Answer: D3.
Cost-benefit analysis of international trade

• is basically useless.
• is empirically intractable.
• focuses attention on conflicts of interest within countries.
• focuses attention on conflicts of interests between countries.
• None of the above.

Answer: C
4. A primary reason why nations conduct international trade is because of differences in

• historical perspective.
• location.
• resource availabilities.
• tastes.
• incomes.

Answer: C
5. Arguments for free trade are sometimes disregarded by the political process because

• economists tend to favor highly protected domestic markets.
• economists have a universally accepted decisive power over the political decision mechanism.
• maximizing consumer welfare may not be a chief priority for politicians.
• the gains of trade are of paramount concern to typical consumers.
• None of the above.

Answer: C
6.
Proponents of free trade claim all of the following as advantages except
A. relatively high wage levels for all domestic workers.
B. a wider selection of products for consumers
C. increased competition for world producers.
D. the utilization of the most efficient production processes.
E. None of the above.

Answer: A
In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ____unit labor requirements

• one
• two
• three

A.
four
B.
five
Answer: D
7.
A country engaging in trade according to the principles of comparative advantage gains from trade because it

• is producing exports indirectly more efficiently than it could alternatively.
• is producing imports indirectly more efficiently than it could domestically.
  
• is producing exports using fewer labor units.
• is producing imports indirectly using fewer labor units.
• None of the above.

Answer: B
8.
A nation engaging in trade according to the Ricardian model will find its consumption bundle

• inside its production possibilities frontier.
• on its production possibilities frontier.
• outside its production possibilities frontier.
• inside its trade-partner's production possibilities frontier.
• on its trade-partner's production possibilities frontier.

Answer: C
9.
If a very small country trades with a very large country according to the Ricardian model, then

• the small country will suffer a decrease in economic welfare.
• the large country will suffer a decrease in economic welfare.
• the small country will enjoy gains from trade.
• the large country will enjoy gains from trade.
• None of the above.

Answer: C10.
If the world terms of trade for a country are somewhere between the domestic cost ratio of H and that of F, then

• country H but not country F will gain from trade.
• country H and country F will both gain from trade.
• neither country H nor F will gain from trade.
• only the country whose government subsidizes its exports will gain.
• None of the above.

Answer: B11.
If a production possibilities frontier is bowed out (concave to the origin), then production occurs under conditions of

• constant opportunity costs.
• increasing opportunity costs.
• decreasing opportunity costs.
• infinite opportunity costs.
• None of the above.

Answer: B12.
If two countries have identical production possibility frontiers, then trade between them is not likely if

• their supply curves are identical.
• their cost functions are identical.
• their demand conditions identical.
• their incomes are identical.
• None of the above.

Answer: E
13.
Assume that labor is the only factor of production and that wages in the United States equal $20 per hour while wages in Japan are $10 per hour.
Production costs would be lower in the United States as compared to Japan if

• U.S. labor productivity equaled 40 units per hour and Japan's 15 units per hour.
• U.S. productivity equaled 30 units per hour whereas Japan's was 20.
• U.S. labor productivity equaled 20 and Japan's 30.
• U.S. labor productivity equaled 15 and Japan's 25 units per hour.
• None of the above.

Answer: A
14.
International trade has strong effects on income distributions. Therefore, international trade

• is beneficial to everyone in both trading countries.
• will tend to hurt one trading country.
• will tend to hurt some groups in each trading country.
  
• will tend to hurt everyone in both countries.
• will be beneficial to all those engaged in international trade.

Answer: C15.
If the price of the capital intensive product rises, wages will

• rise but by less than the price of the capital-intensive product.
• rise by more than the rise in the price of the capital-intensive product.
• remain proportionally equal to the price of the capital-intensive product.
• fall, since higher prices cause less demand.
• None of the above.

Answer: A16.
If Australia has more land per worker, and Belgium has more capital per worker, then if trade were to open up between these two countries,

• the real income of capital owners in Australia would rise.
• the real income of labor in Australia would clearly rise.
• the real income of labor in Belgium would clearly rise.
• the real income of landowners in Belgium would fall.
• the real incomes of capital owners in both countries would rise.

Answer: D17.
I