International Economics

Final revision

Mophamed Elkomy
01011047511
Matrix center
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3.

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5.
6.
Question Two: Choose the correct answer:
31. According to Heckscher-Ohlin model, the source of comparative advantage is a country's
(a) Factor Endowments. (b) Technology.
(c) Human Capital. (d) Both (a) & (c).
32. The amount of Y that a nation must give up to produce each additional unit of X is.
(a) The marginal rate of transformation (MRT) of X for Y.
(b) The opportunity cost of X.
(c) The marginal rate of substitution (MRS) of X for Y.
(d) Both (a) & (b)
33. In the Heckscher-Ohlin Theory, a change from autarky to trade will benefit the owners of
(a) The relatively abundant factor of production. (b) Capital. (c) The relatively scarce
factor of production. (d) Labor.
34. The mercantilists maintained that the way for a nation to become rich and powerful is
(a) By stimulating the nation's exports.
(b) By owning gold and silver.
(c) By discouraging and restrict imports. (d) All of the above.
35. The law of demand for dollars in the foreign exchange market means that the (a) Lower
the exchange rate, the greater the quantity of dollars demanded.
(b) Higher the exchange rate, the smaller the quantity of dollars demanded.
(c) Lower the exchange rate, the smaller the quantity of U.S. exports demanded. (d)
Both (a) & (b).
36. Assume that only two countries, A and B, exist. Consider the following data:
Factor Endowments A B
Labor force 45 20
Capital stock 15 10
If good S is capital intensive, then following the Heckscher-Ohlin Theory, (a)
Trade will not occur between the two countries.
(b) Country A will export good S. (c)
Country B will export good S.
(d) Both countries will export good S.
37. Suppose that there are two factors, capital and land, and that the United States is
relatively land endowed while the European Union is relatively capital-endowed.
According to the Heckscher-Ohlin model,
(a) European landowners should support US-European free trade.
(b) All capitalists in both countries should support free trade.
(c) All landowners should support free trade.
(d) European capitalists should support US-European free trade.
38. A nation has a comparative advantage in a commodity when
(a) Has a greater absolute advantage in the production of this commodity. (b) Has a
lower opportunity cost in the production of this commodity (c) Has a smaller
absolute disadvantage in the production of this commodity. (d) All the Above.
39. The supply of U.S. dollars Increases if:
(a) The U.S. interest rate differential rises.
(b) The expected future exchange rate rises.
(c) U.S. import demand increases. (d) All the Above.
40. The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage
in that it:
(a) Has only two countries.
(b) Has two production possibility frontiers (one for each country).
(c) Has two factors of production.
(d) Has only two products.

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 Given the information in the following table answer questions from 41 to 43:
Country USA UK
Wheat (units per working hour) 6 1
Cloth (units per working hour) 4 5
Assume that the available resources are 6 hours.
41. In this Case:
(a) The USA has an absolute advantage in producing wheat.
(b) The UK has an absolute advantage in producing cloth.
(c) There is a mutual beneficial international trade between the two countries. (d) All
of the above.
42. What is the quantity produced of each commodity in the absence of international trade?
(a) 21W & 27C (b) 3W & 15C (c) 18W & 12C (d) 42W & 54C
43. Allowing for international trade, what is the quantity produced of each commodity?
(a) 0W & 30C (b) 36W & OC (c) 10W & 6C (d) 36W & 30C
44. In the Heckscher-Ohlin model, the two countries differ in:
(a) Relative availability of factors of production. (b) Factor mobility.
(c) Technology of production. (d) Tastes.
45. The following are all assumptions that must be accepted in order to apply the Heckscher-
Ohlin Theory, except for one:
(a) Countries differ in their endowments of factors of production.
(b) Countries differ in their technologies.
(c) There are two factors of production.
(d) Production is subject to constant returns to scale.
46. A country's balance of payments accounts records
(a) The country's international trading. (b) The country's borrowing. (c) The country's
lending. (d) All the above.

