ECON 335 Final Exam Questions with Correct Answers Graded A+
In a two-country two-good model, if a country has an absolute advantage in the production of a
certain good, it implies that _____ - Answers D. this country has higher labor productivity in the
production of this good
The Heckscher-Ohlin (HO) theorem explains patterns of trade between countries using _____ -
Answers C. abundance or scarcity of resources
Malaysia is set to seal a free trade deal with the United Arab Emirates (UAE) by June of this year.
Suppose these are the only 2 countries in the world, and the trade deal pushes them from not
trading to free trade. Malaysia is abundant in labor, and the UAE is abundant in physical capital.
How would the real wages of workers change in both countries in the long run according to the
Heckscher-Ohlin Trade Theory? - Answers D. The real wages of workers would fall in the UAE
and rise in Malaysia
As a result of the trade deal in the question above, would you expect the price of refined
petroleum, something that uses physical capital intensively, to rise or fall in each country
according to the Heckscher-Ohlin trade theory? - Answers A. The price of refined petroleum
would rise in the UAE and fall in Malaysia
As a result of the trade deal two questions prior, would you expect the price of refined
petroleum, something that uses physical capital intensively, to rise or fall in each country
according to New Trade Theory? - Answers D. The price of refined petroleum would fall in both
countries
Terran Orbital recently doubled the size of their factory in Irvine and stated that their satellite
production capacity will increase from 10 satellites/month to more than 20 satellites per month.
This expansion is an example of what? - Answers C. Increasing returns to scale/internal
economies of scale
The Leontief paradox is the finding that _____ - Answers B. The US was capital abundant after
World War II but exported relatively more labor intensive products
The factor price equalization theorem tells us that free trade between two countries should
result in _____ - Answers C. all workers of the same skill level earning the same wage rate in the
two countries
The factor price equalization theorem needs which of the following assumptions? - Answers D.
Factors are allowed to change industries (long-run)
New Trade Theory typically includes which of the following assumptions about markets and
production? - Answers D. Monopolistic competition in markets
Saudi Arabia is relatively resource-abundant since _____ - Answers D. Saudi Arabia's ratio of
, resources to other factors of production is greater than in the rest of the world
Under which trade theory was it possible that a country could lose overall from trade? - Answers
A. Mercantilism
Economies of scale occur when an increase in production leads to _____ - Answers A. A
decrease in average costs
Empyrean Interactive is a video game startup that is seeking to design multiplayer games that
allow console, PC, and VR players to play together. It located in Irvine to take advantage of the
resources of the bustling game development industry there, which includes Blizzard
Entertainment and Amazon Game Studios. Its founding is an example of what? - Answers B.
External economies of scale
Assume there are two factors of production: natural resources and labor. Suppose North Korea
denuclearizes, sanctions are lifted, and the country begins to trade more with the rest of the
world. North Korea begins to export only coal, a resource-intensive product. What factor of
production is abundant in North Korea according to the Heckscher-Ohlin theory? - Answers A.
Natural resources
Assume there are two factors of production: natural resources and labor. Suppose North Korea
denuclearizes, sanctions are lifted, and the country begins to trade more with the rest of the
world. How would coal production change after sanctions are lifted if there are increasing
opportunity costs to producing additional coal in North Korea according to the Heckscher-Ohlin
theory? - Answers B. North Korea would produce more coal, but still would produce some other
products
Montenegrin production of aluminum (A) and boxes of beans (B) is described by the following
production possibility curve:
B = 100,000,000 - 1,000*A
If the Montenegrin economy produces 40,000,000 boxes of beans, how much aluminum would
Montenegro produce if its production was on its production possibility curve? - Answers C.
60,000 tons
Montenegrin production of aluminum (A) and boxes of beans (B) is described by the following
production possibility curve:
B = 100,000,000 - 1,000*A
What is the Montenegrin economy's maximum possible production of aluminum? - Answers D.
