Unit 4: International Trade Theories - Practice Quiz

1 Who developed the theory of absolute advantage?

2 A country has an absolute advantage when it can produce a good using:

3 According to the theory of absolute advantage, a country should specialize in goods that it:

4 Country A produces 10 units of wheat per worker, while Country B produces 6 units. Which country has an absolute advantage in wheat?

5 Who is most closely associated with the theory of comparative advantage?

6 Comparative advantage is primarily based on differences in:

7 If a country has a lower opportunity cost in producing coffee, it should generally:

8 Can two countries gain from trade when one country has an absolute advantage in producing every good?

9 The factor proportion theory is also known as the:

10 According to factor proportion theory, a labor-abundant country is likely to export:

11 Which pair represents major factors of production in factor proportion theory?

12 A capital-abundant country is expected to have a comparative advantage in:

13 Who proposed the diamond model of national competitive advantage?

14 Which of the following is one of the four main determinants in Porter's diamond model?

15 In Porter's diamond model, factor conditions include a nation's:

16 Strong domestic rivalry can improve national competitiveness by encouraging firms to:

17 Factor mobility refers to the movement of:

18 Which factor of production is typically more mobile internationally?

19 The international movement of workers is an example of:

20 Which factor is generally considered immobile between countries?

21 Country A can produce 12 units of wheat or 6 units of cloth per worker per day. Country B can produce 8 units of wheat or 9 units of cloth. Which specialization pattern follows the theory of absolute advantage?

22 Before trade, Country X produces 20 computers and 40 bicycles, while Country Y produces 12 computers and 60 bicycles using the same resources. Which conclusion is most consistent with absolute advantage?

23 Country M produces 30 tons of rice or 10 tons of steel per month, while Country N produces 20 tons of rice or 15 tons of steel. If trade is based only on absolute advantage, what should Country M export?

24 Suppose Country P is more productive than Country Q in producing both cars and machinery. What does the theory of absolute advantage alone imply about trade between them?

25 Country A can produce 10 cars or 20 computers, while Country B can produce 6 cars or 9 computers. Which country has the comparative advantage in cars?

26 Country R can produce 8 tons of wheat or 4 tons of coffee. Country S can produce 6 tons of wheat or 6 tons of coffee. Which specialization pattern is supported by comparative advantage?

27 If Country A's opportunity cost of producing one unit of textiles is 3 units of chemicals and Country B's is 5 units of chemicals, which trade price could benefit both countries?

28 Country C can produce either 100 units of food or 50 units of clothing. Country D can produce either 80 units of food or 80 units of clothing. Which country should export clothing?

29 According to factor proportion theory, a country with abundant capital and scarce labor is most likely to export which product?

30 Country X has relatively abundant skilled labor, while Country Y has relatively abundant unskilled labor. Which trade pattern best fits factor proportion theory?

31 A country experiences a large increase in its available farmland while its labor force remains unchanged. What change in its export structure would factor proportion theory predict?

32 Country A is capital-abundant, and Country B is labor-abundant. Suppose smartphones are capital-intensive and footwear is labor-intensive. Which outcome is most likely?

33 A country's firms become highly competitive in electric vehicles because they face demanding local consumers, strong battery suppliers, and intense domestic rivalry. Which diamond model factors are most evident?

34 A nation's specialized universities and advanced telecommunications network help its software firms innovate rapidly. Which diamond determinant is primarily illustrated?

35 A country develops a globally competitive food-processing industry because local farmers provide high-quality inputs and packaging companies are located nearby. Which determinant is most directly involved?

36 The government funds research centers and enforces strict environmental standards, encouraging domestic firms to develop clean technologies. How does this affect the diamond model?

37 Under factor mobility theory, what is the most likely effect when capital can move freely from a low-return country to a high-return country?

38 A multinational company relocates part of its production to a country with lower labor costs while keeping research activities at home. Which factor mobility is most clearly shown?

39 If skilled workers can migrate easily from Country A to Country B, where wages are higher, what is the likely short-run effect on the labor markets?

40 Compared with a situation where factors remain within national borders, high international factor mobility is most likely to produce which result?

