Chapter 3 Labor Productivity and Comparative Advantage —The Ricardian Model

■ Multiple Choice Questions

Countnes trade with each other because they areand because of.

different, costs

sinular, scale economies

different, scale economies

similar, costs

None of the above.

Answer: C

Trade between two countries can benefit both countries if

each countiy expoits that good in winch it has a comparative advantage.

each countiy eiyoys supenor tenns of trade.

each countiy has a more elastic demand for the imported goods.

each countiy has a more elastic supply for the supplied goods.

Both (c) and (d).

Answer: A

The Ricardian theoiy of comparative advantage states that a countiy has a comparative advantage in widgets if

output per worker of widgets is Inglier in that countiy.

that country's exchange rate is low.

wage rates ni that countiy are lugh.

the output per worker of widgets as compared to the output of some other product is higher in tliat countiy.

Both (b) and (c).

Answer: D

In order to know whether a countiy has a comparative advantage m the production of one particular

product we need nifoniiation on at leastunit labor requirements

one

two

three

four

five

Answer: D

A countiy engaging in trade according to the principles of comparative advantage gams from trade because it

is producing exports indirectly more efficiently than it could alternatively.

is producing imports mdirectly more efficiently than it could domestically.

is producing exports usmg fewer labor units.

is producing imports mdirectly usmg fewer labor units.

None of the above.

Answer: B

Given the following infbnnation:

Unit Labor Requirements

Cloth

Widgets

Home

10

20

Foreign

60

30

Neither countiy has a comparative advantage.

Home has a comparative advantage m cloth.

Foreign has a comparative advantage in cloth.

Home has a comparative advantage m widgets.

Home has a comparative advantage m both products.

Answer: B

If it is ascertained that Foreign uses pnson-slave labor to produce its exports, then home