I. Objective Questions1. Which of the following is not an assumption of factor proportions theory?(a) firms are price takers in both factor and commodity markets.(b) factors are immobile between countries.(c) the price of each factor is the same in the two countries.(d) factors are mobile within each country.2. Automobile manufacturing is capital intensive and rug manufacturing is labor intensive. TheU.S. has 100 million workers and $3,000 billion of capital. Peru has 20 million workers and $400 billion of capital. According to the factor proportions theory this implies that(a) the U.S. will specialize in producing automobiles, and Peru in producing rugs.(b) the U.S. will specialize in producing rugs, and Peru in producing automobiles.(c) neither country will specialize or trade with the other.(d) the U.S. will export both goods.3. If country A is labor abundant and country B is capital abundant, factor proportions theorypredicts free trade will cause(a) wages to fall in country A, and the return to capital to rise in country B.(b) wages to rise in country A, and the return to capital to fall in country B.(c) wages to rise in country A, and the return to capital to rise in country B.(d) wages to fall in country A, and the return to capital to fall in country B.4. Which of the following is not a criticis m of the factor proportions theory?(a) it assumes international factor immobility.(b) it focuses almost entirely on supply conditions and ignores demand.(c) it is limited by the assumption of constant returns to scale.(d) it considers labor as the only factor of production.5. A large home market can lead to a comparative advantage in goods produced under conditionsof(a) increasing returns to scale.(b) decreasing returns to scale.(c) constant returns to scale.(d) none of the above.6. If a country's growth is biased towards imports, as its economy grows its terms of trade will(a) improve.(b) deteriorate.(c) stay the same.(d)either improve or deteriorate, but we cannot say which.7. The main empirical finding that led to the articulation of the Leontief paradox was(a) import-substitutes embodied more capital relative to labor than U.S. exports.(b) the output of the U.S. agricultural sector was greater than that of the U.S.manufacturing sector.(c) U.S. farmers earn more than U.S. factory workers.(d) the capital/labor ratio of U.S. exports was greater than that of U.S. imports.8. The shift of the structure of Japan's exports since World War II is illustrative of(a) the dynamic nature of comparative advantage.(b) the durability of static comparative advantage.(c) the effect of U.S. direct foreign investment in Japan.(d) deindustrializtion.9. The exchange of automobiles between developed countries is an example of(a) intra-industry trade.(b) the factor proportions hypothesis.(c) interindustry trade.(d) the Leontief paradox.10. If a country is well-endowed with labor relative to capital, the factor proportions theory predictsthat it will(a) export labor intensive goods and import capital intensive goods.(b) import labor intensive goods and export capital intensive goods.(c) have a growth pattern biased to capital intensive goods.(d) have low interest rates and high wage rates.11. Which of the following might serve as a partial explanation for the Leontief paradox?(a) U.S. labor is more highly skilled than foreign labor.(b) U.S. exports are more skill intensive than U.S. imports.(c) a large part of U.S. imports are natural-resource-intensive.(d) all of the above.12. The U.S. auto industry can improve its competitive position in the world marketplace by(a) increasing factor productivity and reducing production costs.(b) reducing the size of production facilities.(c) seeking government assi stance in the form of tariffs.(d) delaying the introduction of new technology to save costs.13. The scope for mutually beneficial trade is greater the(a) more similar the demand patterns.(b) more similar the factor endowments.(c) more divergent the two country's cost ratios.(d) more similar the production functions for the two goods.14. Factor proportions theory identifies the comparative advantage source as(a) differences in relative factor endowments between countries.(b) similarities in tastes.(c) identical production functions.(d) similar relative factor endowments.15. Factor proportions theory is most successful in explaining trade between(a) industrial countries.(b) developing countries.(c) industrial and developing countries.(d) centrally planned economies.16. International trade tends to(a) have no effect on factor prices.(b) cause all factor prices to fall.(c) cause the price of the scarce factor to rise and the price of the abundant factor to fall.(d) cause the price of the scarce factor to fall and the price of the abundant factor to rise.17. Which factor stands to gain most from free trade in the long run?(a) factor intensive in the import competing good.(b) factor intensive in the nontraded good.(c) factor intensive in the export sector.(d) relatively scarce factor.18. Which factor stands to gain most from free trade in the short run?(a) factor intensive in the import-competing good.(b) factor specific to the export sector.(c) factor intensive in the export sector.(d) relatively scarce factor.19. Exchange between countries of totally different types of goods i s(a) intra-industry trade.(b) interindustry trade.(c) extraindustry trade.(d) countertrade.20. Intra-industry trade arises from(a) differences in relative factor endowments.(b) monopolistic competition and scale economies.(c) technology differences between countries.(d) homogeneous products.21. Intra-industry trade is a relatively large component of total trade flows between the U.S. and(a) Japan.(b) Mexico.(c) China.(d) Eastern Europe.22. The impact of trade on economic growth is termed(a) static gains.(b) exchange gains.(c) dynamic gains.(d) specialization gains.23. The U.S. relative factor abundance is most pronounced in(a) physical capital.(b) skilled labor.(c) semiskilled labor.(d) unskilled labor.24. The relatively scarce U.S. productive factor is(a) physical capital.(b) skilled labor.(c) semiskilled labor.(d) unskilled labor.25. The relatively abundant productive factor in Mexico is(a) physical capital.(b) skilled labor.(c) semiskilled labor.(d) unskilled labor.26. Which of the following is the most unskilled labor intensive in the U.S.?(a) wheat.(b) machine tools.(c) apparel.(d) oil field machinery.27. A country that is integrated into the world economy will enjoy benefits of(a) technological spillover.(b) foreign investment inflows.(c) lower prices for consumer goods.(d) all of the above.28. Economic growth is usually represented by a nonsymmetrical outward shift of th e productionpossibilities curve because(a) consumer tastes change.(b) growth is either export or import-biased.(c) technology is constant.(d) factor supplies are fixed.。