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sources of comparative advantage MCQs

Practise focused sources of comparative advantage questions with marked answers for exam preparation and subject revision.

sources of comparative advantage Mcqs
1. The Heckscher-Ohl in model rules out the classical models basis for trade by assuming that _________ is (are) identical between countries?
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A. factor endowments

B. factor intensities

C. opportunity costs

D. technology
2. If tastes are identical between countries, then comparative advantage is determined by ?
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A. demand conditions only

B. supply and demand conditions

C. supply condition only

D. cant tell without more information

3. The trade model of the Swedish economies Heckscher and Ohlin maintains that ?
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A. The division of labor is limited by the size of the world market

B. Absolute advantage determines the distribution of the gains from trade

C. Comparative advantage determines the distribution of the gains from trade

D. A country exports goods for which its resource endowments are most suited
4. In his empirical test of comparative advantage Wassily Leontief found that ?
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A. U.S imports are labor intensive relative to U.S exports

B. U.S exports are neither labor nor capital intensive

C. None of the above

D. U.S exports are capital intensive relative to U.S imports

5. Intra-industry trade theory ?
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A. Explains why the United States might export autos and import clothing

B. ignores seasonal considerations for agricultural goods

C. Assumes that transport costs are very low or do not exist

D. Explains why the United States might export and import differentiated versions of the same product such as different types of autos
6. Should international transportation costs decrease the effect on international trade would include a (an) ?
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A. Smaller gain from trade

B. Decline in the income of home producers

C. increase in the volume of trade

D. Decrease in the level of specialization in production

7. One of the predictions of the Heckscher-Ohlin model is that ?
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A. countries with different factor endowments but similar technologies and preferences will have a strong basis for trade with each other

B. countries with tend to specialize but not completely in their comparative advantage good

C. reciprocal demand leads to an equilibrium terms of trade by inducing change in both demand and supply

D. All of the above
8. By reducing the volume of trade transportation costs tend to ?
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A. eliminate all of the feasible gains from international trade

B. ensure that the process of product price equalization and factor price equalization are complete

C. stop the process of product price equalization and factor price equalization before they are complete:

D. maximize all of the feasible gains from international trade

9. The analyzes the income distribution effects of trade in the short run when resources are immobile among industries ?
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A. Stolpher-Samuelson theory

B. specific factors theory

C. factor endowment theory

D. overlapping demand theory

10. According to the Heckscher-Ohlin model ?
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A. The gainers from trade outnumber the losers from trade

B. The scarce factor necessarily gains from trade

C. None of the above

D. everyone automatically gains from trade

11. In his empirical tests, Wassily Leontief used an input-output table to ?
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A. calculate the labor productivity of America workers relative to foreign workers

B. calculate the capital and labor required to produce $1 million of U.S exports and imports

C. calculate the capital productivity of American capital relative to foreign capital

D. All of the above

12. Interindustry trade can be explained by all of the following except ?
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A. high per capita incomes in exporting countries

B. different growing seasons of the year for agricultural products

C. product differentiation for good such as automobiles

D. high transportation costs as a proportion of product value

13. The comparative advantage model of Ricardo was based on ?
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A. income conditions underlying specialization and trade

B. interindustry specialization and trade

C. demand conditions underlying specialization and trade

D. intraindustry specialization and trade

14. The factor endowment model of international trade was developed by ?
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A. David Ricardo

B. Eli Heckscher and Bertil Ohlin

C. Adam Smith

D. John Stuart Mill

15. Wassily Leontief used an input output table in order to test the ?
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A. Linder theory of overlapping demand

B. Heckscher Ohl in theory of comparative advantage

C. Ricardian theory of comparative advantage

D. All of the above

16. Which trade theory contends that a country that initially develops and exports a new product may eventually become an importer of it and may no longer manufacture the product ?
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A. Theory of factor endowments

B. Economies of scale theory

C. Product life cycle theory

D. Theory of overlapping demands

17. Declining costs per unit of output results from international trade especially if ?
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A. International trade affords producers monopoly power

B. National governments levy imports tariffs and quotas

C. Economies of scale exist for producers

D. Producing goods entails increasing costs

18. Leontiefs result were considered paradoxical because the United Stated was believed to be ?
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A. All of the above

B. technologically efficient relative to the rest of the world

C. labor abundant relative to the rest of the world

D. capital abundant relative to the rest of the world
19. By adjusting the model of comparative advantage to include transportation costs along with production costs we would expect ?
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A. specialization to stop when the production costs of the trading partners equalize

B. The gains from trade to be greater than when there are no transportation costs

C. The prices of trade goods to be lower than when there are no transportation costs

D. The volume of trade to be less than when there are no transportation costs
20. Wassily Leontiefs results can be interpreted as ?
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A. support for the Ricardian model

B. support for the Heckcher Ohlin model

C. evidence against the Heckscher-Ohl in model

D. evidence against the Ricardi an model

21. That the division of labor is limited by the size of the market best applies to which explanation of trade ?
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A. Economies of scale theory

