3 - Chapter 4: Trade Model Extensions and Applications...

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Chapter 4: Trade Model Extensions and Applications CHAPTER 4 TRADE MODEL EXTENSIONS AND APPLICATIONS MULTIPLE-CHOICE QUESTIONS 1. Which of the following suggests that a nation will export the commodity in the production of which a great deal of its relatively abundant and cheap factor is used? a. The Linder theory b. The product life cycle theory c. The MacDougall theory d. The Heckscher-Ohlin theory 2. According to Staffan Linder, trade between two countries tends to be most pronounced when the countries: a. Find their tastes and preferences to be quite harmonious b. Experience economies of large-scale production over large output levels c. Face dissimilar relative abundances of the factors of production d. Find their per capita income levels to be approximately the same 3. Which of the following is a long-run theory, emphasizing changes in the trading position of a nation over a number of years? a. Theory of factor endowments b. Comparative advantage theory c. Theory of the product cycle d. Overlapping demand theory 4. The Leontief paradox questioned the validity of the theory of: a. Comparative advantage b. Factor endowments c. Overlapping demands d. Absolute advantage 5. Which of the following would least likely apply to the product life cycle theory? a. Calculators and computers b. Coal and crude oil c. Home movie cameras d. Office machinery 1
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Chapter 4: Trade Model Extensions and Applications 6. Classical trade theory emphasized which of the following as an underlying explanation of the basis for trade? a. Productivities of labor inputs b. Tastes and preferences among nations c. Changes in technologies over time d. Quantities of economic resources 7. Concerning the influence that transportation costs have on the location of industry, which of the following industries has generally attempted to locate production facilities close to resource supplies? a. Autos b. Steel c. Soft drinks d. Extremely valuable electronics goods 8. Assume that Country A, in the absence of trade, finds itself relatively abundant in labor and relatively scarce in land. The factor endowment theory reasons that with free trade, the internal distribution of national income in Country A will change in favor of: a. Labor b. Land c. Both labor and land d. Neither labor nor land 9. When considering the effects of transportation costs, the conclusions of our trade model must be modified. This is because transportation costs result in: a. Lower trade volume, higher import prices, smaller gains from trade b. Lower trade volume, lower import prices, smaller gains from trade c. Higher trade volume, higher import prices, smaller gains from trade d. Higher trade volume, lower import prices, greater gains from trade 10. Most economists maintain that the major factor underlying wage stagnation in the United States in the 1990s has been: a. Import competition b. Technological change c. Rising real value of the minimum wage d. Increasing union membership 11. Assume the cost of transporting autos from Japan to Canada
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3 - Chapter 4: Trade Model Extensions and Applications...

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