Unit 4: International Trade Theories - Practice Quiz

1 Who introduced 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, countries should specialize in goods they produce:

4 What is a likely benefit of specialization based on absolute advantage?

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

6 Comparative advantage is primarily determined by differences in:

7 A country should specialize according to comparative advantage in the product for which it has:

8 Can two countries benefit from trade if one country has an absolute advantage in every product?

9 Factor proportion theory is also commonly known as the:

10 According to factor proportion theory, a country tends to export goods that intensively use its:

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

12 A labor-abundant country is generally expected to export:

13 Who developed the diamond model of national competitive advantage?

14 How many main determinants are included in Porter's diamond model?

15 Which element of Porter's diamond refers to the nature of customers in the home market?

16 In Porter's diamond model, strong domestic suppliers are part of:

17 Factor mobility refers to the movement of:

18 Which is an example of international labor mobility?

19 Which is an example of international capital mobility?

20 Which factor of production is generally more mobile internationally?

21 Country Alpha requires 2 labor hours to produce one unit of wheat and 6 hours to produce one unit of cloth. Country Beta requires 4 hours for wheat and 5 hours for cloth. According to the theory of absolute advantage, which specialization pattern is appropriate?

22 Northland produces 12 computers or 6 bicycles per worker, while Southland produces 8 computers or 10 bicycles per worker. Which statement correctly applies absolute advantage?

23 Alpha can produce 4 units of wheat or 2 units of cloth per worker, while Beta can produce 1 unit of wheat or 3 units of cloth. Each has 10 workers and initially assigns 5 workers to each product. What happens if each country fully specializes according to absolute advantage?

24 A country is more productive than its trading partner in producing both steel and rice. What is the main limitation of using only absolute advantage to analyze this situation?

25 Country A needs 2 hours to produce coffee and 4 hours to produce tea. Country B needs 6 hours for coffee and 3 hours for tea. Which specialization follows comparative advantage?

26 The opportunity cost of one barrel of wine is 2 bolts of cloth in Home and 5 bolts in Foreign. Which exchange rate for one barrel of wine can benefit both countries?

27 Initially, Country A can produce 8 units of X or 4 units of Y per worker, while Country B can produce 6 units of either good. If A's productivity in Y rises to 10 units, which country now has comparative advantage in X?

28 Country P can produce either 30 machines or 90 tons of grain, while Country Q can produce either 20 machines or 40 tons of grain. Which statement is correct?

29 Country K has abundant capital relative to labor, while Country L has abundant labor relative to capital. Automobiles are capital-intensive and garments are labor-intensive. What trade pattern does factor proportion theory predict?

30 East has 600 units of capital and 300 workers, while West has 800 units of capital and 800 workers. Which country is relatively capital-abundant?

31 A labor-abundant country opens to trade and expands production of labor-intensive exports. Under the factor proportion framework, which domestic outcome is most likely?

32 A capital-abundant country is observed exporting mostly labor-intensive goods and importing capital-intensive goods. This observation most directly resembles which challenge to factor proportion theory?

33 Domestic medical-device buyers demand unusually precise, innovative equipment, pushing local producers to improve rapidly. Which element of the diamond model is illustrated?

34 A country's electric-vehicle industry benefits from strong local battery makers, software companies, and charging-equipment suppliers. Which diamond determinant is most relevant?

35 Several strong domestic robotics firms compete intensely, causing faster innovation and lower production costs. Which part of Porter's diamond best explains this effect?

36 A nation lacks natural resources but develops specialized engineering institutes and a highly trained technical workforce. How would the diamond model interpret this development?

37 Capital can earn 4% in Country A and 9% in Country B under similar risk conditions. If capital is highly mobile, what adjustment is most likely?

38 Workers migrate from a low-wage country to a high-wage country. Assuming similar skills and no major barriers, what wage effect is generally expected?

39 A labor-abundant country cannot export labor-intensive goods because of prohibitive tariffs, but its workers can migrate freely. What is the most likely theoretical result?

40 A manufacturer builds a factory abroad to avoid an import tariff and serve the foreign market locally. Which interpretation best fits factor mobility theory?

41 Country A requires 2 labor hours for wheat and 6 for cloth, while Country B requires 4 labor hours for wheat and 8 for cloth. Under constant costs, which trade pattern is economically consistent?

42 Unit labor requirements are 1 for X and 3 for Y in Country A, and 2 for X and 4 for Y in Country B. If wages are 3 in A and 2 in B, which goods are internationally cost-competitive?

43 Initially, A's unit labor requirements for X and Y are 2 and 4, while B's are 6 and 8. A then doubles only its productivity in Y. Which outcome follows?

44 A produces 8 units of X or 4 units of Y per labor hour, while B produces 6 units of X or 3 units of Y. With linear technologies and identical goods, what is the strongest conclusion?

45 In P, one unit of wine requires 3 hours and one unit of cloth requires 6 hours. In Q, each good requires 4 hours. Which international price of one wine permits both countries to gain through complete specialization?

46 Country A can produce either 120 units of X or 60 units of Y, while B can produce either 80 units of X or 80 units of Y. If A's productivity in Y triples and all else remains constant, how do comparative advantages change?

47 Unit labor requirements for X and Y are 2 and 6 in A, and 5 and 10 in B. Let . For which wage range is A cost-competitive only in X and B only in Y?

48 A's opportunity cost of one unit of steel is 2 textiles, while B's is 3 textiles. The world price is 2.4 textiles per delivered steel. Shipping from A requires sending 1.25 units for each unit delivered. What follows?

49 Country H has a capital-labor ratio of 4 and Country F has a ratio of 2. Machinery uses a capital-labor ratio of 5, while textiles use a ratio of 1 in both countries. Under standard Heckscher-Ohlin assumptions, what is predicted?

50 H has a higher physical capital-labor ratio than F, but H also has a higher rental-wage ratio, . How should H's factor abundance be classified?

51 Good X is capital-intensive relative to Y at H's factor prices but labor-intensive relative to Y at F's factor prices. What does this factor-intensity reversal imply?

52 An empirical test finds that a capital-abundant country exports goods with lower measured physical capital per worker than its imports. Which finding would most directly reconcile this result with factor proportion theory?

53 Domestic medical-device buyers demand unusually precise products, while specialized local sensor suppliers rapidly adapt components to meet those demands. Which diamond interaction is most evident?

54 A country lacking inexpensive energy develops world-leading energy-efficient industrial equipment. Which diamond-model mechanism best explains this outcome?

55 A government funds technical universities, enforces competition, and acts as an advanced purchaser, while an unexpected foreign embargo accelerates domestic innovation. How are these forces classified in the diamond model?

56 A nation's robotics firms move routine assembly abroad but retain research, demanding lead customers, specialist suppliers, and intense rivalry at home. What is the best interpretation?

57 Capital initially earns 12% in A and 6% in B. With identical risk, diminishing marginal products, and internationally mobile capital, which adjustment is expected?

58 Workers earn 30 per period in A and 10 in B. Moving from B to A costs 50 once, and a worker has four periods remaining. Ignoring wage adjustment and discounting, what is the private migration gain?

59 Two countries have identical technologies but different factor endowments. Free goods trade equalizes factor prices even though labor and capital cannot cross borders. What implication follows?

60 Capital moves into a labor-abundant country and expands its capital stock substantially. Holding technology and preferences constant, what long-run trade effect is most plausible?