B. Overlapping demand theory

C. Factor endowment theory

D. Product life cycle theory

22. _____ 1954 study of U.S trade patterns showed that U.S exports were labor-intensive compared with U.S imports, even though the United States was widely regarded as a relatively capital-abundant nation ?
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A. Wassily Leontiefs

B. Wolfgang Stolphers

C. Staffan Linders

D. Paul Samuelsons

23. According to the Heckscher-Ohlin model the source of comparative advantage is a countrys ?
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A. technology

B. advertising

C. factor endowments

D. both (a) and (c)

24. Difference in environmental standards or other government regulations among nations ?
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A. have tended to make U.S steel companies more competitive internationally

B. can affect production costs and thus alter comparative advantages and trade patterns

C. have no impact on patterns of international trade

D. have been eliminated by the nations participating in NAFTA

25. The Heckshcer-Ohl assumes that are indentical between countries?
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A. tastes and preferences

B. technology levels

C. factor indowments

D. Both A and B
26. For the United States empirical studies indicate that over the past two hundred years the cost of international transportation relative to the value of U.S imports has ?
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A. increased

B. Decreased

C. Any of the above

D. Not changed

27. The factor endowment theory was pioneered by ?
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A. Eli Heckscher and Bertil Ohlin

B. Adam smith

C. David Ricardo

D. Wassily Leontief

28. The Heckscher-Ohlin theorem states that a country will have comparative advantage in the good whose production in relatively intensive in the with which the country is relatively abundant ?
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A. opportunity cost

B. tastes

C. factor/resource

D. technology

29. Advocates of industrial policy maintain that government should ?
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A. pursue free trade as a policy that leads to maximum global efficiency

B. increase interest rates on loans made to firms in import-competing industries

C. grant subsidies to firms offering potential comparative advantage

D. provide loans to domestic workers in exporting industries

30. A product will be traded only if the pre-trade price difference between the two countries ?
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A. more information in needed to answer this

B. equals the cost of transporting it between them

C. is less than the cost of transporting it between them

D. is greater than the cost of transporting it between them equals the cost of transporting it between them
31. Industrial policies intended to foster comparative advantage for domestic industries could result in the implementation of ?
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A. loan guarantees

B. low interest rate loans

C. All of the above

D. research and development subsidies

32. Assume that Country A is relatively abundant in labor and Country B is relatively abundant in land Note that wages are the returns to labor and rents are the returns to land According to the factor price equalization theorem, once Country A begins specializing according to comparative advantage and trading with Country B: A. wages and rents should fall in Country A B. wages and rents should rise in Country A C. wages should rise and rents should fall in Country A D. wages should fall and rents should raise in Country A ?
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A. wages should fall and rents should raise in Country A

B. wages should rise and rents should fall in Country A

C. wages and rents should rise in Country A

D. wages and rents should fall in Country A

33. Dynamic comparative advantage theory ?
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A. Is another name for Ricardos comparative advantage theory?

B. None of the above

C. helps explain why some nations use industrial policy to support potentially competitive new firms

D. cannot explain strategic competition between firms such as Boeing and Airbus

34. The product cycle theory of trade is essentially a ?
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A. static, short run trade theory

B. negative-sum theory of trade

C. dynamic long run trade theory

D. zero-sum theory of trade

35. According to the factor price equalization theorem, the ________ factor should oppose free. trade policies in any given country?
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A. scarce

B. neither

C. cant tell without more information

D. abundant

36. The Heckscher-Ohlin theory explains comparative advantage as the result of differences in countries ?
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A. Research and development expenditures

B. Economies of large-scale production

C. Relative costs of labor

D. Relative abundance of various resources
37. According to the factor endowment model of Heckscher and Ohlin, countries heavily endowed with land will ?
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A. Import products that are land-intensive

B. Export products that are land-intensive

C. Devote insufficient amounts of resources to agricultural production

D. Devote excessive amounts of resources to agricultural production

38. The theory of overlapping demand predicts that trade in manufactured goods is unimportant for countries with very different ?
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A. Expectations of future interest rate levels

B. Tastes and preferences

C. Per-capita income levels

D. Labor productivities

39. Boeing aircraft company was able to over its production costs of the first jumbo jetll in the seventies because Boeing could market it to several foreign airlines in addition to domestic airlines. This illustrates ?
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A. How a natural monopoly is forced to behave more competitively with international trade

B. How economies of scale make possible a larger variety of products in international trade

C. How a natural monopoly is forced to behave less competitively with international trade

D. A transfer of wealth from domestic consumer to domestic producer as the result of trade

40. According to the trade theory of Staffan Linder trade tends to be most pronounced in manufactured goods when trading countries have ?
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A. similar wage levels

B. similar per-capita incomes

C. similar endowments of natural resources

D. similar levels of technology