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ECON-231-1015-Test1_exam - UNIVERSITY OF WATERLOO v...

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Unformatted text preview: UNIVERSITY OF WATERLOO v Department of Economics Econ. 231 Test #1 May 23, 2001 R. Cook 6—; He $0.ch ( Time Allowed, 55 minutes. Student Name: Calculators allowed. I.D. #: Please read all questions and instructions carefully! Good Luck! . M C - :3 / 010 Part 1 - Multiple choice. Answer all questions for 20 marks. 1 3 + f; 6 g 30' / 50 1.1 According to the Mercantilists, : ¥ 8% a) trade was a zero-sum game. b) home candle makers faced unfair competition from the sun. c) home and foreign could both benefit from trade. d) only foreign benefits from trade. e) Both a and c. 1.2 According to Adam Smith, a) gains from trade were limited due to a lack of Gold. b) gains from trade were limited only by the distance between countries. c) the pattern of trade was determined by comparative advantage. (1) the basis for trade was absolute advantage. e) Both c and d. 1.3 The term comparative advantage refers to a) how efficient a country is at producing a good relative to its’ competitor. b) how efficient a country is at transforming its’ output relative to its’ competitor. c) a country’s being relatively more efficient in the production of a good as compared to another country. d) the relative cost of transportation between two countries. e) None of the above. 1.4 If we say that home has an absolute advantage over foreign in the production of turnips, we mean . a) home produces turnips at a lower opportunity cost than foreign. b) home produces a unit of turnips with fewer inputs than foreign. c) home has a comparative advantage in the production of turnips. d) home has a lower wage rate in the turnip industry. e) All of the above. 1.5 An indifference curve a) b) C) d) C) shows all the combinations of two goods that leave an individual equally well-off. shows all the combinations of two goods that cost the same. shows all the combinations of two factors of production that leave an input equally well-off. reflects societies’ attitudes towards politicians. shows all the combinations of two goods that leaves a firm indifferent. 1.6 A P.P.F, 21) b) C) d) C) shows all the combinations of two goods a country can produce. shows all the combinations of two goods that makes a country equally well-off. is a straight line if there is only one input. indicates relative price. shows all the combinations of two goods that a country can produce when all inputs or resources are fully employed. 1.7 In international trade, the term opportunity cost is a) b) C) d) 8) how much of one good I must give up in order to produce one more unit of another good. the relative price of two goods under autarky. the same as the M.R.S. under autarky. All of the above. None of the above. 1.8 The term autarky means, a) b) C) d) C) a situation where a country must import some essential input. is a slang term used by Hillbillies in Arkansas which means ‘our turkey’. the situation where you are lost. the situation where a country consumes what it produces. the situation where two countries consume their joint outputs together. 1.9 Which of the following is not a reason why a P.P.F. exhibits increasing opportunity cost? a) b) C) d) C) 1.10 a) b) The marginal product of labour is constant but labour is not homogeneous. The production functions in both industries exhibit decreasing marginal products for the variable input. The marginal product of labour is constant. All of the above. None of the above. The M.R.S. ofx for y is, how many units of the x good I am willing to give up in order to get one more unit of the y good. how many units of the y good I am willing to give up in order to get one more unit of the x good. the opportunity cost of the X good. the slope of an indifference curve. Both b and d. Fact 1: Will and Hilary can each perform two jobs, be President (P) and be a lawyer (L). Their efficiencies are in the table below. President Lamer Will 10 4 5% Hilary 2O , 50 I The numbers in the table reflect how many (Tunifs’ of each of the t'zwo services Bill and Hilary can provide per hour of labour. Use this information to answer questions 1.11 to 1.15 below. {0 P FL 1.11 Wills’ opportunity cost of being President is; F : F; L a) 2 units ofL. 0 ‘ b) Unknown, we need a relative price.