FIB Quiz 1

Which economic theory advocates that a nation’s wealth is measured by its stock of precious metals, especially gold and silver?

• Mercantilism

• Absolute Advantage

• Comparative Advantage

• Heckscher - Ohlin

According to Mercantilism, a country should aim to:

• Maximize imports and minimize exports

• Maximize exports and minimize imports

• Produce goods with low opportunity cost

• Specialize in capital-intensive goods

Who is credited with developing the theory of Absolute Advantage?

• David Ricardo

• Haberler

• John Stuart Mill

• Adam Smith

In Absolute Advantage theory, specialization occurs when:

• A country produces goods with lowest opportunity cost

• Both countries have the same production efficiency

• A country produces more output with the same resources than another country

• Countries produce goods with the highest labour cost

According to Ricardo’s theory of comparative advantage, the basis of trade is:

• Relative cost differences measured in terms of labor cost

• Opportunity cost expressed in terms of forgone alternative production

• Absolute cost differences

• Differences in factor prices

Haberler’s Opportunity Cost theory differs from Ricardo’s in that:

• It ignores resource limitations

• It uses labor theory of value

• It uses opportunity cost measured in forgone production of other goods

• It focuses only on absolute cost differences

Which statement is true about comparative advantage?

• It implies no trade if one country has advantage in all goods

• It requires identical production costs in both countries

• It depends entirely on absolute efficiency

• It suggests trade can occur even if one country is more efficient in both goods

If Country A can produce 10 units of cloth with the same resources that Country B uses to produce 6 units of cloth, Country A:

• Has a comparative advantage in cloth

• Has an absolute advantage in cloth

• Has no trade advantage

• Faces an opportunity cost disadvantage

The Heckscher-Ohlin theory explains trade based on:

• Differences in technology

• Differences in factor costs

• Differences in factor endowments

• difference in factor productivity

The Leontief Paradox found that the US:

• Exported capital-intensive goods as predicted by H-O

• Imported more services than goods

• Did not engage in international trade

• Exported labor-intensive goods despite being capital-abundant