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S03-CompAdv - Econ 340 Winter Term 2011 Study Questions...

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Econ 340 Alan Deardorff Winter Term 2011 Comparative Advantage Study Questions Page 1 of 6 Study Questions Lecture 3 Comparative Advantage and the Gains from Trade Part 1: Multiple Choice Select the best answer of those given. 1. According to the theory of comparative advantage, which of the following is not a reason why countries trade? a. Comparative advantage. b. Costs are higher in one country than in another. c. Prices are lower in one country than in another. d. The productivity of labor differs across countries and industries. e. Exports give a country a political advantage over other countries that export less. 2. Which of the following statements would a mercantilist not agree with? 3. If all prices in one country (country A) are higher than all prices in another country (B) when compared at the wage rates that happen to prevail in the two countries, and if the countries share the same currency, then if the nominal wage rate in country B remains fixed a. The nominal wage rate in country A will have to fall. b. Unemployment must be higher in country B than in country A. c. The real wage in country A must be higher than in country B. d. Workers in country A must be less productive than workers in country B. e. Trade cannot be beneficial for country A.
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Econ 340 Alan Deardorff Winter Term 2011 Comparative Advantage Study Questions Page 2 of 6
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