Use the data given in the table to answer questions from 47 to 50:
Investor Expected future value of a dollar (francs per dollar)
Investor A 120
Investor B 100
Investor C 85
47. If the current market value of the dollar is 70 francs per dollar, (a) All three investors
hold dollars.
(b) All three investors hold francs.
(c) Investor A holds dollars, but B and C hold francs.
(d) Investor A holds francs, but B and C hold dollars.
48. If the current market value of the dollar is 90 francs per dollar,
(a) Investor A expects dollar appreciation, but B and C expect depreciation. (b) All three
investors expect the dollar to appreciate.
(c) Investor C'expects dollar depreciation, but A and B expect appreciation. (d)
All three investors expect the dollar to depreciate.
49. If the current market value of the dollar is 125 francs per dollar,
(a) Investor A expects dollar appreciation, but B and C expect depreciation.
(b) Investor A expects dollar depreciation, but B and C expect appreciation.
(c) All three investors expect the dollar to appreciate. (d) All three investors expect the
dollar to depreciate.
50. If the current market value of the dollar is 110 francs per dollar,
(a) Investor C expects dollar depreciation, but A and B expect appreciation.
(b) Investor A expects dollar appreciation, but B and C expect depreciation.
(c) All three investors expect the dollar to appreciate. (d) All three investors expect the
dollar to depreciate.
Question One: Choose the correct answer:
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1. The mercantilists maintained that the way for a nation to become rich and powerful is
(a) By stimulating the nation's exports. (b) By owning gold and silver. (c) By
discouraging and restrict imports. (d) All of the above.
2. In the Heckscher-Ohlin model, the two countries differ in:
(a) Technology of production. (b) Tastes.
(c) Relative availability of factors of production. (d) Factor mobility.
3. The amount of Y that a nation must give up to produce each additional unit of X is.
(a) The marginal rate of transformation (MRT) of X for Y.
(b) The marginal rate of substitution (MRS) of X for Y.
(c) The opportunity cost of X.
(d) Both (a) & (c)
4. Suppose that there are two factors, capital and land, and that the United States is
relatively land endowed while the European Union is relatively capital-endowed.
According to the Heckscher-Ohlin model,
(a) European landowners should support US-European free trade.
(b) European capitalists should support US-European free trade.
(c) All capitalists in both countries should support free trade. (d) All landowners should
support free trade.
5. Assume that only two countries, A and B, exist. Consider the following data:
Factor Endowments A B
Labor force 45 20
Capital stock 15 10
If good S is capital intensive, then following the Heckscher-Ohlin Theory, (a)
Country A will export good S.
(b) Both countries will export good S.
(c) Country B will export good S.
(d) Trade will not occur between the two countries.

Use the data given in the table to answer questions from 6 to 9:

