All Free Economics MCQs with Answers

• A. Absolute advantage determines the distribution of the gains from trade
• B. Comparative advantage determines the distribution of the gains from trade
• C. The division of labor is limited by the size of the world market
• D. A country exports goods for which its resource endowments are most suited

Explanation: Heckscher-Ohlin predicts that a country exports goods that use its relatively abundant factors of production intensively.

• A. Theory of factor endowments
• B. Theory of overlapping demands
• C. Economies of scale theory
• D. Product life cycle theory

Explanation: Product life cycle theory explains how a country may first export an innovation, but later import it when production becomes standardized…

• A. Adam Smith
• B. David Ricardo
• C. John Stuart Mill
• D. Eli Heckscher and Bertil Ohlin

Explanation: Eli Heckscher and Bertil Ohlin developed the factor-endowment model, which links trade patterns to countries' relative supplies of labour…

• A. XA. wages and rents should fall in Country A
• B. wages and rents should rise in Country A
• C. wages should rise and rents should fall in Country A
• D. wages should fall and rents should raise in Country A

Explanation: Country A's labor abundance gives it a comparative advantage in labor-intensive goods, raising demand for labor and wages while reducing…

• A. Adam smith
• B. David Ricardo
• C. Wassily Leontief
• D. Eli Heckscher and Bertil Ohlin

Explanation: The factor-endowment theory is the Heckscher-Ohlin theory, developed by Eli Heckscher and Bertil Ohlin.

• A. evidence against the Ricardi an model
• B. evidence against the Heckscher-Ohl in model
• C. support for the Ricardian model
• D. support for the Heckcher Ohlin model

Explanation: Leontief found that U.S. exports were relatively labor-intensive despite the United States being considered capital-abundant…

• A. technologically efficient relative to the rest of the world
• B. capital abundant relative to the rest of the world
• C. labor abundant relative to the rest of the world
• D. All of the above

Explanation: The paradox arose because the United States was widely regarded as relatively capital-abundant, so Heckscher-Ohlin theory predicted…

• A. calculate the capital and labor required to produce $1 million of U.S exports and imports
• B. calculate the labor productivity of America workers relative to foreign workers
• C. calculate the capital productivity of American capital relative to foreign capital
• D. All of the above

Explanation: Leontief's input-output analysis estimated the quantities of capital and labor embodied in a fixed value of U.S. exports and imports.

• A. Ricardian theory of comparative advantage
• B. Heckscher Ohl in theory of comparative advantage
• C. Linder theory of overlapping demand
• D. All of the above

Explanation: The input-output test examined whether U.S. exports used the factor expected to be relatively abundant in the United States.

• A. tastes
• B. technology
• C. factor/resource
• D. opportunity cost

Explanation: Heckscher-Ohlin theory says a country exports goods that intensively use its relatively abundant factor or resource.

• A. stop the process of product price equalization and factor price equalization before they are complete:
• B. ensure that the process of product price equalization and factor price equalization are complete
• C. eliminate all of the feasible gains from international trade
• D. maximize all of the feasible gains from international trade

Explanation: Transportation costs keep the prices of traded goods from becoming fully equal across countries.

• A. Stolpher-Samuelson theory
• B. factor endowment theory
• C. specific factors theory
• D. overlapping demand theory

Explanation: The specific-factors theory studies short-run trade effects when some resources cannot move between industries.

• A. intraindustry specialization and trade
• B. interindustry specialization and trade
• C. demand conditions underlying specialization and trade
• D. income conditions underlying specialization and trade

Explanation: Ricardo's model explains trade through differences in labor productivity and comparative advantage across industries, producing…

• A. technology
• B. advertising
• C. factor endowments
• D. both (a) and (c)

Explanation: The Heckscher-Ohlin model links comparative advantage to relative factor abundance, such as land, labour, or capital.

• A. have no impact on patterns of international trade
• B. have tended to make U.S steel companies more competitive internationally
• C. can affect production costs and thus alter comparative advantages and trade patterns
• D. have been eliminated by the nations participating in NAFTA

Explanation: Different environmental rules and regulations can change firms’ production costs.

• A. Explains why the United States might export autos and import clothing
• B. Explains why the United States might export and import differentiated versions of the same product such as different types of autos
• C. Assumes that transport costs are very low or do not exist
• D. ignores seasonal considerations for agricultural goods

Explanation: Intra-industry trade is two-way trade in differentiated varieties of the same product, such as one country exporting some automobile…

• A. increase in the volume of trade
• B. Smaller gain from trade
• C. Decline in the income of home producers
• D. Decrease in the level of specialization in production

Explanation: Lower transport costs make international exchange cheaper, allowing countries to trade more and specialize more fully according to…

• A. similar endowments of natural resources
• B. similar levels of technology
• C. similar per-capita incomes
• D. similar wage levels

Explanation: Linder’s theory emphasizes demand similarity: countries with similar per-capita incomes tend to want similar manufactured products and…

• A. Devote excessive amounts of resources to agricultural production
• B. Devote insufficient amounts of resources to agricultural production
• C. Export products that are land-intensive
• D. Import products that are land-intensive

Explanation: A country relatively abundant in land has a lower opportunity cost of producing land-intensive goods.

• A. Tastes and preferences
• B. Expectations of future interest rate levels
• C. Per-capita income levels
• D. Labor productivities

Explanation: The overlapping-demand theory predicts more manufactured-goods trade when consumers in trading countries have similar purchasing power and…