International Economics Theory And Policy 10th Edition By Paul R. Krugman – Test Bank
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Sample
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International Economics, 10e (Krugman/Obstfeld/Melitz)
Chapter 4 Specific Factors and Income Distribution
4.1 The Specific Factors Model
1) The Ricardian model of international trade demonstrates that
trade can be mutually beneficial. Why, then, do governments restrict imports of
some goods?
1. A)
Trade can have substantial effects on a country’s distribution of income.
2. B)
The Ricardian model is often incorrect in its prediction that trade can be
mutually beneficial.
3. C)
Import restrictions are the result of trade wars between hostile countries.
4. D)
Imports are only restricted when foreign-made goods do not meet domestic standards
of quality.
5. E)
Restrictions on imports are intended to benefit domestic consumers.
Answer: A
Page Ref: 50
Difficulty: Easy
2) The Ricardian two-country two-good model predicts that there
are potential benefits from trade, but NOT
1. A)
the effect of trade on income distribution.
2. B)
the mechanism that determines which country will specialize in which good.
3. C)
when one country has an absolute advantage in the production of both goods.
4. D)
when one country has significantly lower wages than the other country.
5. E)
when both countries have the same types of technology available.
Answer: A
Page Ref: 50
Difficulty: Easy
3) International trade can have important effects on the
distribution of income because
1. A)
some resources are immobile in the short run.
2. B) of
government corruption.
3. C)
the more powerful country dictates the terms of trade.
4. D)
rich countries take advantage of poor countries.
5. E)
different countries use different currencies.
Answer: A
Page Ref: 50
Difficulty: Easy
4) The Ricardian model of international trade demonstrates that
trade can be mutually beneficial. Why, then, do governments restrict imports of
some goods?
1. A)
Trade can have significant harmful effects on some segments of a country’s
economy.
2. B)
The Ricardian model is often incorrect in its prediction that trade can be
mutually beneficial.
3. C)
Import restrictions are the result of trade wars between hostile countries.
4. D)
Imports are only restricted when foreign-made goods do not meet domestic
standards of quality.
5. E)
Restrictions on imports can have significant beneficial effects on domestic
consumers.
Answer: A
Page Ref: 50
Difficulty: Easy
5) International trade can have important effects on the
distribution of income because
1. A)
different industries employ different factors of production.
2. B) of
government corruption.
3. C)
the more powerful country dictates the terms of trade.
4. D)
rich countries take advantage of poor countries.
5. E)
different countries use different currencies.
Answer: A
Page Ref: 50
Difficulty: Easy
6) Japan’s trade policies with regard to rice reflect the fact
that
1. A)
japanese rice farmers have significant political power.
2. B)
Japan has a comparative advantage in rice production and therefore exports most
of its rice crop.
3. C)
there would be no gains from trade available to Japan if it engaged in free
trade in rice.
4. D)
there are gains from trade that Japan captures by engaging in free trade in
rice.
5. E)
Japan imports most of the rice consumed in the country.
Answer: A
Page Ref: 51
Difficulty: Easy
7) The specific factors model was developed by
1. A)
Paul Samuelson and Ronald Jones.
2. B)
Adam Smith and David Ricardo.
3. C)
Richard Nixon and Robert Kennedy.
4. D)
C.B. deMille and Gordon Willis.
5. E)
Bill Clinton and Monica Lewinsky.
Answer: A
Page Ref: 51
Difficulty: Easy
8) In the specific factors model, labor is defined as a(an)
1. A)
mobile factor.
2. B)
specific factor.
3. C)
fixed factor.
4. D)
variable factor.
5. E)
intensive factor.
Answer: A
Page Ref: 52
Difficulty: Easy
9) In the specific factors model, which of the following is
treated as a specific factor?
1. A)
land
2. B)
labor
3. C)
cloth
4. D)
food
5. E)
technology
Answer: A
Page Ref: 52
Difficulty: Easy
10) In the specific factors model, which of the following is
treated as a specific factor?
1. A) capital
2. B)
labor
3. C)
cloth
4. D)
food
5. E)
technology
Answer: A
Page Ref: 52
Difficulty: Easy
11) A factor of production that cannot be used outside of a
particular sector of an economy is a(an)
1. A)
specific factor.
