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Chapter 1 - with Ans

Introduction to Micro Economics (International University - VNU-HCM)

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1. The United States is less dependent on trade than most other countries because

A. the United States is a relatively large country.

B. the United States is a "Superpower.".

C. the military power of the United States makes it less dependent on

anything.

D. the United States invests in many other countries

E. many countries invest in the United States.

2. Ancient theories of international economics from the 18th and 19th Centuries are:

A. not relevant to current policy analysis.

B. are only of moderate relevance in today's modern international economy

C. are highly relevant in today's modern international economy.

D. are the only theories that actually relevant to modern international economy.

E. are not well understood by modern mathematically oriented theorists.

3. An important insight of international trade theory is that when countries exchange

goods and services one with the other it
A. is always beneficial to both countries.
B. is usually beneficial to both countries.
C. is typically beneficial only to the low wage trade partner country.
D. is typically harmful to the technologically lagging country.
E. tends to create unemployment in both countries.

4. If there are large disparities in wage levels between countries, then

A. trade is likely to be harmful to both countries.

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B. trade is likely to be harmful to the country with the high wages.

C. trade is likely to be harmful to the country with the low wages.

D. trade is likely to be harmful to neither country.

E. trade is likely to have no effect on either country.

5. Benefits of international trade are limited to

A. tangible goods.
B. intangible goods.
C. all goods but not services.
D. services.
E. None of the above.

6. Attempts to explain the pattern of international trade

A. have been a major focus of international economists.
B. have proven to be hopeless.
C. have proven to be a trivial exercise.
D. have been the preoccupation of economic development theorists.
E. None of the above.

7. Cost-benefit analysis of international trade

A. is basically useless.
B. is empirically intractable.
C. focuses attention on conflicts of interest within countries.
D. focuses attention on conflicts of interests between countries.
E. None of the above.

8. A primary reason why nations conduct international trade is because of

differences in
A. historical perspective.
B. location.
C. resource availability.
D. tastes.

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E. incomes.

9. International trade is sometimes used as a substitute for all of the following except

A. international movements of capital.

B. international movement s of labor.
C. domestic production of the same goods or services.
D. domestic production of different goods and services.
E. None of the above.
10. International trade forces domestic firms to become more competitive in terms of
A. the introduction of new products.
B. product design and quality.
C. product reliability.
D. product price.
E. All of the above.

11. The movement to free international trade is most likely to generate short-term
unemployment in which industries?
A. Industries producing non-tradable goods
B. Import-competing industries
C. Export industries
D. Import sectors
E. None of the above.

12. International trade is logically associated with which assumption?

A. Resources are less mobile internationally than domestically.

B. Resources are more mobile internationally than are goods.
C. Imports should exceed exports.
D. Exports should exceed imports.
E. None of the above.

13. Arguments for free trade are sometimes disregarded by the political process

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because
A. economists tend to favor highly protected domestic markets.
B. economists have a universally accepted decisive power over the political
decision mechanism.
C. maximizing consumer welfare may not be a chief priority for politicians.
D. the gains of trade are of paramount concern to typical consumers.
E. None of the above.
14. Increased foreign competition tends to
A. increase profits of domestic import-competing industries.
B. place constraints on the wages of domestic workers.
C. induce falling output per worker for domestic workers.
D. intensity inflationary pressures at home
E. None of the above.

15. For a country to maximize its productivity in a global economy, it requires

A. only imports.
B. only exports.
C. both exports and imports.
D. neither exports nor imports.
E. foreign direct investment.

16. International trade in goods and services tends to

A. increase all domestic costs and prices.
B. keep all domestic costs and prices at the same level.
C. lessen the amount of competition facing home manufactures.
D. increase the amount of competition facing home manufacturers.
E. None of the above.

17. The real income of domestic producers and consumers may be increased by

A. technological progress, but not international trade.

B. international trade, but not technological progress.
C. neither technological progress nor international trade.

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D. both technological progress and international trade.

E. None of the above.

18. A closed economy is one in which

A. imports exactly equal exports.
B. domestic firms invest in foreign countries.
C. the home economy is isolated from foreign trade or investment. D.
All of the above.
E. None of the above.

