chap3(答案)

Chapter 3: Multiple Choice

1. A production frontier that is concave from the origin indicates that the nation incurs increasing opportunity costs in the production of:

a. commodity X only

b. commodity Y only

c. both commodities

d. neither commodity

2. The marginal rate of transformation (MRT) of X for Y refers to:

a. the amount of Y that a nation must give up to produce each additional unit of X

b. the opportunity cost of X

c. the absolute slope of the production frontier at the point of production

d. all of the above

3. Which of the following is not a reason for increasing opportunity costs?

a. technology differs among nations

b. factors of production are not homogeneous

c. factors of production are not used in the same fixed proportion in the production of all commodities

d. for the nation to produce more of a commodity, it must use resources that are less and less suited in the production of the commodity

4. Community indifference curves:

a. are negatively sloped

b. are convex to the origin

c. should not cross

d. all of the above

5. The marginal rate of substitution (MRS) of X for Y in consumption refers to the:

a. amount of X that a nation must give up for one extra unit of Y and still remain on the same indifference curve

b. amount of Y that a nation must give up for one extra unit of X and still remain on the same indifference curve

c. amount of X that a nation must give up for one extra unit of Y to reach a higher indifference curve

d. amount of Y that a nation must give up for one extra unit of X to reach a higher indifference curve

6. Which of the following statements is true with respect to the MRS of X for Y?

a. It is given by the absolute slope of the indifference curve

b. declines as the nation moves down an indifference curve

c. rises as the nation moves up an indifference curve

d. all of the above

7*. Which of the following statements about community indifference curves is true?

a. They are entirely unrelated to individuals' community indifference curves

b. they cross, they cannot be used in the analysis

c. the problems arising from intersecting community indifference curves can be overcome by the application of the compensation principle

d. all of the above.

8. Which of the following is not true for a nation that is in equilibrium in isolation?

a. It consumes inside its production frontier

b. it reaches the highest indifference curve possible with its production frontier

c. the indifference curve is tangent to the nation's production frontier

d. MRT of X for Y equals MRS of X for Y, and they are equal to Px/Py

9. If the internal Px/Py is lower in nation 1 than in nation 2 without trade:

a. nation 1 has a comparative advantage in commodity Y

b. nation 2 has a comparative advantage in commodity X

c. nation 2 has a comparative advantage in commodity Y

d. none of the above

10. Nation 1's share of the gains from trade will be greater:

a. the greater is nation 1's demand for nation 2's exports

b. the closer Px/Py with trade settles to nation 2's pretrade Px/Py

c. the weaker is nation 2's demand for nation 1's exports

d. the closer Px/Py with trade settles to nation 1's pretrade Px/Py

11*. If Px/Py exceeds the equilibrium relative Px/Py with trade

a. the nation exporting commodity X will want to export more of X than at equilibrium

b. the nation importing commodity X will want to import less of X than at equilibrium

c. Px/Py will fall toward the equilibrium Px/Py

d. all of the above

12. With free trade under increasing costs:

a. neither nation will specialize completely in production

b. at least one nation will consume above its production frontier

c. a small nation will always gain from trade

d. all of the above

13*. Which of the following statements is false?

a. The gains from trade can be broken down into the gains from exchange and the gains from specialization

b. gains from exchange result even without specialization

c. gains from specialization result even without exchange

d. none of the above

14*. The gains from exchange with respect to the gains from specialization are always:

a. greater

b. smaller

c. equal

d. we cannot say without additional information

15*. Mutually beneficial trade cannot occur if production frontiers are:

a. equal but tastes are not

b. different but tastes are the same

c. different and tastes are also different

d. the same and tastes are also the same.