Investor Expected future value of a dollar (francs per dollar)
Investor A 120
Investor B 100
Investor C 85
6. If the current market value of the dollar is 125 francs per dollar,
(a) Investor A expects dollar appreciation, but B and C expect depreciation.
(b) Investor A expects dollar depreciation, but B and C expect appreciation.
(c) All three investors expect the dollar to appreciate. (d) All three investors expect the
dollar to depreciate.
7. If the current market value of the dollar is 70 francs per dollar,
(a) Investor A holds dollars, but B and C hold francs.
(b) Investor A holds francs, but B and C hold dollars.
(c) All three investors hold dollars. (d) All three investors hold francs.
8. If the current market value of the dollar is 90 francs per dollar,
(a) Investor A expects dollar appreciation, but B and C expect depreciation.
(b) Investor C expects dollar depreciation, but A and B expect appreciation.
(c) All three investors expect the dollar to appreciate.
(d) All three investors expect the dollar to depreciate.
9. If the current market value of the dollar is 110 francs per dollar,
(a) Investor A expects dollar appreciation, but B and C expect depreciation.
(b) Investor C expects dollar depreciation, but A and B expect appreciation.
(c) All three investors expect the dollar to appreciate. (d) All three investors expect the
dollar to depreciate.
10. The supply of U.S. dollars Increases if: (a) U.S. import demand increases.
(b) The U.S. interest rate differential rises.
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 (c) The expected future exchange rate rises. (d) All the
Above.
11. According to Heckscher-Ohlin model, the source of comparative
advantage is a country's
(a) Technology. (b) Human Capital.
(c) Factor Endowments. (d) Both (a) & (c).
12. The law of demand for dollars in the foreign exchange market means that the (a) Lower
the exchange rate, the greater the quantity of dollars demanded. (b) Higher the
exchange rate, the smaller the quantity of dollars demanded.
(c) Lower the exchange rate, the smaller the quantity of U.S. exports demanded. (d)
Both (a) & (b).
13. The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage
in that it:
(a) Has only two countries.
(b) Has two production possibility frontiers (one for each country).
(c) Has two factors of production. (d) Has only two products.
14. The following are all assumptions that must be accepted in order to apply the Heckscher-
Ohlin Theory, except for one:
(a) Countries differ in their endowments of factors of production.
(b) Countries differ in their technologies.
(c) There are two factors of production.
(d) Production is subject to constant returns to scale.
15. A nation has a comparative advantage in a commodity when
(a) Has a greater absolute advantage in the production of this commodity.
(b) Has a lower opportunity cost in the production of this commodity.
(c) Has a smaller absolute disadvantage in the production of this commodity. (d) All the
Above.
16. In the Heckscher- Ohlin Theory, a change from autarky to trade will benefit the owners
of
(a) Capital. (b) The relatively abundant factor of production. (c) Labor. (d)
The relatively scarce factor of production.
17. A country's balance of payments accounts records
(a) The country's international trading. (b) The country's borrowing.
(c) The country's lending. (d) All the above.
Given the information in the following table answer questions from 18 to 20:
Country USA UK
Wheat (units per working hour) 6 1
Cloth (units per working hour) 4 5
Assume that the available resources are 6 hours.
18. In this Case:
(a) The USA has an absolute advantage in producing wheat.
(b) The UK has an absolute advantage in producing cloth.
(c) There is a mutual beneficial international trade between the two countries. (d) All
of the above.
19. What is the quantity produced of each commodity in the absence of international trade?
(a) 18W & 12C (b) 3W & 15C (c) 21W & 27C (d) 42W & 54C
20. Allowing for international trade, what is the quantity produced of each commodity?
(a) 36W & 30C (b) OW & 30C (c) 36W & OC (d) 10W & 6C

Read the following questions carefully and choose the correct answers:
1. According to the mercantilist views:
(a) For two nations to trade with each other voluntarily, both nations must gain.
(b) Encourage strict government control on all economic activity and trade.
(c) All nations can simultaneously have an export surplus.
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 (d) The amount of gold and silver is not fixed at any point of time.
2. The exchange rate:
(a) Is the price at which one currency exchanges for another currency in the foreign
exchange market.
(b) Acts as a regulator of the quantities of U.S. dollars demanded and supplied.
(c) Is the price of one currency in terms of another. (d) All of the above.
3. A country's balance of payments accounts records
(a) The country's international trading. (b) The country's borrowing. (c) The country's
lending. (d) All of the above.
4. In the Heckscher-Ohlin model, the two countries differ in:
(a) Technology of production. (b) Tastes.
(c) Relative availability of factors of production. (d) Factor mobility.
5. Which of the following sentences is true?
(a) If the United States sells steel to Germany, the U.S. steel producer is paid with Euro.
(b) The exchange rate is different from other prices because it is not determined by
supply and demand.
(c) The exchange rate is the price at which the curre ncy of one country exchanges for
the currency of another country.
(d) The exchange rate is the ratio between imports and exports.
6. Capital Inflows can take either of two forms:
(a) An increase in foreign assets in the nation and an increase in the nation's assets
abroad.
(b) A reduction in the foreign assets in the nation and an increase in the nation's assets
abroad.
(c) An increase in the foreign assets in the nation and a reduction in the nation's assets
abroad.
(d) A reduction in the foreign assets in the nation and a re duction in the nation's assets
abroad.

