Public Economics MCQs Long
Public Economics MCQs Long
Public Economics MCQs Long
17. In the case of direct tax, impact and incidence are on:
a) Different person b) Same person c) Sellers d) None of these
31. Who was the first to recommend the adoption of an expenditure tax for India?
a) K.N. Raj b) Paul Krugman c) Raja J. Chelliah d) N. Kaldor
32. Which one of the following taxes is levied by the State Government only?
a) Entertainment tax b) Corporation tax
c )Wealth tax d) Income tax
41. The income of the government through all its sources is called
(a) Public expenditure (b) public revenue
(c) Public finance (d) none of these
47. Which of the following does not form the basis of sound finance?
(a) Say’s Law (b) Assumption of full employment
(c) Ricardian Equivalence Theorem (d) Lerner’s Fundamental Rules
48. In the case of relatively elastic demand, the money burden of tax is on
(a) More on seller (b) More on buyer
(c) Entirely on seller (d) Entirely on buyer
49. When the supply is more elastic, the money burden of tax is on
(a) More on seller (b) More on buyer
(c) Entirely on seller (d) Entirely on buyer
Answers
1. The Heckscher-Ohlin theory is preferred to the Ricardo theory by economists because it makes
fewer simplifying assumptions. What is your view?
3. “Heckscher-Ohlin theory does not invalidate the classical theory of comparative cost but rather
powerfully
supplements it”. Substantiate the statement.
7. Examine the role of the classical theory of comparative advantage in international trade.
14. Discuss the classical theory of comparative advantage. What are the improvements made on it
by Heckscher-Ohlin theory?
15. Using Marshall’s Offer curves, explain the determination of equilibrium terms of trade.
TYBCOM SEM VI
International Economics: Objective Questions
Choose the correct alphabet only.
1. Which theory states that a nation will tend to export commodities intensive in its relatively abundant and
cheap factor?
A) Heckscher-Ohlin theory
B) Stolper-Samuelson theory
C) Product cycle theory
D) Intraindustry trade theory
Answer: A
2. Which of the following is a part of the Heckscher-Ohlin model that states international trade will bring
about equalization in the returns to homogeneous factors across nations?
A) Factor-price equalization theorem
B) Factor-proportions theory
C) Factor-endowment theory
D) Product cycle theory
Answer: A
4. Which of the following states that a nation will export commodities intensive in its relatively abundant
and cheap factor and that international trade brings about equalization in returns to homogeneous factors
across countries:
A) Heckscher-Ohlin theory
B) Stolper-Samuelson theorem
C) Differentiated product theorem
D) None of the above
Answer: A
5. The ______________ hypothesizes that a portion of international trade is based on the introduction of new
products or processes:
A) specific-factors model
B) technological gap model
C) product cycle model
D) real business cycle model
Answer: B
10. As opposed to the Ricardian model of comparative advantage, the assumption of diminishing returns in
the Heckscher-Ohlin model means that the probability is greater that with trade
A. countries will not be fully specialized in one product.
B. countries will benefit from free international trade.
C. countries will consume outside their production possibility frontier.
D. comparative advantage is primarily supply related.
Answer: A
11. Starting from an autarky (no-trade) situation with Heckscher-Ohlin model, if Country H is relatively labor
abundant, then once trade begins
A. wages and rents should rise in H
B. wages and rents should fall in H
C. wages should rise and rents should fall in H.
D. wages should fall and rents should rise in H.
Answer: C
13. Suppose that there are two factors, capital and land, and that the United States is relatively land endowed
while the European Union is relatively capital-endowed. According to the Heckscher-Ohlin model,
A. European landowners should support US-European free trade.
B. European capitalists should support US-European free trade.
C. all capitalists in both countries should support free trade.
D. all landowners should support free trade.
Answer: B
14. The Hechscher-Ohlin model states that a country will have a comparative advantage in the good or service
whose production is relatively intensive in the ______ with which the country is relatively abundant.
A. tastes.
B. technology
C. factor of production
D. opportunity cost
Answer: C
15. One way in which the Heckscher-Ohlin model differs from the Ricardo model of comparative advantage is
by assuming that __________ is (are) identical in all countries.
A. factor of production endowments
B. scale economies
C. factor of production intensities
D. technology
Answer: D
17. The Heckscher-Ohlin model assumes that _____ are identical in all trading countries
A. Gross domestic products
B. technologies
C. factor endowments
D. Both A. and B.
Answer: B
19. Which economist laid the foundation for the factor endowment theory with his article entitled “The Effect
of Foreign Trade on the Distribution of Income”?