2. B)
mobile factor.
3. C)
variable factor.
4. D)
import-competing factor.
5. E)
export-competing factor.
Answer: A
Page Ref: 52
Difficulty: Easy
12) A factor of production that can be used in any sector of an
economy is a(an)
1. A)
mobile factor.
2. B)
specific factor.
3. C)
variable factor.
4. D)
import-competing factor.
5. E)
export-competing factor.
Answer: A
Page Ref: 52
Difficulty: Easy
13) The specific factors model assumes that there are ________
goods and ________ factor(s) of production.
1. A)
two; three
2. B)
two; two
3. C)
two; one
4. D)
three; two
5. E) four;
three
Answer: A
Page Ref: 52
Difficulty: Easy
14) The degree of a factor’s specificity is directly related to
1. A)
the amount of time required to redeploy the factor to a different industry.
2. B)
the cost of the factor as a proportion of the long-run total cost of
production.
3. C)
the mobility of the factor, with more mobile factors having more specificity.
4. D)
technology differences between two countries, with a more advanced technology
resulting in more factor specificity.
5. E)
factor quality, with higher quality factors having a higher level of
specificity.
Answer: A
Page Ref: 52
Difficulty: Easy
15) The degree of a factor’s specificity is inversely related to
1. A)
the mobility of the factor, with more mobile factors having less specificity.
2. B)
the amount of time required to redeploy the factor to a different industry.
3. C)
the cost of the factor as a proportion of the long-run total cost of
production.
4. D)
technology differences between two countries, with a less advanced technology
resulting in less factor specificity.
5. E)
factor quality, with lower quality factors having a lower level of specificity.
Answer: A
Page Ref: 52
Difficulty: Easy
16) A worker who has invested in ________ skills will be
________ mobile than would otherwise be the case.
1. A)
occupation-specific; less
2. B)
occupation-specific; more
3. C)
ethical; less
4. D)
ethical; more
5. E)
occupation-nominal; less
Answer: A
Page Ref: 52
Difficulty: Easy
17) In the specific factors model, a country’s production
possibility frontier is ________ because of ________.
1. A) a
straight line; diminishing marginal returns
2. B) a
curved line; diminishing marginal returns
3. C) a
straight line; constant marginal returns
4. D) a
curved line; constant marginal returns
5. E) a
curved line; a limited supply of labor
Answer: B
Page Ref: 56
Difficulty: Easy
18) In the specific factors model, a country’s production
function is ________ because of ________.
1. A) a
straight line; diminishing marginal returns
2. B) a
curved line; diminishing marginal returns
3. C) a
straight line; constant marginal returns
4. D) a
curved line; constant marginal returns
5. E) a
curved line; a limited supply of labor
Answer: B
Page Ref: 56
Difficulty: Easy
19) In the four-quadrant diagram of the specific factors model,
the graph in the upper right quadrant is a country’s
1. A)
production possibility frontier.
2. B)
labor allocation constraint.
3. C)
production function for food.
4. D)
production function for cloth.
5. E)
labor supply curve.
Answer: A
Page Ref: 56
Difficulty: Easy
20) In the four-quadrant diagram of the specific factors model,
the graph in the lower right quadrant is a country’s
1. A)
production function for cloth.
2. B)
production possibility frontier.
3. C)
labor allocation constraint.
4. D)
production function for food.
5. E)
labor supply curve.
Answer: A
Page Ref: 56
Difficulty: Easy
21) In the four-quadrant diagram of the specific factors model,
the graph in the upper left quadrant is a country’s
1. A)
production function for food.
2. B)
production possibility frontier.
3. C)
labor allocation constraint.
4. D)
production function for cloth.
5. E)
labor supply curve.
Answer: A
Page Ref: 56
Difficulty: Easy
22) In the four-quadrant diagram of the specific factors model,
the graph in the upper right quadrant is a country’s
1. A)
labor allocation constraint.
2. B)
production possibility frontier.
3. C)
production function for food.
4. D)
production function for cloth.
5. E)
labor supply curve.
Answer: B
Page Ref: 56
Difficulty: Easy
23) The slope of a country’s production possibility frontier
with cloth measured on the horizontal and food measured on the vertical axis in
the specific factors model is equal to ________ and it ________ as more cloth
is produced.
