y that a nation is willing to give up to consume an additional unit of X and remain on the same indifference curve.
A)marginal cost
B)production frontier
C)marginal rate of substitution (MRS)
D)marginal rate of transformation (MRT)
Answer: C pg. 59
What is given by the absolute value of the slope of the community indifference curve at the point of consumption and declines as the nation moves down the curve?
A)marginal rate of substitution (MRS)
B)marginal rate of transformation (MRT)
C)marginal rate of return
D)the slope of the offer curve
Answer: A pg. 59
A(n) _________________ MRS would result in a community indifference curve that is __________ to the origin.
A)increasing, convex
B)declining, convex
C)constant, concave
D)declining, concave
Answer: B pg. 59
A(n) ______________ marginal rate of substitution in consumption is reflected in a ________ community indifference curve.
A)increasing, convex
B)declining, concave
C)increasing, concave
D)constant, convex
Answer: C pg. 59
A(n) ______________ opportunity cost in production is reflected in a _________ production possibilities frontier.
A)increasing, convex
B)declining, concave
C)increasing, concave
D)constant, convex
Answer: C pg. 59
Community indifference curves can never ___________.
A)be negatively sloped
B)intersect
C)lie tangent to the production possibilities frontier
D)be different for each nation
Answer: B pg. 59
A point of intersection would represent ___________ on two different community indifference curves, which goes against their true definition.
A)unequal satisfaction
B)equal satisfaction
C)equal costs
D)equal MRS
Answer: B pg. 59
In the absence of trade, a nation is in ______________ when it achieves a point of consumption on the highest indifference curve possible, given its production possibilities frontier.
A)disequilibrium
B)equilibrium
C)proportion
D)none of the above
Answer: B pg. 59
Equilibrium occurs where a nation’s community indifference curve is _________________ to its production possibilities frontier.
A)parallel
B)perpendicular
C)tangent
D)equal
Answer: C pg. 59
The point of tangency between the production possibilities frontier and community indifference curve reflects:
A)the nation’s comparative advantage
B)internal equilibrium relative to commodity price in the nation
C)external equilibrium relative to commodity price in the nation
D)Both A and B
Answer: D pg. 59
A nation with no trade partners, existing in isolation, is said to be in a state of:
A)autarky
B)equilibrium
C)disequilibrium
D)absolute advantage
Answer: A pg. 60
Community indifference curves have how many points of tangency to their constraint?
A)two
B)as many as there are trade partners
C)one
D)none
Answer: C pg. 60
How many indifference curves could a nation have for a particular pair of goods?
A)one for each trade partner
B)two
C)one
D)an infinite number
Answer: D pg. 60
Points on lower community indifference curves are possible, but would not maximize_____________.
A)the cost of production
B)the nation’s welfare
C)the nation’s exports
D)the nation’s MRS
Answer: B pg. 60
The _____________________ is given by the slope of the common tangent to the nation’s production frontier and indifference curve at the autarky point of production and consumption.
A)equilibrium-relative commodity price in isolation
B)revealed comparative advantage
C)equilibrium-relative commodity price with trade
D)marginal rate of substitution
Answer: A pg. 60
Relative prices are different for each nation because their production frontiers and indifference curves differ in _______________.
A)shape and location
B)shape, but not location
C)location, but not shape
D)neither shape nor location
Answer: A pg. 61
In a two-nation world, if Nation A’s export prices increase relative to their import prices, which of the following will occur?
A)Terms of trade improve for both nations
B)Terms of trade worsen for Nation A and improve for their trade partner
C)Terms of trade improve for Nation A and worsen for their trade partner
D)Terms of trade worsen for both nations
Answer: C pg. 67
A practical, real-world method of finding the commodities in which a nation has comparative advantage is by identifying:
A)equilibrium-relative commodity price with trade
B)equilibrium-relative commodity price in isolation
C)revealed comparative advantage
D)its community indifference curves
Answer: C pg. 61
____________________ is given by the positive difference in the percentage of total exports over the percentage of total imports in each major commodity group for a nation.