* Use the following graph to answer questions 7 & 8:

7. The equilibrium exchange rate is: $1 U.S. equals

(a) $2.00 Canadian. (b) $1.50 Canadian. (c) $1.00 Canadian. (d) $1.10 Canadian.
8. If the exchange rate between the USA dollar and Canadian dollar is below the
equilibrium exchange rate, there will be a .......... of USA dollars, and the exchange rate will
………..
(a) Surplus; fall to the equilibrium level.
(b) Shortage; fall to the equilibrium level.
(c) Shortage; rise to the equilibrium level. (d) Surplus; rise to the equilibrium level.
9. Which of the following sentences is true?
(a) The United States has a comparative advantage in producing airplanes if it has a
larger quantity of skilled workers than do other nations.
(b) Comparative advantage implies that a country will import those goods in which the
country has a comparative advantage.
(c) According to the standard theory of international trade, marginal rate of substitution
(MRS) would be equal to the opportunity cost.
(d) When the two nations engage in international trade, at the equilibrium, the marginal
rate of transformation (MRT) must be equal to the marginal rate of substitution
(MRS).
10. Dumping occurs when a foreign firm.
(a) Sells its exports at a lower price than its cost of production.

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 (b) Buys its imports at a lower price than its cost of production. (c) Sells its
exports at a higher price than its cost of production.
(d) Buys its imports at a higher price than its cost of production.
11. Which of the following sentences is false?
(a) A surplus or a deficit can apply to the balance of payments.
(b) Credit Transactions are transactions that involve the receipts of
payments from foreigners.
(c) Debit Transactions are transactions that involve the making of payments to
foreigners.
(d) Current Account includes visible trade, invisibles that broadly cover services, profit
and interest, dividends currently earned on assets held abroad, and unilateral
transfers.

Use the data given in the following table to answer questions from 12 to 14:
Factor Endowments A B
Labor force 75 50
Capital stock 30 45
12. Following the Heckscher-Ohlin Theory
(a) Country A will export labor intensive products and import capital intensive ones.
(b) Country B will export labor intensive products and import capital intensive ones.
(c) Country A will import labor intensive products and export capital intensive ones.
(d) None of the above.
13. Following the Heckscher-Ohlin Theory, if good X is capital intensive, then, (a) Country A
will export good X. (b) Country B will export good X.
(c) Both countries will export good X. (d)
Trade will not occur.
14. Following the Heckscher-Ohlin Theory, if good Y is labor intensive, then,
(a) Country A will export good Y. (b) Country B will export good Y. (c) Both countries
will export good Y. (d) Trade will not occur.
15. Which of the following sentences is true?
(a) To calculate the marginal rate of transformation (MRT), the slope of the community
indifference curve should be computed.
(b) Different points on the same community indifference curve gives different
combinations of the two commodities and also reflects different level of community
satisfaction.
(c) Production possibility frontier (PPF) represents the available resources in the nation
or the supply side.
(d) When a nation has lower relative prices in producing X, this means it cannot
specialize in producing it and it will be better off importing it.
16. Who benefits from an import quota on a good?
(a) Domestic consumers of the good. (b) Domestic producers of the good. (c) Foreign
governments. (d) All of the above.
17. If the United States has a comparative advantage and specialize in the production of
airplanes compared to the situation with no trade, which of the following will occur?
(a) Less airplanes will be produced in the United States.
(b) There will be no change in the price of airplanes in the United States.
(c) The world price of airplanes will increase.
(d) The quantity of airplanes demanded in the United States will increase.

