1. Which below is true regarding the data used by GDA MacDougall?

a. For each of the industries listed, U.S. absolute labor

roducti!ity was twice the U.". absolute labor roducti!ity.
b. For each of the industries listed, U.". absolute labor
roducti!ity was twice the U.S. absolute labor roducti!ity.
c. Wages for U.". wor#ers were $ore than twice those for U.S.
wor#ers.
d. Wages for U.S. wor#ers were twice those for U.". wor#ers.
e. Wages for both nations were e%ual.
Answer& '''''
(. GDA MacDougall)s results can be interreted as
a. Strong e!idence against the *icardo +rade Model.
b. Strong e!idence for the *icardo +rade Model.
c. Strong e!idence against the ,ec#scher-.hlin or Factor
/ndow$ents trade $odel.
d. Strong e!idence for the ,ec#scher-.hlin or Factor /ndow$ents
trade $odel.
e. Strong e!idence that absolute roducti!ity is a $a0or
deter$inant of trade atterns.
Answer& '''''
1. Use the graph below to answer questions 3-5. Suppose the nation depicted in
the graph is initially in autarky at point X. What is the autarky relative price of shoes
(Ps/Pc)?
HW2uestions!graph.pdf
a. Ps/Pc " #/! $/S
b. Ps/Pc " # $/S
c. Ps/Pc " ! $/S
d. Ps/Pc " %& $/S
e. Ps/Pc " #/%& $/S
Answer& '''''
2. Suose that 3 $onths ago the nation deicted in the grah had
oened u to free trade. Where is the new roduction oint li#ely to be
after three wee#s of ha!ing a free trade olicy?
a. 4oint A
b. 4oint 5
c. 4oint 6
d. 4oint 7
e. 4oint D
Answer& '''''
8. 'fter si( )onths of i)ple)enting a free trade policy* +hat is the ,arginal $ost
(,$s/,$c) of producing an e(tra unit of shoes (in ter)s of foregone cloth
production)?
a. ,$s/,$c " # $/S
b. ,$s/,$c " ! $/S
c. ,$s/,$c " #/! $/S
d. ,$s/,$c " ! S/$
e. ,$s/,$c " 2/! S/$
Answer& '''''
3. ' nation +ith a -icardo.type econo)y has arrived at its free trade euili/riu).
Which of the graphs dra+n /elo+ illustrates the ne+ consu)ption possi/ilities as a
result of )oving to free trade? 0n each graph* the line la/eled Ppc is the production
possi/ility curve and the one la/eled $pcW is the consu)ption possi/ility curve +ith
trade or )ore accurately* the outer /oundary of the $onsu)ption possi/lity set +ith
trade.
HW2pro/le)1graph.png
a. 2raph '
b. 2raph 3
c. 2raph $
d. 2raph 4
e. 'll are possi/ilities.
Answer& '''''
9. 5ecause they ay high wages, industries in rich nations are unable
to co$ete with roducts $anufactured in low-wage nations.
a. +rue
b. False
Answer& '''''
:. 5ecause they ha!e outdated and oor technology, industries in oor
nations are unable to co$ete with roducts $anufactured by industries
in rich nations.
a. +rue
b. False
Answer& '''''
;. Which of the follo+ing are consistent +ith the past or conte)porary doctrine of
)ercantilis)?
i. 2overn)ents should su/sidi5e e(ports. ii. 6ational +ell./eing is directly related to
the accu)ulation of precious )etals. iii. $onte)porary )ercantilis) focuses on 7o/
gains and losses due to international trade. iv. 8rade deficits are good since they
/ring gold into the nation running the trade deficit. v. 8rade deficits are /ad since
they lead to a loss of gold for the nation running the trade deficit.
a. i* ii
b. i* iii* iv
c. ii* iii* iv
d. i* iii* v
e. i* ii* iii* v
Answer& '''''
1<. Answer questions 10-13 using the data listed below. 8he data are for the
9.S. production possi/ility curve (PP$)* +hich is /uilt assu)ing the 9.S. has a la/or
force of #&& hrs (each +orker has one hour) and production technologies for +heat
(W) and cloth ($) are a+"2hrs:#W and ac";hrs:#$* respectively. Suppose that
initially the entire 9.S. la/or force is e)ployed in +heat production. What is the
)a(i)u) uantity of W that can /e produced?

