sources of comparative advantage MCQs – Page 2

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

sources of comparative advantage Mcqs

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

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