16*. If nations have identical production possibilities frontiers it is possible for them to experience gains from trade if

a. they have the same tastes and preference

b. they have different tastes and preferences

c. they have different natural resources

d. they have constant opportunity costs

17*. Under which circumstance is it not possible for nations to gain from trade?

a. identical production possibilities and identical tastes and preferences

b. different production possibilities and identical tastes and preferences

c. identical production possibilities and different tastes and preferences

d. different production possibilities and different tastes and preferences

18. If a nation has a steeper indifference curve relative to that of another nation it means that

a. it has stronger tastes and preferences for good Y

b. it has stronger tastes and preferences for good X

c. it has a higher opportunity costs for good Y

d. it has a higher opportunity costs for good X

19. Trade allows nations to attain and indifference curve that is

a. beyond the indifference curve it could attain without trade

b. inside the indifference curve it could attain without trade

c. is positively sloped

d. is negatively sloped

20. The primary factor for the loss in manufacturing employment in developed nations is

a. Trade

b. Investment

c. Productivity growth

d. Outsourcing

Short Answer

21. Carefully explain what an indifference curve is.

A community/individual indifference curve shows the various combinations of two commodities that yield equal satisfaction to the nation/person. Higher curves refer to greater satisfaction, lower curves to less satisfaction, they are negatively sloped and convex from origin, and they must not cross.

22. What is the marginal rate of Substitution(MRS).

The rate at which the substitution occurs that some amount of one good (Y) must be sacrificed if more of another (X) is to be acquired is called the Marginal

Rate of Substitution (MRS). MRS=△Y/△X . It is equal to an indifference curve’s absolute slope.

23. Even though the production conditions of two nations are identical, gainful trade may still occur if demand conditions are dissimilar. Demonstrate this fact by using community indifferent curves.

Shown by the above figure, with increasing costs, even if two nations have identical PPF, there will still be a basis for mutually beneficial trade if tastes, or demand preferences in the two nations differ. The nation with the relatively smaller demand or preference for a commodity will have a lower autarky relative price for and comparative advantage in that commodity. See in this figure, Nation 1 has a lower price in X commodity, so isolation point is A at Indifference curve I, and Nation 2 has a lower price in Y commodity, so isolation point is A` at indifference

curve I` , so Nation 1 has a comparative advantage in X and Nation 2 has a comparative advantage in Y with trade both nation specializes in production of X/Y at B/B` point where B and B` is at some place, after trading, both nations higher their consuming point to E/E` which ones stand on the higher indifference curves III/III`, that means both two nations gains from trade.

24. What is meant by the theory of reciprocal demand? How does it provide a meaningful explanation of the international terms of trade?

Reciprocal demand theory suggests that the actual price at which trade takes place depends on the trading partners’ interacting demands. It contends that the equilibrium terms of trade depends on the relative strength of each nation’s demand for the other nation’s product. The stronger the nation’s demand for the good relative to the other nation’s demand for the other good, the closer the terms of trade will settle to the first nation domestic price ratio.

Essay

25. Given: (1) two nations (1 and 2) which have the same technology but different factor endowments and tastes, (2) two commodities (X and Y) produced under increasing costs conditions, and (3) no transportation costs, tariffs, or other obstructions to trade. Prove geometrically that mutually advantageous trade between the two nations is possible.

Note: Your answer should show the autarky (no-trade) and free-trade points of

production and consumption for each nation, the gains from trade of each nation, and express the equilibrium condition that should prevail when trade stops expanding.)

(1)

Based on two nations have difference factor endowments and tastes,

drawing the two nations’ PPF as above figure shown that nation 1’s PPF is flatter to X axis, and nation 2’s PPF is steeper to Y axis, also, under increasing cost conditions, both two nations’ PPF are concave to origin. In the autarky conditions, Nation 1 produced and consumed at Point A with relative prices PA (lower price about X commodity ), and Nation 2 produced and consumed at Point A` with relative price PA`(lower price about Y commodity) , both nations consumed at Indifference curve I.

(2) So for free trade condition, Nation 1 will specialized to producing at

point B and export X, and Nation 2 will specialized to producing at point B` and export Y, so the price of X will increased, and price of Y will decreased in Nation 1,

until the two nations achieved with same relative prices ratio PX/PY = PB.

(3) So Nation 1 exports BC import CE, and Nation 2 exports B`C` import C`E`,

so Nation 1 consumption point changed from A to E, Nation 2 consumption point changed from A` to E`, and achieved a higher indifference curves II.