Use the following graph to answer questions from 18 to 21:

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18. A movement from point A to point B means that:
(a) The quantity supplied of dollars has increased.
(b) The quantity demanded of dollars has increased.
(c) The quantity demanded of dollars has decreased. (d) The quantity supplied of
dollars has decreased.
19. Suppose the economy is initially at point A. If the U.S. interest rate differential rises. Then
there will be a change from point A to.
(a) point B (b) point C (c) point D (d) point E
20. Suppose the economy is initially at point A. People expected the future U.S. exchange rate
to fall. As a result, there is a change from point A to.
(a) point B (b) point C (c) point D (d) point E
21. Suppose the economy is initially at point A. If the world demand for U.S. exports
increases. Then, there is a change from point A to.
(a) point B (b) point C (c) point D (d) point E
22. In a market open to international trade, at the world price the quantity demanded is 150
and the quantity supplied is 200.
(a) This country will import 50 units.
(b) This country will produce 50 units.
(c) This country will export 50 units. (d) None of the above.
23. Which of the following sentences is false?
(a) When the value of one currency falls relative to another currency, the exchange rate
for the first currency has depreciated.
(b) An appreciation is a decrease in the value of a currency in terms of other currencies.
(c) Suppose that the exchange rate between the dollar and the pound changed from 3.4
pounds per dollar to 6 pounds per dollar. This change means that the pound
depreciated.
(d) When people who are holding the money of some other country want to exchange-it
for U.S. dollars, they demand U.S. dollars and supply that other country's money.

Use the data given in the following table to answer questions from 24 to 27:
Investor Expected future value of a dollar (Krona per dollar)
Investor A 100
Investor B 80
Investor C 50
24. If the current market value of the dollar is 40 Kronas per dollar, (a) All three investors
hold dollars.
(b) All three investors hold Kronas.
(c) Investor A holds dollars, but B and C hold Kronas. (d) Investor A
holds Kronas, but B and C hold dollars.
25. If the current market value of the dollar is 70 Kronas per dollar,
(a) Investor A expects dollar appreciation, but B and C expect depreciation.
(b) All three investors expect the dollar to appreciate.
(c) Investor C expects dollar depreciation, but A and B expect appreciation. (d) All three
investors expect the dollar to depreciate.
26. If the current market value of the dollar is 125 Kronas per dollar,
(a) Investor A expects dollar appreciation, but B and C expect depreciation.
(b) Investor A expects dollar depreciation, but B and C expect appreciation.