A)Revealed absolute advantage
B)Revealed comparative advantage
C)Equilibrium-relative commodity price with trade
D)The marginal rate of substitution
Answer: B pg. 61
The nation has a revealed comparative advantage in those commodities in which its:
A)exports > imports
B)imports > exports
C)MRS > MRT
D)Domestic quantity demanded > domestic quantity supplied
Answer: A pg. 61
The export price index for Japan is 132, while its import price index is 124. Assume an increase in export prices in Japan that result in a new price index of 144. The new terms of trade for Japan is __________, representing a(n) __________________ for Japan, and a(n) ___________________ for their trade partner.
A)116, deterioration, improvement
B)116, improvement, deterioration
C)86, improvement, deterioration
D)86, deterioration, improvement
Answer: B pg. 67
International trade and specialization in comparative advantage goods leads to:
A)job gains in domestic comparative advantage industries and job losses in industries with a comparative disadvantage.
B)job losses in domestic comparative advantage industries and job gains in industries with a comparative disadvantage.
C)job gains in domestic comparative advantage industries and job gains in industries with a comparative disadvantage.
D)job losses in domestic comparative advantage industries and job losses in industries with a comparative disadvantage.
Answer: A pg. 68
A good’s supply curve can be derived from production points on a nation’s:
A)demand curve
B)community indifference curve
C)production frontier
D)international terms of trade curve
Answer: C pg. 72
A nation may consume _____________onlywith specialization in production and trade.
A)inside its production frontier
B)outside its production frontier
C)on its consumption frontier
D)tangent to its consumption frontier
Answer: B pg. 64
Increasing opportunity costs of production are reflected in the:
A)X and Y intercepts of its production frontiers
B)distance from the origin of its community indifference curves
C)decreasing slope of its production frontier
D)increasing slope of its production frontier
Answer: D pg .61
If a nation must employ resources that become progressively less suited for the production of a good:
A)decreasing opportunity costs are present
B)the nation should produce only that good
C)increasing opportunity costs are present
D)the nation should not produce any of that good
Answer: C pg. 57
Assuming increasing cost conditions, trade between two countries would not be likely if they have:
A)identical demand conditions but different supply conditions
B)different demand conditions but identical supply conditions
C)different demand conditions and different supply conditions
D)identical demand conditions and identical supply conditions
Answer: D pg. 57
True/False
True or False? The negative slope of the production frontier implies that a nation or region must give up some of commodity X to get more of commodity Y
Answer: True pg. 56
True or False? The community indifference curve represents the tastes or demand preferences in a nation or region.
Answer: True pg. 55
True or False? Increasing opportunity costs result in a production frontier that is convex from the origin.
Answer: False pg. 55
True or False? The marginal rate of substitution of X for Y refers to the amount of Y that a nation or region must be willing to give up to produce each additional unit of X.
Answer: False pg. 56
True or False? The marginal rate of transformation is the amount of one commodity that a nation or region must give up to produce each additional unit of another commodity.
Answer: True pg. 56
True or False? The slope of a production frontier is also referred to as the marginal rate of substitution.
Answer: False pg. 56
True or False? Increasing opportunity costs are due to resources or factors of production being non-homogenous and not used in the same intensity for all commodities.
Answer: True pg. 57
True or False? A nation is in disequilibrium if it consumes on the highest indifference curve possible given its production frontier.
Answer: False pg. 59
A nation that has many trading partners is said to be in a state of autarky.
Answer: False pg. 60
Deindustrialization is the decline in the share of manufacturing employment and the relative importance of manufacturing.
Answer: False pg. 71
Essay
Deindustrialization is a problem faced by the United States, the European Union, and Japan since the 1970s. Discuss.
Answer: Deindustrialization is the decline in the relative importance of manufacturing and the share of manufacturing employment. Deindustrialization occurred in the United States, the EU, and Japan when they observed a decline in their manufacturing employment. Between the years of 1970 and 1994, these countries saw about a 10% decrease in the manufacturing industry. The countries have observed a decline in these jobs because they have a comparative disadvantage; the nations are no longer specializing in manufacturing. This process leaves the workers in the manufacturing sector without jobs, but the workers are now able to find work in services jobs with higher wages. Currently, it is more efficient for the countries to send these jobs to developing countries, leaving the US, the EU, and Japan as more "service economies” instead of “industrial economies.”
Pg. 68-72
