Sheet One - International eonomics PDF

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Economics Department International Economics English Section Professors: Dr Hanan Nazier Dr Marwa Mamdouh Dr Salwa Abd El-Aziz Sheet No Question No: State whether each of the following statements is true or false with explanation: 1. According to the mercantilists view, all trading countries would b...

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Economics Department International Economics English Section Professors: Dr Hanan Nazier Dr Marwa Mamdouh Dr Salwa Abd El-Aziz

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. 2. Mercantilists advocated strict government control over all economic activities and trade. 3.

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

4. Adam Smith stated that nations would benefit if each specialized in the production of the commodity of its

advantage and then traded with the other nation.)

5. Ricardo based his law of comparative advantage on the assumption that the value of a commodity depends on the amount of labor and

going into its production.

6. If U.S is more efficient than Egypt in producing all commodities, then trade between the two countries would be a zero-sum game. 7. David Ricardo explained the law of comparative advantage on the basis of the opportunity cost theory. 8. The equilibrium rate of exchange falls between pre-trade domestic exchange rates in each country. 9. The closer the rate of exchange is to the domestic rate of the trading country, the smaller is the share of the gain from trade going to that country. (T) 10. According to the opportunity cost theory, the nation with the lower opportunity cost in the production of a commodity has a comparative

in that commodity. (F)

11. According to the opportunity cost theory, the cost of a commodity is the amount of commodity that must be given up to release just enough resources to produce one additional unit of

commodity. (F)

12. With specialization in production and trade, each country can produce

consume at

points above its Production Possibility Frontier.) 13. The difference in relative commodity prices between two nations is a reflection of their comparative advantage, and provides the basis for mutually beneficial trade.)

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Question No.2: Choose the right answer for each of the following statements: 1. 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

2. 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. d. None of the above

3. 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:4C b. 1w:1C d. None of the above

4. 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 the following table, which of the following statements is not true:

Hours of Labour required for producing 120 Kg of Rice Japan India

120 Kg of Tea

3

4

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

7. Before trade, the relative price of potatoes (

Pp Pm

) in Egypt is:

a. 15/6 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. d. U.S has absolute disadvantage in producing potatoes

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

a. (

b. (

c.

Pm Pp Pm Pp

) > 1.5

) < 2.5

1.5 > (

Pm Pp

) > 2.5

d. None of the above

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with one hour of labor time nation A can produce either 3X or 3Y while nation B can produce either 1X or 3Y (and labor is the only input): a. nation A has a comparative disadvantage in commodity X b. nation B has a comparative disadvantage in commodity Y d. nation A has a comparative advantage in neither commodity 11) If with one hour of labor time nation A can produce either 3X or 3Y while nation B can produce either 1X or 3Y (and labor is the only input): a. Px/Py=1 in nation A b. Px/Py=3 in nation B c. Py/Px=1/3 in nation B

12) The range of mutually beneficial trade between nation A and B is: a. 3Y < 3X < 5Y b. 5Y < 3X < 9Y d. 1Y < 3X < 3Y 13) If domestically 3X=3Y in nation A, while 1X=1Y domestically 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 c. the relative price of Y is the same in both nations

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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: U.K.

U.S.

Wheat

1

6

Cloth

3

4

(Labor Productivity)

Case 2: U.K.

U.S.

(Labor Productivity) Wheat

4

12

Cloth

1

3

5...