a. %&
b. 2&
c. #2
d. 2%
e. #&&
Answer& '''''
11. -ecall that initially all 9.S. la/or is e)ployed in +heat production. 't this
production co)/ination* the )arginal cost (,$c/,$+) of a unit of cloth (in ter)s of
foregone +heat production) is <<<<<<<. 6o+ suppose that the 9.S. econo)y is at
production point =+"!&* =c"#&. 8he ,$c/,$+ of a unit of cloth (in ter)s of
foregone +heat production) +ould /e eual to <<<<<<<.
a. ,$c/,$+ " % $/W> ,$c/,$+ " % $/W
b. ,$c/,$+ " 2 $/W> ,$c/,$+ " % $/W
c. ,$c/,$+ " ; W/$> ,$c/,$+ " 2 $/W
d. ,$c/,$+ " 2 W/$> ,$c/,$+ " 2 W/$
e. ,$c/,$+ " 2 $/W> ,$c/,$+ " ; $/W
Answer& '''''
1(. ?et@s no+ introduce the -est of the World (-oW). Suppose the -oW also has
the sa)e a)ount of la/or as the 9.S.* ?A"#&& hrs* /ut that it@s production technology
is different: a+A"2hrs:#W and acA"2hrs:#$. ?ike you did in the previous pro/le)*
calculate ,$c/,$+* the )arginal cost of producing a unit of $ (in ter)s of the
forgone W production)* at t+o points along the -oW PP$. 8he ,$c/,$+ is <<<<
+hen all the -oW la/or force is e)ployed in W and the ,$c is <<<<< +hen %&B of
the la/or force is e)ployed in W and %&B is e)ployed in $.
a. ,$c/,$+ " # C W/$> ,$c/,$+ " 2 W/$.
b. ,$c/,$+ " C W/$> ,$c/,$+ " #/2 W/$.
c. ,$c/,$+ " 2 W/$> ,$c/,$+ " #/2 W/$.
d. ,$c/,$+ " # W/$> ,$c/,$+ " # W/$.
e. ,$c/,$+ " # $/W> ,$c/,$+ " # $/W.
Answer& '''''
11. ?et@s no+ introduce the -est of the World (-oW). Suppose the -oW also has
the sa)e a)ount of la/or as the 9.S.* ?A"#&& hrs* /ut that it@s production technology
is different: a+A"2hrs:#W and acA"2hrs:#$. With free trade /et+een the 9.S. and
the -oW* +hich /elo+ is a potential ter)s of trade?
a. # C W/$
b. 2 C W/$
c. ! W/$
d. ; $/W
e. % $/W
Answer& '''''
12. 'ns+er uestions ; through 1 using the data presented /elo+. 8hese are la/or
productivities for four goods produced /y each country in autarky. Suppose you have
no data on relative +ages for the 9.S. and the -oW* DA/D* +hat can you say a/out
the likely pattern of trade +hen the t+o econo)ies open up to trade?

a. 8he 9.S. +ill e(port H* and the -EW +ill e(port $.
b. 8he 9.S. +ill e(port S* and the -EW +ill e(port 3.
c. 8he 9.S. +ill e(port 3* and the -EW +ill e(port H.
d. 8he 9.S. +ill e(port $* and the -EW +ill e(port H.
e. 8he 9.S. +ill e(port $* and the -EW +ill e(port 3.
Answer& '''''
18. =ou are now gi!en the following additional data& >?@> A ( B. What
roducts will the U.S. eCort?
a. 7
b. S, 5
c. 5, S, 7
d. 7, ,, S
e. 5, ,
Answer& '''''
13. 9se the graphs (Figure !.#) in the P4F /elo+ to ans+er uestions #1.2&. 0f
/oth nations have the sa)e a)ount of la/or* <<<<< has an a/solute advantage in
corn production and <<<<<<< has an a/solute advantage in )aple syrup production.
HW2<2raph=uestion#1.pdf
a. $anada> $anada
b. $anada> -est of World
c. -est of World> $anada
d. -est of World> -est of World
Answer& '''''
19. 8he opportunity cost of one unit of corn production in $anada is <<<<< liters of
)aple syrup and in the -est of the World is <<<<< liters of )aple syrup.
a. G/H> 2
b. G/H> #/2
c. H/G> #/2
d. H/G> #/2
Answer& '''''
1:. 8he opportunity cost of one liter of )aple syrup production in $anada is <<<<<
units of corn and in the -est of the World is <<<<< units of corn.
a. G/H> 2
b. H/G> 2
c. G/H> #/2
d. H/G> #/2
Answer& '''''
1;. 'fter the opening of free trade /et+een $anada and the -est of the World*
$anada +ill produce <<<<< units of corn and <<<<<< liters of )aple syrup. 8he -est
of the World +ill produce <<<< units of corn and <<<< liters of )aple syrup.
a. !%> ;%> !%> !2.%
b. H&> G&> #&&> %&
c. &> G&> #&&> &
d. H&> &> &> %&
Answer& '''''
(<. Which /elo+ is a plausi/le ter)s of trade for the t+o.country* t+o.good )odel
depicted in the figure?
a. !/2 units of corn trades for # liter of )aple syrup (P)/Pc " !/2 $/,).
b. # unit of corn trades for #/; liter of )aple syrup (Pc/P) " #/; ,/$).
c. ! units of corn trades for # liter of )aple syrup (P)/Pc " ! $/,).
d. #& liters of )aple syrup trades for 2 units of corn (Pc/P) " % ,/$ or
P)/Pc " #/% $/,).
Answer& '''''