ECON 04310: Global Economics

Midterm II (MCQs) – Practice Questions

Please circle the correct answer in each of the following:

1. The Heckscher-Ohlin theorem states that a country will have comparative

advantage in the good whose production is relatively intensive in the ________
with which the country is relatively abundant.
a. Tastes
b. Technology
c. Factor/Resource
d. Opportunity Cost

2. A tax of 20 cents per unit of imported cheese would be an example of a (an):

a. Compound tariff
b. Effective tariff
c. Ad valorem tariff
d. Specific tariff

3. The difference between what consumers have to pay for a particular and what
they are willing to pay is known as
a. Consumer surplus
b. Producer surplus
c. Deadweight costs
d. Deadweight surplus
4. When one country provides most favored nation status (normal trade relations) for
another, it agrees to
a. charge that nation’s products a lower tariff than any other nation’s
b. charge that nation’s products a tariff rate no higher than that on any other
nation
c. charge that nation’s products a higher tariff than any other nation’s
d. exports to that nation any products that it wants to purchase

5. Antidumping duties applied to imported goods

a. are abolished by the World Trade Organization
b. result in decreases in consumer surplus for domestic households
c. are imposed by industrial countries but not developing countries
d. result in lower-priced goods for domestic consumers

1
 6. The migration of electricians from low-paying nations to high-paying nations is
most likely to be challenged by
a. electrician unions in the high-paying nations
b. electrician unions in the low-paying nations
c. electrician employers in the high-paying nations
d. electricians who stay in the low-paying nations

7. Which of the following is not an example of foreign direct investment?

a. the construction of a new auto assembly plant overseas
b. the acquisition of an existing steel mill overseas
c. the purchase of bonds or stock issued by a textile company overseas
d. the creation of a wholly owned business firm overseas

8. The Heckscher-Ohlin model differs from the Ricardian model of Comparative

Advantage in that the former
a. has only two countries.
b. has only two products.
c. has two factors of production.
d. has two production possibility frontiers (one for each country).
e. None of the above.

9. A free trade area among WTO members allows free-trade among members
AND (choose from the following choices)
a. Each member can have its own trade policy towards non-member countries.
b. All members are required to have a common external trade policy towards
non-member countries.
c. Each member can have its own trade policy towards non-member countries
and there is free factor movements (especially labor) among members
d. None of the Above

10. Asian tigers or newly industrializing countries (NICs) of East and Southeast Asia
include the following except
a. South Korea.
b. China.
c. Taiwan.
d. Singapore.

11. Suppose country A has abundant labor and scarce capital. Product L requires
labor intensive production. Product K requires capital intensive production. A
result of free trade, in the long run
a. Wages will decrease in country A
b. The price of capital will decrease in country A
c. The price of Product L will decrease in country A
d. The price of Product K will increase in country A

2
 12. When a large country imposes an import tariff on good X
a. World prices of good X decrease
b. World prices of good X increase
c. Consumer surplus in the large country increases.
d. Domestic production of good X decreases

13. While import tariffs and import quotas can both be used to protect domestic
producers, the import quota is the more effective policy when the policy goal is
a. To protect domestic producers from declines in the world price
b. To minimize the inefficiency of the trade barrier
c. To raise government revenue
d. To protect producers from declines in domestic demand

14. Dumping occurs when a firm:

a. Sells too much of a good in a foreign country.
b. Sells in a foreign country at prices that are below true value.
c. sells in its home market at prices that are below the average price charged
by its competitors.
d. Sells in a foreign market at prices that are below the price charged in the
home-market.

15. We say that commodity Y is Capital (K) intensive with respect to X when:
a. more K is used in the production of Y than X.
b. less L is used in the production of Y than X.
c. a lower L/K ratio is used in the production of Y than X.
d. a higher K/L ratio is used in the production of X than Y.

16. Which of the following is not an instrument of trade policy?

a. Import tariffs
b. Import quota
c. Export subsidies
d. Income tax

17. The Leontieff Paradox

a. Supported the validity of the Ricardian theory of comparative advantage
b. Supported the validity of the Heckscher-Ohlin model
c. Failed to support the validity of the Ricardian theory
d. Failed to support the validity of the Heckscher-Ohlin model

3
 18. According to the Rybczynski theorem, if a country experiences a gain in its
capital stock it will produce
a. More of the capital intensive good and less of the labor intensive good.
b. More of both goods.
c. Less of the capital-intensive good and more of the labor-intensive good.
d. Less of both goods

19. Most favored nation (MFN) status means that a country treats another country
a. better than its other trading partners.
b. the same as its other trading partners.
c. worse than its other trading partners.
d. any way it chooses since it is the "most favored nation."

20. With respect to capital movements from home country to foreign country, owners
of capital in the home country:
a. benefit as capital is removed from their country.
b. are harmed as capital is removed from their country.
c. benefit as capital flows into their country.
d. are harmed as capital flows into their country.