1. A)
-MPLF/MPLC; becomes steeper
2. B)
-MPLF/MPLC; becomes flatter
3. C)
-MPLF/MPLC; is constant
4. D)
-MPLC/MPLF; becomes steeper
5. E)
-MPLC/MPLF; is constant
Answer: A
Page Ref: 56
Difficulty: Easy
24) The slope of a country’s production possibility frontier
with cloth measured on the horizontal and food measured on the vertical axis in
the Ricardian model is equal to ________ and it ________ as more cloth is
produced.
1. A)
-MPLF/MPLC; is constant
2. B)
-MPLF/MPLC; becomes steeper
3. C)
-MPLF/MPLC; becomes flatter
4. D)
-MPLC/MPLF; becomes steeper
5. E)
-MPLC/MPLF; is constant
Answer: A
Page Ref: 56
Difficulty: Easy
25) Under perfect competition, the equilibrium price of labor
used to produce cloth will be equal to
1. A)
the marginal product of labor in the production of cloth times the price of
cloth.
2. B)
the average product of labor in the production of cloth times the price of
cloth.
3. C)
the ratio of the marginal product of labor in the production of cloth to the
marginal product of labor in the production of food times the ratio of the
price of cloth. to the price of food.
4. D)
the slope of the production possibility frontier.
5. E)
the price of cloth divided by the marginal product of labor in the production
of cloth.
Answer: A
Page Ref: 56
Difficulty: Easy
26) When a country’s labor market is in equilibrium in the
specific factors model, the wage rate
1. A)
will be the same in both sectors.
2. B)
will be higher in the export-competing sector.
3. C)
will be higher in the import-competing sector.
4. D)
will be higher in the sector where product price is higher.
5. E)
will be higher in the sector where product price is lower.
Answer: A
Page Ref: 57
Difficulty: Easy
27) In the specific factors model, which of the following will
increase the quantity of labor used in food production?
1. A) an
increase in the price of food relative to that of cloth
2. B) an
increase in the price of cloth relative to that of food
3. C) a
decrease in the price of labor
4. D) an
equal percentage decrease in the price of food and cloth
5. E) an
equal percentage increase in the price of food and cloth
Answer: A
Page Ref: 57
Difficulty: Easy
28) In the specific factors model, which of the following will
increase the quantity of labor used in cloth production?
1. A) an
increase in the price of cloth relative to that of food
2. B) an
increase in the price of food relative to that of cloth
3. C) a
decrease in the price of labor
4. D) an
equal percentage decrease in the price of food and cloth
5. E) an
equal percentage increase in the price of food and cloth
Answer: A
Page Ref: 57
Difficulty: Easy
29) In the specific factor model, the effect of an increase in
the productivity of labor in the production of cloth will cause a(an) ________
in the quantity of labor used to produce cloth, a(an) ________ in the quantity
of labor used to produce food and a(an) ________ in the wage rate.
1. A)
increase; decrease; increase
2. B)
decrease; increase; increase
3. C)
increase; decrease; decrease
4. D)
decrease; increase; no change
5. E)
increase; increase; no change
Answer: A
Page Ref: 57
Difficulty: Easy
30) In the specific factor model, the effect of an increase in the
productivity of labor in the production of food will cause a(an) ________ in
the quantity of labor used to produce cloth, a(an) ________ in the quantity of
labor used to produce food and a(an) ________ in the wage rate.
1. A)
decrease; increase; increase
2. B)
increase; decrease; increase
3. C)
increase; decrease; decrease
4. D)
decrease; increase; no change
5. E)
increase; increase; no change
Answer: A
Page Ref: 57
Difficulty: Easy
31) The slope of a country’s production possibility frontier is
equal to ________ and the optimal production point is located where the slope
is equal to ________. Assume that output of good Y is measured on the vertical
axis, output of good X is measured on the horizontal axis, MPL is the marginal
product of labor with a subscript indicating which good, P is the price of a
good, and w is the wage rate.