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 (c) All three investors expect the dollar to appreciate. (d) All three investors
expect the dollar to depreciate.
27. If the current market value of the dollar is 90 Kronas per dollar,
(a) Investor C expects dollar depreciation, but A and B expect
appreciation.
(b) Investor A expects dollar appreciation, but B and C expect
depreciation.
(c) All three investors expect the dollar to appreciate. (d) All three investors expect the
dollar to depreciate.
28. If the internal Px/F'y is lower in nation 1 than in nation 2 without trade: (a) Nation! has
a comparative advantage in commodity Y.
(b) Nation 2 has a comparative advantage in commodity X.
(c) Nation 2 has a comparative advantage in commodity Y. (d) None of the
above.
29. The United States has a comparative advantage in producing cell phones if the U.S. price
cell phones before international trade is (a) Higher than the world price.
(b) Lower than the world price.
(c) Equal the world price. (d) None of the above.
30. The following are all assumptions that must be accepted in order to apply the Heckscher-
Ohlin Theory, except for one:
(a) Both nations use the same technology in production.
(b) Both commodities are produced under constant returns to scale in both nations. (c)
There is complete specialization in production in both nations.
(d) There is internal factor mobility within each nation but no international factor
mobility.
31. The Unilateral Transfers:
(a) Can be classified according to their source into two groups private transfers and
government transfers.
(b) Are considered debit and enter the balance of payments of the donating country with
a negative sign.
(c) Are considered credit and enter the balance of payments of the recipient country
with a positive sign. (d) All of the above.
32. Mutually beneficial trade cannot occur if production frontiers are:
(a) Equal but tastes are not.
(b) Different but tastes are the same.
(c) Different and tastes are also different.
(d) The same and tastes are also the same.
33. An exchange rate that is determined by a decision of the government or the central bank
and is achieved by central bank intervention in the foreign exchange market and has a
target value that might change at fixed intervals or at random intervals is.
(a) A flexible exchange rate. (b) A crawling peg.
(c) A fixed exchange rate. (d) Target exchange rate.
34. A key difference between tariffs and quotas is that tariffs
(a) Raise the price of the good. (b) Brings revenue to the government. (c) Influence
international trade. (d) Help domestic producers.
35. Which of the following sentences is false?
(a) There is no limit to the quantity of U.S. dollars that the Fed can sell.
(b) The Fed creates U.S. dollars and can create any quantity it chooses.
(c) There is no limit to the quantity of U.S. dollars the Fed can buy.
(d) Intervention to buy U.S. dollars stops when U.S. official foreign currency reserves run
out.
36. If domestically 6X6Y in nation A, while 3X=3Y in nation B: (a) There will be no trade
between the two nations.
(b) The relative price of X is the same in both nations.

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 (c) The relative price of Y is the same in both nations. (d) All of the
above.
37. If in a two-nation (A and B), two-commodity (X and Y) world, nation A has a comparative
advantage in commodity X, then nation B must have:
(a) Absolute disadvantage in commodity Y.
(b) Comparative advantage in commodity Y.
(c) Absolute advantage in commodity Y.
(d) Comparative disadvantage in commodity
38. The foreign exchange market is:
(a) The market in which the currency of one country is exchanged for the currency of
another
(b) A competitive market, because it has many traders and no restrictions on who may
trade.
(c) Made up of thousands of people called foreign exchange brokers. (d) All of the above
39. A production frontier that is concave from the origin indicates that the nation incurs
increase in opportunity costs in the production of:
(a) Commodity X only. (b) Commodity Y only.
(c) Both commodities. (d) Neither commodity.
40. The balance of payment (BOP):
(a) Is an organized summary statement of all economic transactions between residents
of on nation and residents of the rest of the world that have taken place during a
given period o time, often a year.
(b) Is an accounting statement based on double-entry bookkeeping.
(c) Is always balanced. (d) All of the above.

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 41. 41.......... is imposed by the importing country when an imported good crosses its
international boundary.
(a) A Tariff. (b) An import quota.
(c) An export subsidy. (d) Dumping,
42. The commodity in which the nation has the smallest absolute disadvantage is the
commodity of its:
(a) Absolute disadvantage. (b) Absolute advantage.
(c) Comparative disadvantage. (d) Comparative advantage.
43. The Law of comparative advantage states that if one (first) country has absolute
advantage in producing two commodities, then
(a) There will not be mutual beneficial international trade.
(b) The second country will specialize in producing the commodity in which it has
comparative advantage.
(c) This country will produce both commodities.
(d) None of the Above.
44. In the Heckscher -Ohlin Theory, a change from autarky to trade will benefit the owners
of:
(a) Capital. (b) The relatively abundant factor of production.
(c) Labor. (d) All of the above.

Choose the correct answer:

1. In the Heckscher-Ohlin model, the two countries differ in:
(a) Technology of production. (b)Tastes.
(c) Relative availability of factors of production . (d)Factor mobility.

2. Suppose that there are two factors, capital and land, and that the United States is relatively
land endowed while the European Union is relatively capital -endowed. Accor ding to the
Heckscher-Ohlin model,
(a) European land owners should support US-European free trade.
(b) European capitalists should support US-European free trade . (Note US land intensive and EUR
capital intensive)
(c) All capitalists in both countries sh ould support free trade.
(d) All landowners should support free trade.