A) Eli Heckscher
B) Bertil Ohlin
C) Alfred Marshal
D) Raymond Vernon
Answer: A
20. According to the factor endowment theory, nations heavily endowed with labor will:
A) Import more labor intensive goods
B) Export more labor intensive goods
C) Have an absolute advantage in labor intensive goods
D) Have a comparative advantage in capital intensive goods
Answer: B
21. Which of the following states that the difference in relative factor abundance and relative factor prices is
the cause of the pretrade difference in relative commodity prices between two nations?
A) Stolper-Samuelson theorem
B) Differentiated product theorem
C) Heckscher-Ohlin theorem
D) None of the above
Answer: C
22. Assume that Country A is relatively abundant in capital and relatively scarce in land. According to the
factor endowment theory, with free trade, the internal distribution of income in Country A will change in
favor of:
A) capital
B) land
C) both capital and land
D) neither capital nor land
Answer: A
23. Assume the cost of transporting computers from US to Japan is greater than the pre-trade price difference
for computers between US and Japan. Trade in computers between US and Japan will:
A) be very profitable for both parties
B) be a breakeven proposition for both parties
C) occur
D) not occur
Answer: D
25. Mexico is relatively abundant in labor, while Canada is relatively abundant in capital. In both nations, the
production of televisions is relatively more capital intensive than the production of corn. According to the
factor endowment theory, Mexico will have a(n):
A) absolute advantage in the production of corn and computers
B) absolute advantage in the production of corn
C) comparative advantage in the production of corn
D) comparative advantage in the production of computers
Answer: C
26. A product will be internationally trades as long as the pre-trade price differential between the trading
partners is:
A) equal to the transportation cost of the good
B) greater than the transportation cost of the good
C) less than the transportation cost of the good
D) none of the above
Answer: B
28. Assume both labor and capital are completely mobile, and a nation is capital rich/labor scarce. In order
to increase welfare, what kind of trade policy should the government adapt?
A) Restrict all trade, because the standard of living will decline and people will be worse off
B) Only restrict trade that will make the real wage fall, and allow trade that will not affect wages
C) Not restrict trade, because the real wage will eventually cycle back to the pre-trade value, eliminating any
losses in the standard of living
D) Not restrict trade, because any decline in real wages will be matched with an even larger gain by
those who own capital
Answer: D
29. Which of the following are possible sources of bias for the Leontief paradox?
A) Leontief only used a two-factor model
B) Misclassification of factors such as natural resources
C) The inclusion of only physical capital in the measure of capital
D) All of the above
Answer: D
30. Which of the following factors were not considered within the framework of the Leontief paradox?
A) Human capital
B) Physical capital
C) Natural resources
D) Both A & C
Answer: D
31. In the real world, a reason factor-price equalization of labor does not completely hold true is that:
A) it is unrealistic to assume that there are no trade restrictions
B) although technology among most countries is the same, workers are not able to make efficient use of it in
every nation, thus keeping factor prices from equalizing
C) although labor is completely mobile it assumes the value in the country to which it moved and thus has
no effect on the overall factor price of that country.
D) None of the above
Answer: A
32. With ______________, inputs increase proportionately more than the increase in output.
A) Increasing returns to scale
B) Decreasing returns to scale
C) Constant returns to scale
D) International returns to scale
Answer: B
33. With ______________, inputs increase in direct proportion to the increase in output.
A) increasing returns to scale
B) decreasing returns to scale
C) constant returns to scale
D) international returns to scale
Answer: C
34. Some forces that improve upon the inadequacies of the Heckscher-Ohlin model in explaining basis for
international trade are:
A) Economies of scale
B) Product differentiation
C) Technological differences
D) All of the above
Answer: D
35. With ______________, inputs increase proportionately less than the increase in output.
A) increasing returns to scale
B) decreasing returns to scale
C) constant returns to scale
D) international returns to scale
Answer: A
36. Increasing returns to scale generally exist because of:
A) greater division of labor and labor specialization
B) specialized and productive machinery
C) less and less expensive factors of production
D) Both A and B
Answer: D
37. Which of the following is not an explanation for why high-income and labor-saving products are most
likely to be introduced in rich nations?
A) The opportunities for doing so are the greatest in rich nations
B) Poor countries actually prefer products and services associated with being low-income
C) The development of new products requires proximity to markets so as to benefit from consumer feedback
in modifying the product
D) There is no need to provide service
Answer: B
38.The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in
that the former
A. has only two countries.
B. has only two products.
C. has two factors of production.
D. has two production possibility frontiers (one for each country).
Answer: C
39. According to the theory of comparative advantage, which of the following is not a reason why countries
trade?
a. Comparative advantage.
b. Costs are higher in one country than in another.
c. Prices are lower in one country than in another.
d. Exports give a country a political advantage over other countries that export less.