1. A)
-MPLY/MPLX; -PX/PY
2. B)
-PX/PY; -MPLY/MPLX;
3. C)
-PX/w; -PY/w
4. D)
-MPLY/w; -MPLF/w
5. E)
-MPLX/MPLY; -PX/PY
Answer: A
Page Ref: 58
Difficulty: Moderate
32) In the specific factors model, a 5% increase in the price of
food accompanied by a 5% increase in the price of cloth will cause wages to
________, the production of cloth to ________, and the production of food to
________.
1. A)
increase by 5%; remain unchanged; remain unchanged
2. B)
increase by less then 5%; decrease; increase
3. C)
increase by more then 5%; increase; remain unchanged
4. D)
remain constant; increase; increase
5. E)
remain constant; decrease; decrease
Answer: A
Page Ref: 58-60
Difficulty: Moderate
33) In the specific factors model, a 5% increase in the price of
food accompanied by a 0% increase in the price of cloth will cause wages to
________, the production of cloth to ________, and the production of food to
________.
1. A)
increase by less then 5%; decrease; increase
2. B)
increase by 5%; remain unchanged; remain unchanged
3. C)
increase by more then 5%; increase; remain unchanged
4. D)
remain constant; increase; increase
5. E)
remain constant; decrease; decrease
Answer: A
Page Ref: 58-60
Difficulty: Moderate
34) In the specific factors model, a 0% increase in the price of
food accompanied by a 5% increase in the price of cloth will cause wages to
________, the production of cloth to ________, and the production of food to
________.
1. A)
increase by less then 5%; increase; decrease
2. B)
increase by 5%; remain unchanged; remain unchanged
3. C)
increase by more then 5%; increase; remain unchanged
4. D)
remain constant; increase; increase
5. E)
remain constant; decrease; decrease
Answer: A
Page Ref: 58-60
Difficulty: Moderate
35) In the specific factors model, a 5% increase in the price of
food accompanied by a 5% increase in the price of cloth will cause ________ in
the welfare of labor, ________ in the welfare of the fixed factor in the
production of food, and ________ in the welfare of the fixed factor in the
production of cloth.
1. A) no
change; no change; no change
2. B) an
increase; an increase; an increase
3. C) a
decrease; an increase; an increase
4. D) an
increase; a decrease; a decrease
5. E) a
decrease; a decrease; a decrease
Answer: A
Page Ref: 60-62
Difficulty: Moderate
36) In the specific factors model, a 5% decrease in the price of
food accompanied by a 5% decrease in the price of cloth will cause ________ in
the welfare of labor, ________ in the welfare of the fixed factor in the
production of food, and ________ in the welfare of the fixed factor in the
production of cloth.
1. A) no
change; no change; no change
2. B) an
increase; an increase; an increase
3. C) a
decrease; an increase; an increase
4. D) an
increase; a decrease; a decrease
5. E) a
decrease; a decrease; a decrease
Answer: A
Page Ref: 60-62
Difficulty: Moderate
37) In the specific factors model, a 5% increase in the price of
food accompanied by a 10% increase in the price of cloth will cause ________ in
the welfare of labor, ________ in the welfare of the fixed factor in the
production of food, and ________ in the welfare of the fixed factor in the
production of cloth.
1. A) an
ambiguous change; a decrease; an increase
2. B) an
ambiguous change; an ambiguous change; an ambiguous change
3. C) a
decrease; an ambiguous change; an ambiguous change
4. D) an
increase; a decrease; an increase
5. E) an
ambiguous change; an increase; a decrease
Answer: A
Page Ref: 60-62
Difficulty: Moderate
38) In the specific factors model, a 5% increase in the price of
food accompanied by a 1% increase in the price of cloth will cause ________ in
the welfare of labor, ________ in the welfare of the fixed factor in the
production of food, and ________ in the welfare of the fixed factor in the
production of cloth.
1. A) an
ambiguous change; an increase; a decrease
2. B) an
ambiguous change; a decrease; an increase
3. C) an
ambiguous change; an ambiguous change; an ambiguous change
4. D) a
decrease; an ambiguous change; an ambiguous change
5. E) an
increase; a decrease; an increase
Answer: A
Page Ref: 60-62
Difficulty: Moderate
39) Refer to the production possibility graph above. Assume that
the economy is in equilibrium at point e. If there is an increase in the wage
rate, the new equilibrium is most likely to be
1. A)
point e.
