Question

Multi Choice Questions (please specify which answer is correct)

Question 1: Consider a small open economy that imposes an import quota. If the country in question is currently capital abundant but is undergoing significant immigration.

a)The quota will become less binding as time moves forward

b)Consumers are indifferent between a quota and a price equivalent tariff

c)The quota will become more binding as time moves forward

d)Consumers prefer a price equivalent tariff to a quota

Question 2: The Ricardian model demonstrates that by exploiting comparative advantage, international trade increases the value a nation's total output because:

a)the output of the nation's trading partner declines

b)the nation is able to increase its consumption

c)the nation's resources are used where they are most productive.

d)the nation can produce outside of its production possibilities frontier

Question 3: Assume there are two nations each producing two goods, X and Y, and they only trade with each other. Which of the following is identical for both nations if they engage in free trade?

a) the equilibrium relative price of X

b)the opportunity cost of producing X and the opportunity cost of producing Y

c)the opportunity cost of X

d)both the equilibrium relative price of X and the opportunity cost of X

Answer 1

Answer 1:

Option a. The import quota imposed on capital goods will become less binding because immigration of labor will help in substitution of capital for labor and demand for labor will increase which will make the quota less binding.

Answer 2:

Option C. The Ricardian model demonstrates that by exploiting comparative advantage the nation's resources are used where they are most productive because each country is prodcing the good in which it has comparative advantage.

Answer 3:

Option a. When countries engage in free trade,then equilibrium relative price of X is dentical in both the countries.