CHAPTER 4TRADE MODEL EXTENSIONS AND APPLICATIONSMULTIPLE-CHOICE QUESTIONS1.Which of the following suggests that a nation will export the commodity in the production of which a great deal of its relatively abundant and cheap factor is used?a.The Linder theoryb.The product life cycle theoryc.The MacDougall theoryd.The Heckscher-Ohlin theory2.According to Staffan Linder, trade between two countries tends to be most pronounced when the countries:a.Find their tastes and preferences to be quite harmoniousb.Experience economies of large-scale production over large output levelsc.Face dissimilar relative abundances of the factors of productiond. Find their per capita income levels to be approximately the same3.Which of the following is a long-run theory, emphasizing changes in the trading position of a nation over a number of years?a.Theory of factor endowmentsb.Comparative advantage theoryc. Theory of the product cycled.Overlapping demand theory4.The Leontief paradox questioned the validity of the theory of:a.Comparative advantageb.Factor endowmentsc.Overlapping demandsd.Absolute advantage5.Which of the following would least likely apply to the product life cycle theory?a.Calculators and computersb. Coal and crude oilc.Home movie camerasd.Office machinery6.Classical trade theory emphasized which of the following as an underlying explanation of the basis for trade?a. Productivities of labor inputsb.Tastes and preferences among nationsc.Changes in technologies over timed.Quantities of economic resources7.Concerning the influence that transportation costs have on the location of industry, which of the following industries has generally attempted to locate production facilities close to resource supplies?a.Autosb. Steelc.Soft drinksd.Extremely valuable electronics goods8.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:a. Laborb.Landc.Both labor and landd.Neither labor nor land9.When considering the effects of transportation costs, the conclusions of our trade model must be modified. This is because transportation costs result in:a. Lower trade volume, higher import prices, smaller gains from tradeb.Lower trade volume, lower import prices, smaller gains from tradec.Higher trade volume, higher import prices, smaller gains from traded.Higher trade volume, lower import prices, greater gains from trade10.Most economists maintain that the major factor underlying wage stagnation in the United States in the 1990s has been:a.Import competitionb. Technological changec.Rising real value of the minimum waged.Increasing union membership11.Assume the cost of transporting autos from Japan to Canada exceeds the pretrade price difference for autos between Japan and Canada. Trade in autos is:a. Impossibleb.Possiblec.Highly profitabled.Moderately profitable12.Eli Heckscher and Bertil Ohlin are associated with the theory of comparative advantage that stresses differences in:a.Income levels among countriesb.Tastes and preferences among countriesc. Resource endowments among countriesd.Labor productivities among countries13.Hong Kong is relatively abundant in labor, while Canada is relatively abundant in capital. In both countries the production of shirts is relatively more labor intensive than the production of computers. According to the factor endowment theory, Hong Kong will have a (an):a.Absolute advantage in the production of shirts and computersb.Absolute advantage in the production of computersc. Comparative advantage in the production of shirtsd.Comparative advantage in the production of computers14.If Japanese workers receive lower wages in the production of autos than do American workers:a.Japan will have a comparative advantage in the production of autosb.Japan will have an absolute advantage in the production of autosc.Production costs will be lower in Japan than in the U.S.d. Production costs could be lower in the U.S. if American labor productivity is higher than the Japanese15.Which trade theory suggests that a newly produced good, once exported, could ultimately end up being imported as the technology is transferred to lower-cost nations?a.Factor endowment theoryb. Product life cycle theoryc.Overlapping demand theoryd.Comparative advantage theory16.A firm is said to enjoy economies of scale over the range of output for which the long-run average cost is:a.Increasingb.Constantc. Decreasingd.None of the above17.A product will be internationally traded as long as the pretrade price differential between the trading partners is:a. Greater than the cost of tr