2. B)
point d.
3. C)
point f.
4. D)
point h.
5. E)
point b.
Answer: A
Page Ref: 60-62
Difficulty: Easy
40) Refer to the production possibility graph above. Assume that
the economy is in equilibrium at point e. If the price of good A increases, the
new equilibrium is most likely to be
1. A)
point d.
2. B)
point e.
3. C)
point f.
4. D)
point h.
5. E)
point b.
Answer: A
Page Ref: 60-62
Difficulty: Easy
41) Refer to the production possibility graph above. Assume that
the economy is in equilibrium at point e. If the price of good B increases, the
new equilibrium is most likely to be
1. A)
point f.
2. B)
point d.
3. C)
point e.
4. D)
point h.
5. E)
point b.
Answer: A
Page Ref: 60-62
Difficulty: Easy
42) Refer to the production possibility graph above. Assume that
the economy is in equilibrium at point e. If the labor supply increases due to
immigration, the new equilibrium is most likely to be
1. A)
point h.
2. B)
point f.
3. C)
point d.
4. D)
point e.
5. E)
point b.
Answer: A
Page Ref: 60-62
Difficulty: Easy
43) Refer to the production possibility graph above. Assume that
the economy is in equilibrium at point e. If a war reduces the country’s
capital stock by 40%, the new equilibrium is most likely to be
1. A)
point b.
2. B)
point h.
3. C)
point f.
4. D)
point d.
5. E)
point e.
Answer: A
Page Ref: 60-62
Difficulty: Easy
4.2 International Trade in the Specific Factors
Model
1) A country that does NOT engage in trade can benefit from
trade only if
1. A)
pre-trade and free-trade relative prices are not identical.
2. B) it
employs a unique technology.
3. C) it
has an absolute advantage in at least one good.
4. D)
its wage rate is below the world average.
5. E)
pre-trade and free-trade relative prices are identical.
Answer: A
Page Ref: 63-64
Difficulty: Moderate
2) The relative price of a unit of cloth in the small isolated
country of Moribundia is 5 units of food. When then central city, Mudhole, puts
in an airstrip, the country is able to engage in trade. If the relative price
of cloth in the outside world is 3 units of food, then Moribundia will export ________
and ________ factors used in the production of ________ will benefit.
1. A)
food; immobile; food
2. B)
food; mobile; food
3. C)
cloth; immobile; cloth
4. D)
cloth; mobile; cloth
5. E)
food; immobile; cloth
Answer: A
Page Ref: 63-64
Difficulty: Moderate
3) The relative price of a unit of cloth in the small isolated
country of Moribundia is 5 units of food. When then central city, Mudhole, puts
in an airstrip, the country is able to engage in trade. If the relative price
of cloth in the outside world is 8 units of food, then Moribundia will export
________ and ________ factors used in the production of ________ will benefit.
1. A)
cloth; immobile; cloth
2. B)
food; immobile; food
3. C)
food; mobile; food
4. D)
cloth; mobile; cloth
5. E)
cloth; immobile; food
Answer: A
Page Ref: 63-64
Difficulty: Moderate
4.3 Income Distribution and the Gains from Trade
1) In the specific factors model, the effects of trade on
welfare are ________ for mobile factors, ________ for fixed factors used to
produce the exported good, and ________ for fixed factors used to produce the
imported good.
1. A)
ambiguous; positive; negative
2. B)
ambiguous; negative; positive
3. C)
positive; ambiguous; ambiguous
4. D)
negative; ambiguous; ambiguous
5. E)
positive; positive; positive
Answer: A
Page Ref: 64-66
Difficulty: Easy
2) In the specific factors model, the effects of trade on
welfare overall are ________ and for fixed factors used to produce the exported
good they are ________.
1. A)
positive; positive
2. B)
negative; positive
3. C)
positive; negative
4. D)
ambiguous; positive
5. E)
positive; ambiguous
Answer: A
Page Ref: 64-66
Difficulty: Easy
3) In the specific factors model, the effects of trade on
welfare overall are ________ and for fixed factors used to produce the imported
good they are ________.