41 Country A requires 2 labor hours to produce one unit of machinery and 9 hours to produce one unit of wheat. Country B requires 6 hours for machinery and 3 hours for wheat. Each country has 18 labor hours and initially divides labor equally between the two goods. What is the production effect of complete specialization according to absolute advantage?

42 Home uses 2 labor hours for good X and 5 hours for good Y, while Foreign uses 3 and 6 hours, respectively. The hourly wage is $2 in Home and $1 in Foreign. Ignoring other costs, which conclusion is correct?

43 Country A needs 1 labor hour for X and 2 hours for Y, while Country B needs 4 hours for X and 6 hours for Y. Which statement best identifies a limitation of the absolute advantage theory?

44 Home requires 2 labor hours per unit of a product, while Foreign requires 5. The Home wage is $4 per hour, the Foreign wage is $2 per hour, and shipping from Home to Foreign costs $3 per unit. What follows for sales in Foreign?

45 Home's unit labor requirements are 2 hours for X and 8 hours for Y; Foreign's are 6 hours for X and 12 hours for Y. If the world relative price is , which statement correctly describes specialization gains?

46 Home requires 4 labor hours for cloth and 8 for wine; Foreign requires 6 hours for cloth and 9 for wine. Which range of cloth prices, measured in units of wine, can generate mutual gains when Home exports cloth?

47 Initially, Home's labor requirements are 4 hours for X and 8 for Y, while Foreign's are 3 hours for X and 9 for Y. A technological improvement reduces Home's requirement for X to 2 hours, leaving all other requirements unchanged. What changes?

48 Three countries have constant opportunity costs of producing one unit of X equal to , , and for A, B, and C, respectively. If the world price is , what production pattern follows under frictionless trade?

49 Country A has an aggregate capital-labor ratio of 4, while Country B's ratio is 2. Cars use a capital-labor ratio of 3 and textiles use a ratio of 1 at common factor prices. Under the standard Heckscher-Ohlin assumptions, what trade pattern is predicted?

50 Two countries have identical technologies and produce both goods, but transport costs create different domestic goods prices after trade begins. Which major Heckscher-Ohlin implication is most directly undermined?

51 A capital-abundant country appears to export labor-intensive goods when labor is measured only by worker counts. Its export industries employ unusually high levels of education and specialized skills. Which reinterpretation most plausibly reconciles the evidence with factor proportion theory?

52 Good X is capital-intensive relative to Y at low wage-rental ratios but labor-intensive relative to Y at high wage-rental ratios. What is the main consequence for the factor proportion theory?

53 Domestic medical-device buyers demand unusually precise, regulation-compliant products several years before similar requirements emerge abroad. Local firms consequently develop advanced monitoring systems that later succeed internationally. Which diamond determinant is the primary initial driver?

54 A country lacks inexpensive engineers, so firms jointly finance specialized institutes, automate routine design, and develop proprietary engineering software. The industry later becomes globally competitive. How does the diamond model best interpret this outcome?

55 A country's robotics firms face intense domestic competition and are located near world-class sensor, software, and precision-component suppliers. Which explanation best captures the interaction within Porter's diamond?

56 A government subsidy launches a semiconductor sector, but domestic buyers remain unsophisticated, supplier networks are weak, and protected firms face little rivalry. What would the diamond model most likely predict?

57 Under identical technologies, constant returns, no trade costs, and incomplete specialization, countries initially differ in capital-labor ratios. If capital becomes perfectly mobile internationally, what is the most likely long-run relationship between factor movement and goods trade?

58 A small open economy produces a capital-intensive good and a labor-intensive good at fixed world prices. Capital enters while labor and technology remain unchanged. Assuming both goods continue to be produced, what does the Rybczynski effect predict?

59 Workers earn $60,000 annually in Country A and $45,000 in Country B. Moving from B to A imposes an annualized monetary and nonmonetary cost of $18,000 per worker. With comparable employment risk, what does the factor mobility framework predict?

60 A manufacturer moves labor-intensive assembly abroad through foreign direct investment but continues exporting high-value components from its home country to the new plant. What does this case demonstrate about factor mobility and trade?