Sheet No[1] Answers

8/17/2019 Sheet No[1] Answers

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Economics departmentInternational EconomicsThird year, English SectionT.A: Marwa Mamdouh

Sheet No.1

Question No.1:

State whether each of the following statements is true or false with explanation:

1.

According to the mercantilists view, all trading countries would be rich and powerful. (F)

2. Mercantilists advocated strict government control over all economic activities and trade.

(T)

3. Adam Smith stated that nations would benefit if each specialized in the production of the

commodity of its comparative advantage and then traded with the other nation. (F)

4. According to Adam Smith, a nation could gain from trade only at the expense of other

nations. (F)

5. Ricardo based his law of comparative advantage on the assumption that the value of a

commodity depends on the amount of both labour and capital going into the production

of the commodity. (F)

6. David Ricardo explained the law of comparative advantage on the basis of the

opportunity cost theory. (F)

7. The equilibrium rate of exchange falls between the pre-trade domestic exchange rates in

each country. (T)

8.

The closer the rate of exchange is to the domestic rate of the trading country, the smalleris the share of the gain from trade going to that country. (T)

9. According to the opportunity cost theory, the nation with the lower opportunity cost in

the production of a commodity has a comparative disadvantage in that commodity. (F)

10. According to the opportunity cost theory, the cost of a commodity is the amount of that

commodity that must be given up to release just enough resources to produce one

additional unit of another commodity. (F)

11.

With specialization in production and trade, each country can produce and consume at

points above its Production Possibility Frontier. (F)

12. The difference in relative commodity prices between two nations is a reflection of their

comparative advantage, and provides the basis for mutually beneficial trade. (T)

13. If U.S is more efficient than Egypt in producing all commodities, then trade between the

two counties would be a zero-sum game. (F)


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Question No.2:

Choose the right answer for each of the following statements:

1.

If the internal exchange rate of wheat for cloth is 1W:2C in U.K and 2W:1C in U.S, then

an exchange rate of _________ would benefit both countries.

a.

3W:4Cb. 1w:1C

c.

All of the above

d. None of the above

2. If Egypt domestically exchange 1 bushel of wheat for 4 yards of cloth, while Syria

domestically exchange 2 bushels of wheat for 3 yards of cloth; then the range for

mutually advantageous trade is:

a. 2C < 1W < 6C

b.

3C < 2W < 8C

c.

1C < 1W < 5C

d. No mutually advantageous trade can take place

3. If a country gains from international trade, then it consumes at a point:

a. On its Production Possibility Frontier

b.

Below its Production Possibility Frontier

c. Above its Production Possibility Frontier

d.

None of the above

4.

The opportunity cost theory assumes that:

a. Labour is the only factor of production

b. The value or price of the commodity depends exclusively on the amount of

labour going into its production

c. Labour is homogenous

d. None of the above

5.

Given the following table, which of the following statements is not true:

Hours of Labour required for producing

120 Kg of Rice 120 Kg of Tea

Japan 3 4

India 12 16

a. Japan has comparative advantage in producing both commodities

b. Japan has absolute advantage in producing rice

c. There is no difference in comparative advantage in both countries

d. No mutually beneficial trade can take place between the two countries


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Use the following table to answer questions from (6) to (9):

One unit of labour can produce

Mobiles Potatoes

Egypt 6 15

U.S. 12 18

6. With free trade between the two countries, which of the following statements is true:

a. Only the U.S benefits from trade

b. The U.S specializes in the production of both commodities

c. The U.S exports potatoes to Egypt

d.

Egypt specializes in the production of potatoes

7. Before trade, the relative price of potatoes (

m

p

P

P ) in Egypt is:

a. 15/6

b. 6/15

c.

6/18

d. 18/6

8. With trade taking place between Egypt and U.S:

a.

Egypt has absolute advantage in producing potatoes

b. U.S has comparative advantage in producing potatoes

c. Egypt has comparative disadvantage in producing mobiles

d. U.S has absolute disadvantage in producing potatoes

9. With trade, the equilibrium relative commodity price will be:

a. (

p

m

P

P ) 2.5

c. 1.5


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Question No.3:

For each of the following cases, mention the:

- Basis for trade - Pattern of trade - Gains from trade

Case 1:

Hours of Labour required for producing

Cheese Coffee

Holland 1 2

Brazil 6 3

Case 2:

Egypt Lebanon

Cloth (Labor units/yard) 3 12

Wheat (Labor units/bushel) 6 4

Case 3:

U.K. U.S.

(Labor Productivity)

Wheat 1 6

Cloth 3 4

Case 4:

Costs of production (Labor units)

Cars Textiles

U.S. 3 4

Egypt 6 2

Case 5:

U.K. U.S.

(Labor Productivity)

Wheat 4 12

Cloth 1 3

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Sheet No[1] Answers