If good S is capital intensive, then following the Heckscher-Ohlin Theory,

(a) Country A will export good S.
(b) Both countries will export good S.
(c) Country B will export good S. note nation 1 K/L 15/45 =0.33 nation 2 K/L=10/20=0.5 ‫سؤال‬
‫ملتحان‬

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(d) Trade will not occur between the two countries.

4. According to Heckscher-Ohlin model, the source of comparative advantage is a country's

(a) Technology. (b) Human Capital .
(c) Factor Endowments. (d) Both (a) & (c).
5. The Heckscher-Ohlin model differs from the Ricardian model of Comparative
Advantage in that it:
(a) Has only two countries.
(b) Has two production possibility frontiers (one for each country).

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(b) amount of Y that a nation must give up for one extra unit of X and still remain on the same
indifference curve.
(c) amount of X that a nation must give up for one extra unit of Y to reach a higher indifference
curve.
amount of Y that a nation must give up for one extra unit of X to reach a higher indifference
curve.
5. Which of the following statements is true with respect to the MRS of X for Y?
(a) It is given by the absolute slope of the indifference curve.
(b) declines as the nation moves down an indifference curve.
(c) rises as the nation moves up an indifference curve.
(d) all of the above.
6. Which of the following is not true for a nation that is in equilibrium in isolation?
(a) It consumes inside its production frontier.
(b)it reaches the highest indifference curve possible with its production frontier.
(c) the indifference curve is tangent to the nation's production frontier
(d)MRT of X for Y equals MRS of X for Y, and they are equal to Px/Py.
7. Nation 1's share of the gains from trade will be greater:
(a) the greater is nation 1's demand for nation 2's exports.
(b)the closer Px/Py with trade settles to nation 2's pretrade Px/Py.
(c) the weaker is nation 2's demand for nation 1's exports.
(d)the closer Px/Py with trade settles to nation 1's pretrade Px/Py.
8. Mutually beneficial trade cannot occur if production frontiers are:
(a) equal but tastes are not.
(b) different but tastes are the same.
(c) different and tastes are also different.
(d)the same and tastes are also the same
Question One: Choose the correct answer
1. Which of the following sentences is true?
(a) Comparative advantage is a special case of the theory of Absolute advantage.
(b) Different points on the same community indifference curve gives different commodities of
the two commodities and also reflects different level of community satisfaction.
(c) In autarky, the n ation's production possibility frontier also represents its consumption
frontier.
(d) With specialization in production and trade, each. nation can consume inside its production
frontier
2. If with one hour of labor time nation A can produce either 3X or 3Y, while nation
B. o can produce either 1X or 3Y, if 3X is exchanger for 3Y:
(a) Nation A gains 2X.
(b) Nation A gains 3Y.
(c) Nation B gains 6Y.
(d) Nation B gains 3Y.
3. With reference to the previous question, the range of mutually beneficial trade between Nation
A and Nation B is:
(a) V y3Y<3X < 9Y.
(b) 5Y<3X <9Y.
(c) 3Y <3X<5Y.
(d) 1Y <3X <3Y.
4. Which of the following is not true for a 'nation that is in equilibrium in isolation?
(a) The indifference curve is tangent to the nation's production frontier.
(b) It reaches the highest indifference curve possible given its production frontier.
(c) MRT of X for Y equals MRS of K for Y, and they are equal to Px/ Py.
(d) It consumes inside its production frontier.
5. Mutually beneficial trade cannot occur:
(a) If one nation has an absolute disadvantage with respect to the other in the production of both
commodities.
(b) If the pre-trade-relative price is the same in bot h nations.
(c) If opportunity costs are different among nations.
(d) If the relative commodity prices between the two nations are different.
(d)

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