ECO 214 International Trade

ECO 214 International Trade Fall 2016 Quiz 3 1. In trade theory, when we say that a country’s terms of trade rises, this means that:

a. The country’s exports grow faster than the country’s imports.

b. The price of the country’s export products rises relative to the price of the products that the country imports.

c. The country’s relative supply curve increases more than its relative demand curve.

d. The country’s production possibilities frontier shifts outwards in a way that is biased towards the country’s exports.

e. The country is experiencing import-biased growth.

2. If immiserizing growth is possible, it can only occur when:

a. The country experiences import-biased growth.

b. The world demand for the country’s export products is extremely elastic (price sensitive).

c. The country can efficiently re-allocate its productive capacity to produce import-substituting products.

d. The country has a comparative advantage in producing future goods.

e. None of the above is correct.

3. If an industry has external economies of scale, this means that the average cost per unit of production _____ as the _____ output rises.

a. Rises firm’s

b. Rises industry’s

c. Falls industry’s d. Falls firm’s e. Rises country’s

4. The reasons why external economies of scale may exist include:

(i) Labor market pooling

(ii) Confidential production technology methods

(iii) Knowledge spillovers

(iv) Emergence of specialized suppliers

a. Only (i) and (ii) are correct. b. Only (i) and (iii) are correct. c. Only (i), (iii), and (iv) are correct. d. Only (ii), (iii), and (iv) are correct. e. Only (i), (ii), and (iv) are correct.

5. If a country that imports food and exports cloth places an import tariff on food, then the world’s relative supply of cloth will shift to the _____; the world’s relative demand for cloth will shift to the _____, and the relative price of cloth will _____.

a. Right Left Rise

b. Right Right Fall

c. Left Right Fall

d. Left Right Rise

e. Right Left Fall

6. If we consider that countries can have differently-shaped production possibilities frontiers with the two goods being future goods (on the Y-axis) and today’s goods (on the X-axis), then countries can also specialize according to when they produce. A country that has a comparative advantage in future products will be a _____, and the relative price of future products will be _____ related to the _____.

a. Borrower inversely real interest rate b. Borrower positively price level c. Lender inversely inflation rate d. Lender positively GDP growth rate e. Lender positively real interest rate

7. EXTRA CREDIT: Which of the following is funniest? (The answer selected by the most students is correct.)

a. My wife and I were happy for twenty years. Then we met. b. I haven't spoken to my wife for 18 months- I don't like to interrupt her. c. Any married man should forget his mistakes, there's no use in two people remembering the same thing. d. My son asked me what it's like to be married so I told him to leave me alone and when he did I asked him why he was ignoring me. e. My wife and I always compromise. I admit I'm wrong and she agrees with me.