1. A) positive;
negative
2. B)
positive; positive
3. C)
negative; positive
4. D)
ambiguous; positive
5. E)
positive; ambiguous
Answer: A
Page Ref: 64-66
Difficulty: Easy
4) The overall welfare effects of trade are ________ if
________.
1. A)
positive; those who gain can compensate those who lose and still be better off
2. B)
positive; more people gain from trade than lose from it
3. C)
negative; some people are made worse off by trade
4. D)
negative; those who lose can compel those who gain to compensate them for their
losses
5. E)
positive; the domestic economy grows faster than do foreign economies
Answer: A
Page Ref: 64-66
Difficulty: Easy
5) The effect of trade on income distribution
1. A)
can be significant in the sort run.
2. B) is
positive for all segments of an economy.
3. C) is
insignificant in the short run.
4. D)
implies that there are no real gains from trade.
5. E)
refutes the model of comparative advantage.
Answer: A
Page Ref: 64-66
Difficulty: Easy
6) A country’s budget constraint states that
1. A)
the value of exports must be equal to the value of imports.
2. B)
real income in the exporting country must be equal to real income in the
importing country.
3. C)
unless a country engages in trade, the value of exports cannot exceed the value
of goods produced.
4. D) a
country will engage in trade only if the value of imports exceed the value of
exports.
5. E) a
country will engage in trade only if the value of exports exceeds the value of
imports.
Answer: A
Page Ref: 64-66
Difficulty: Easy
7) A country’s budget constraint states that
1. A) whether
or not a country engages in trade, the value of goods consumed must be equal to
the value of goods produced.
2. B)
real income in the exporting country must be equal to real income in the
importing country.
3. C)
unless a country engages in trade, the value of goods consumed cannot exceed
the value of goods produced.
4. D) a
country will engage in trade only if the value of goods consumed exceeds the
value of goods produced.
5. E) a
country will engage in trade only if the value of goods produced exceeds the value
of goods consumed.
Answer: A
Page Ref: 64-66
Difficulty: Easy
8) A country will realize no gains from trade if
1. A)
pre-trade and free-trade relative prices are identical.
2. B)
all countries employ the same technology.
3. C) it
does not have an absolute advantage in at least one good.
4. D)
its wage exceeds the world average.
5. E)
pre-trade and free-trade relative prices are not identical.
Answer: A
Page Ref: 64-66
Difficulty: Moderate
4.4 The Political Economy of Trade: A Preliminary
View
1) Those who will lose from free trade are ________ factors in
sectors that produce goods that are ________.
1. A)
immobile; also imported
2. B)
mobile; also imported
3. C)
immobile; exported
4. D)
mobile; exported
5. E)
mobile; untraded
Answer: A
Page Ref: 67-70
Difficulty: Easy
2) Those who will unambiguously gain from free trade are
________ factors in sectors that produce goods that are ________.
1. A)
immobile; exported
2. B)
immobile; also imported
3. C)
mobile; also imported
4. D)
mobile; exported
5. E)
mobile; untraded
Answer: A
Page Ref: 67-70
Difficulty: Easy
3) The effect of trade on specialized employees of
import-competing industries will be ________ jobs and ________ pay because they
are relatively ________.
1. A)
fewer; lower; immobile
2. B)
fewer; lower; mobile
3. C)
more; lower; immobile
4. D)
more; higher; mobile
5. E)
more; higher; immobile
Answer: A
Page Ref: 67-70
Difficulty: Moderate
4) The effect of trade on specialized employees of exporting
industries will be ________ jobs and ________ pay because they are relatively
________.
1. A)
more; higher; immobile
2. B)
fewer; lower; immobile
3. C)
fewer; lower; mobile
4. D)
more; lower; immobile
5. E)
more; higher; mobile
Answer: A
Page Ref: 67-70
Difficulty: Moderate
5) Economists consider the effects of free trade on income
distribution to be ________ important than the effects on overall welfare
because ________.
1. A)
less; those who are harmed can be compensated by those who gain
2. B)
more; those who are harmed are not compensated by those who gain
3. C)
less; the effects on income distribution are minor and inconsequential
4. D)
more; the effects on income distribution are major and consequential
5. E)
less; the wealthy benefit and only the poor lose
Answer: A
Page Ref: 67-70
Difficulty: Easy
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