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CHAPTER 3 INTERNATIONAL EQUILIBRIUM MULTIPLE-CHOICE QUESTIONS 1. Which of the following is false concerning indifference curves? a. They illustrate how the nation ranks alternative consumption bundles b. Higher curves refer to more satisfaction c. They are negatively sloped, being bowed out away from the diagram’s origin d. They reflect the tastes and preferences of a consumer 2. The amount of one good that is just sufficient to compensate the consumer for the loss of some amount of another good is referred to as: a. Absolute cost b. Comparative cost c. Marginal rate of transformation d. Marginal rate of substitution 3. In autarky, the equilibrium relative price of one product in terms of another product for a country is determined by the: a. Production possibilities curve b. Community indifference curve c. Community indifference map d. Production possibilities curve and community indifference map 4. In general, as we move downward along a country’s community indifference curve, the marginal rate of substitution of one product for another product: a. Increases b. Decreases c. Remains constant d. None of the above 63
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64 Test Bank for International Economics, 9e 5. The introduction of community indifference curves into our trading example focuses attention on the nation’s: a. Income level b. Resource prices c. Tastes and preferences d. Productivity level 6. Introducing indifference curves into our trade model permits us to determine: a. Where a nation chooses to locate along its production possibilities curve in autarky b. The precise location of a nation’s production possibilities curve c. Whether absolute cost or comparative cost conditions exist d. The currency price of one product in terms of another product 7. The marginal rate of substitution is measured by the absolute value of the slope of a (an): a. Production possibilities curve b. Indifference curve c. Production possibilities curve d. Demand curve 8. In the absence of trade, a nation is in equilibrium where a community indifference curve: a. Lies above its production possibilities curve b. Is tangent to its production possibilities curve c. Intersects its production possibilities curve d. Lies below its production possibilities curve 9. The use of indifference curves helps us determine the point: a. Along the terms-of-trade line a country will choose b. Where a country maximizes its resource productivity c. At which a country ceases to become competitive d. Where the marginal rate of transformation approaches zero 10. With trade, a country will maximize its satisfaction when it: a. Moves to the highest possible indifference curve b. Forces the marginal rate of substitution to its lowest possible value c. Consumes more of both goods than it does in autarky d. Finds its marginal rate of substitution exceeding its marginal rate of transformation 11. Trade between two nations would not be possible if they have: a. Identical community indifference curves but different production possibilities curves
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This note was uploaded on 08/08/2012 for the course ECON 3400 taught by Professor Staff during the Summer '08 term at Utah State University.

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