19. The dominant trading nation in the world market since World War II was

A. the United Kingdom.

B. the United States.
C. Japan.
D. Germany.
E. China.

20. Economists use the term opportunity cost to refer to...

A. only those goods which are in short supply.
B. the value of all alternatives forgone as a result of making a particular choice.
C. the value of the next best alternative occurring as a result of making a
particular choice.
D. either B or C.
21. If there are large disparities in wage levels between countries, then
A. trade is likely to be harmful to neither country.
B. trade is likely to be harmful to both countries.
C. trade is likely to be harmful to the country with the low wages.
D. trade is likely to have no effect on either country.
E. trade is likely to be harmful to the country with the high wages.
22. International economics can be divided into two broad subfields:
A. developed and less developed.
B. monetary and barter.

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C. international trade and international money.

D. static and dynamic.
E. macro and micro.
23. In the present, most of the exports from China are in
A. primary products including agricultural.
B. technology intensive products.
C. services.
D. manufactured goods.
24. The potential for gains from the rearrangement of production among countries is due to
A. trade-offs.
B. absolute advantage.
C. differing opportunity costs.
D. scarcity.
25. Assume the U.S. currently grows 2.7 million tons of fresh winter fruit and that the
resources absorbed in the production of this fruit could have produced 225,000 laptop
computers. Therefore, the opportunity cost of those 2.7 million tons of fruit is 225,000
computers.
Suppose that South America could have instead produced those 2.7 million tons of fruit at an
opportunity cost of 150,000 laptops. Because of the difference in opportunity costs between
the two regions, it can be shown that trade gives the possibility of
A. unfair competition for U.S. winter fruit producers.
B. U.S. exploitation of its poorer neighbors to the south.
C. unfair competition for South American laptop makers.
D. a mutually beneficial rearrangement of world production.
26. In each sector of a specific factors economy, profit-maximizing employers will demand
labor up to the point where
A. the marginal product of labor equals the wage rate.
B. the marginal product of labor times the price of the product equals the wage
rate.
C. the value produced by an additional
person-hour equals the price of the product.
D. the price of the product equals the marginal product of labor times the wage rate. B

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27. When opening up to trade, an economy

A. exports and imports the good whose relative price
B. exports the good whose relative price has decreased and imports the good whose
relative price has increased.
C. exports and imports the good whose relative price has decreased.
D. exports the good whose relative price has increased and imports the good
whose relative price has decreased.

28. If a production possibilities frontier is a straight line, then production occurs under
conditions of
A. increasing opportunity costs.
B. uncertain opportunity costs.
C. decreasing opportunity costs.
D. constant opportunity costs.
E. infinite opportunity costs.
29. We know that in antiquity, China exported silk because no one in any other country knew
how to produce this product. From this information we know that
A. China had a comparative advantage in silk.
B. China had an absolute advantage, but not a comparative advantage in silk.
C. no comparative advantage could exist because the technology was not diffused.
D. China was unable to profit by exporting silk because it was unknown in the rest of
the world.
E. China exported silk for political reasons even though it had no comparative
advantage.
30. Unlike the simple Ricardian model, the specific factors model
A. has a production possibilities frontier that is a straight line.
B. does not distinguish between mobile and specific factors.
C. allows for the existence of factors of production besides labor.
D. assumes an economy that produces two goods and that can allocate its labor supply
between the two sectors.
31. The fundamental reason why trade potentially benefits a country is that it
A. expands the economy's choices.

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B. promotes restoration of natural resources.

C. guarantees that everyone is better off.
D. increases dependence on foreign countries.

32. Which of the following is a trade flow?

A. Robert Feenstra purchases $100 million of British treasury bonds.
B. Robert Feenstra purchases a yogurt factory in France.
C. Neither of Robert Feenstra's purchases is considered a trade flow.
D. Both of Robert Feenstra's purchases are considered trade flows.
33. What is the term for a capital flow that is used to purchase or build a tangible asset like a
factory?
A. migration
B. service exports
C. service imports
D. foreign direct investment
34. When a foreign resident purchases a good or service from someone in the United States,
the transaction is:
A. a U.S. export.
B. a U.S. import.
C. a bilateral exchange.
D. a compensating differential.

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