>< c) 1 unit of L. d) 1/2 a unit of L. e) None of the above. 77 1 LS“ 1.12 Hilary’s opportunity cost of being a lawyer is, a) .4 unit of P. 1,72” ,, b) 4 units of P. ' c) 40 units of P. Q d) Unknown, we need a relative price. A e) 5/2 units of P. 1.13 If the relative price of Lawyers services was 1, Will would be and Hilary would be . or . if “P vf N a) A lawyer, the President. a, Q P r , b) A lawyer, a lawyer. i1; _ c) The president , the President. [9 t i ‘ 04 C - 04‘ L Rm d) The president, a lawyer. P o ( 4 i r e) Unemployed, a Senator. L Di “3” ’ X L : 1.14 Hilary has a comparative advantage in and Will has a comparative advantage in a) L , P. b) P, L. 0) Hilary has a comparative advantage in both goods. d) Neither L nor P, neither L nor P. e) None of the above. 1.15 Both Will and Hilary would benefit from free trade if, a) the relative price of P was between .4 and 2. b) the relative price of P was between .5 and 5/2. c) the relative price of divorces was less than 1. d) Both b and c. e) Unknown, we need information on preferences. 1.16 The Ricardian model is a model of trade based on a) differences in preferences. b) differences in labour endowments. c) absolute advantage. X (1) differences in technology. 6) Both a and d. 1.17 Who made the key ‘discovery’ that trade could benefit both countries involved? a) The mercantilists. b) David Ricardo. c) Adam Smith. d) Thomas Munn. e) Cliff Fletcher. 1.18 In the model of trade featuring increasing opportunity cost, a) there is no such thing as comparative advantage. b) indifference curves can cross only if one good is a ‘bad’. c) home and foreign will produce somewhere inside their P.P.F.. d) All of the above. e) None of the above. 1.19 Because we have assumed that labour is perfectly mobile between industries in the Ricardian model, a) the P.P.F. is a straight line. b) home and foreign produce the same goods. c) home will specialize in the production of the good in which it has a comparative advantage. d) all labour will work in the industry that offers the highest wage. e) labour will leave Home for foreign under the right circumstances. 1.20 The mistake that the Mercantilists made when analyzing international trade was, a) they confiised silver with gold. b) they worked for home industries only. c) they confused holdings of gold and silver with wealth. d) they confused everyone. 6) None of the above. Part 2 - Short answers. Please answer all questions in the space provided on the test paper . Note, the questions do not all carry equal weight. 2.1 Home and foreign produce beans (B) and wieners (W) using labour. The table below gives information on labour productivity in each of the two countries. 3' l3 2 I w a) Home has a comparative advantage in will) and foreign has a comparative advantage in Eel ‘gfmggg . (4) LlL b) Suppose both countries have 100 units of labour available. Complete the P.P.F.’s below. (8) g V ‘4;- / // £00 H O“ (”3; 85?“, I o c‘ Oak w: :13 I 3 F A- O\Cx LE _ IN I ,S O\( 0 W ‘ 0) Construct the world suphly curves:for bo‘t2h goods. (8) PM /—-‘ [M] t > , ‘ the home country. (6) Tfi Pp BA (0 S00 , loom B 300 ()“0 W '~M:—f , o4 ‘ of W = 513, How, W9 $661356 Tm MW Sm NM F6953 n ”EM fi-W‘mfkfi 1hr» MWMW , EQ/‘W {9(0th (no {M loo W dour 160/ A {WWW 969m MW 56C Hm WON/MA S00 Ram Mm; V4} Wm _ 1/th Hm mcejr‘m Boo NW \ \ m “We t“? (so mm . > 2.2 Suppose we live in a world where the P.P.F. exhibits increasing opportunity cost. Complete the picture below and explain or list the important features on an autarky equilibrium. (4) +N» PW: ““99 if? C macmm 27w W OHQTW. m M mm M WMQ Y A WK. (QNQIK, WHWLTAE“ W fact Tbfl; lfoflfi ‘ MMQ \l 75 vim/WCQcL / W Mai-4i (£30!!th 5i°W® A > a ”E Wok/MAG X Wflb My cigrvm Art: 14% / morfl Hi Mk, (me MolFfiUwQ WM «Ell M Enamel 7% HQ. PPF. 1 3: RS F‘QiQJWL Tim I P;0,Q<>‘PQ. A MRSAZFA :O.C\@A MRSIZ:?B 10.0 @ g Slope Cc? 8,. ><‘v’ mt A: MRssmm=—Q Bonus (4) Show that the slope of the P.P.F. is equal to —MPLy/MPLx in the Ricardian model. Lilflf / ...
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