100,000 tons
Why might consumers seem to benefit more from freer trade according to New Trade Theory
rather than the Heckscher-Ohlin theory of trade? - Answers D. New Trade Theory predicts that
In a two-country two-good model, if a country has an absolute advantage in the production of a
certain good, it implies that _____ - Answers D. this country has higher labor productivity in the
production of this good
The Heckscher-Ohlin (HO) theorem explains patterns of trade between countries using _____ -
Answers C. abundance or scarcity of resources
Malaysia is set to seal a free trade deal with the United Arab Emirates (UAE) by June of this year.
Suppose these are the only 2 countries in the world, and the trade deal pushes them from not
trading to free trade. Malaysia is abundant in labor, and the UAE is abundant in physical capital.
How would the real wages of workers change in both countries in the long run according to the
Heckscher-Ohlin Trade Theory? - Answers D. The real wages of workers would fall in the UAE
and rise in Malaysia
As a result of the trade deal in the question above, would you expect the price of refined
petroleum, something that uses physical capital intensively, to rise or fall in each country
according to the Heckscher-Ohlin trade theory? - Answers A. The price of refined petroleum
would rise in the UAE and fall in Malaysia
As a result of the trade deal two questions prior, would you expect the price of refined
petroleum, something that uses physical capital intensively, to rise or fall in each country
according to New Trade Theory? - Answers D. The price of refined petroleum would fall in both
countries
Terran Orbital recently doubled the size of their factory in Irvine and stated that their satellite
production capacity will increase from 10 satellites/month to more than 20 satellites per month.
This expansion is an example of what? - Answers C. Increasing returns to scale/internal
economies of scale
The Leontief paradox is the finding that _____ - Answers B. The US was capital abundant after
World War II but exported relatively more labor intensive products
The factor price equalization theorem tells us that free trade between two countries should
result in _____ - Answers C. all workers of the same skill level earning the same wage rate in the
two countries
The factor price equalization theorem needs which of the following assumptions? - Answers D.
Factors are allowed to change industries (long-run)
New Trade Theory typically includes which of the following assumptions about markets and
production? - Answers D. Monopolistic competition in markets
Saudi Arabia is relatively resource-abundant since _____ - Answers D. Saudi Arabia's ratio of
, resources to other factors of production is greater than in the rest of the world
Under which trade theory was it possible that a country could lose overall from trade? - Answers
A. Mercantilism
Economies of scale occur when an increase in production leads to _____ - Answers A. A
decrease in average costs
Empyrean Interactive is a video game startup that is seeking to design multiplayer games that
allow console, PC, and VR players to play together. It located in Irvine to take advantage of the
resources of the bustling game development industry there, which includes Blizzard
Entertainment and Amazon Game Studios. Its founding is an example of what? - Answers B.
External economies of scale
Assume there are two factors of production: natural resources and labor. Suppose North Korea
denuclearizes, sanctions are lifted, and the country begins to trade more with the rest of the
world. North Korea begins to export only coal, a resource-intensive product. What factor of
production is abundant in North Korea according to the Heckscher-Ohlin theory? - Answers A.
Natural resources
Assume there are two factors of production: natural resources and labor. Suppose North Korea
denuclearizes, sanctions are lifted, and the country begins to trade more with the rest of the
world. How would coal production change after sanctions are lifted if there are increasing
opportunity costs to producing additional coal in North Korea according to the Heckscher-Ohlin
theory? - Answers B. North Korea would produce more coal, but still would produce some other
products
Montenegrin production of aluminum (A) and boxes of beans (B) is described by the following
production possibility curve:
B = 100,000,000 - 1,000*A
If the Montenegrin economy produces 40,000,000 boxes of beans, how much aluminum would
Montenegro produce if its production was on its production possibility curve? - Answers C.
60,000 tons
Montenegrin production of aluminum (A) and boxes of beans (B) is described by the following
production possibility curve:
B = 100,000,000 - 1,000*A
What is the Montenegrin economy's maximum possible production of aluminum? - Answers D.
100,000 tons
Why might consumers seem to benefit more from freer trade according to New Trade Theory
rather than the Heckscher-Ohlin theory of trade? - Answers D. New Trade Theory predicts that