Ans: d
40. According to the theory of comparative advantage, countries gain from trade because
a. Trade makes firms behave more competitively, reducing their market power.
b. All firms can take advantage of cheap labor.
c. Output per worker in each firm increases.
d. World output can rise when each country specializes in what its does relatively best.
Ans: d
41. If international trade takes place as a result of comparative advantage, it will cause which of the following
effects in the participating countries?
a. Inequality among households will be reduced.
b. All individuals in each country will be better off.
c. The average well-being of people in both countries will increase.
d. Both countries will grow faster over time.
Ans: c
42. The existence of which type of dumping most likely constitutes the strongest argument for the imposition
of an antidumping duty?
a. Predatory dumping
b. Persistent dumping
c. Sporadic dumping
d. All three types generate equally string arguments for the imposition of an antidumping duty.
Ans: a
45. A tariff on imports benefits domestic producers of the imported good because
a. They get the tariff revenue.
b. It raises the price for which they can sell their product on the domestic market.
c. It prevents imports from rising above a specified quantity.
d. It reduces their producer surplus, making them more efficient.
Ans: b
46. When a large country levies a tariff on imports
a. The world price falls.
b. Demanders of the good on the domestic market are hurt
c. The domestic price rises by less than the tariff.
d. All of the above.
Ans: d
47. Which of the following refers to the fact that a large country can benefit by levying a
tariff?
a. The “optimal tariff”
b. The “terms of trade effect of a tariff”
c. The “monopoly effect of a tariff”
d. All of the above
Ans: d
49. In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in
a. military capabilities.
b. size.
c. labor productivities.
d. relative availabilities of factors of production.
Answer: d
True/False
Answer: True
2. The Heckscher-Ohlin theory is often referred to as the factor-endowment theory.
Answer: True
3. International trade acts as a substitute for the international mobility of factors of production in its effect
on factor prices.
Answer: True
4. Leontief’s empirical findings agreed with the Heckscher-Ohlin trade model which predicts that, as the most
capital abundant nation, the U.S. should import labor-intensive products.
Answer: False
5. Non-traded goods and services are those that are not traded because of international barriers to entry,
such as exorbitant import tariffs.
Answer: False
6. According to the Heckscher-Ohlin model, if country A has a comparative advantage in producing good X,
and country B has a comparative advantage in producing good Y, if those countries have similar tastes it is
possible for those two countries to reach a higher indifference curve with the introduction of trade.
Answer: True
8. Free international trade will continue to expand until the real wages for the same type of labor in the two
nations and the real rate of interest for the same type of capital in the two nations are completely equalized.
Answer: True
9. Labor unions in developed nations are usually against trade restrictions because it impedes their ability to
acquire skilled workers that can assist in acquiring additional benefits and wage increases.
Answer: False
10. The Heckscher-Ohlin theory asserts that relative differences in labor productivity underlie comparative
advantage. F
3.The factor-endowment theory highlights the relative abundance of a nation’s resources as the key factor
underlying comparative advantage. T
4.According to the factor-endowment theory, a nation will export that good for which a large amount of the
relatively scarce resource is used. F
5.According to the factor-endowment theory, a nation will import that good for which a large amount of the
relatively abundant resource is used. F
6.The Heckscher-Ohlin theory suggests that land-abundant nations will export land-intensive goods while
labor-abundant nations will export labor-intensive goods. T
7.The Heckscher-Ohlin theory contends that over a period of years a country that initially is an exporter of a
product will become an importer of that product. F
8.The Heckscher-Ohlin theory emphasizes the role that demand plays in the creation of comparative
advantage. F
9.The factor-endowment theory asserts that with specialization and trade there tends to occur equalization in
the relative resource prices of trading partners. T
10.According to the factor-endowment theory, international specialization and trade cause a nation’s cheap
resource to become cheaper and a nation’s expensive resource to become more expensive. F
11.Fears about the downward pressure that cheap foreign workers place on U.S. wages have led U.S. labor
unions to lobby for import restrictions such as tariffs and quotas. T
12.According to the factor-price-equalization theory, international trade results in the relative differences in
resource prices between nations being eliminated. T
13.Empirical testing by Wassily Leontief gave support to the Heckscher-Ohlin theory of trade. F
14.The Leontief Paradox was the first major challenge to the product-life-cycle theory of trade. F