Chapter 3 Sources of Comparative Advantage

Assume that Country A, in the absence of trade, finds itself relatively abundant in labor and relatively scarce in land. The factor endowment theory reasons that, with free trade, the internal distribution of national income in Country A will change in favor of

• neither labor nor land.

• both labor and land.

• labor.

• land.

Assume the cost of transporting autos from Japan to Canada exceeds the pre-trade price difference for autos between Japan and Canada. Trade in autos is

• possible ,but only with sufficiently high taxes.

• highly profitable, but only for the largest firms.

• impossible without subsidies of some form

• moderately profitable, but only for the smallest firms

Internal economies of scale provide the incentive for countries to

• specialize in products that are in demand abroad.

• specialize in a few products.

• manufacture a wider range of products.

• manufacture only a few units of products that are in demand.

Which theory considers the income distribution effects of trade in the short run?

• factor-endowment theory

• specific-factors theory

• product life cycle theory

• Stolper–Samuelson theorem

According to the factor-endowment theory, countries with an abundance of unskilled labor, like China, are likely to

• have higher labor costs.

• export goods like textiles and toys.

• have an economic advantage.

• export goods like aircraft and machinery.

Pollution legislation requiring domestic manufacturers to install pollution abatement equipment tends to promote

• lower production costs and a decrease in output.

• lower production costs and an increase in output.

• higher production costs and a decrease in output.

• higher production costs and an increase in output.

The simultaneous import and export of computers by Germany is an example of

• perfect competition.

• intra-industry trade.

• inter-industry trade.

• imperfect competition.

External economies of scale can occur when

• firms seek out consultants for technical knowledge.

• an industry's firms become more dispersed.

• there is a decrease in specialized workers.

• knowledge of production technology spreads through direct contacts.

Which of the following suggests that by widening the market's size, international trade can permit longer production runs for manufacturers, which leads to increasing efficiency?

• diseconomies of scale

• economies of scale

• comparative cost theory

• absolute cost theory

In the United States, most low-skilled manufacturing jobs have been lost due to

• robots and other automation technology.

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• unfair tariffs.

• international trade.

• immigrants.