International Economics 9th Edition Appleyard Test Bank 1

International Economics 9th
Edition Appleyard Test Bank

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CHAPTER 5
INTRODUCTION TO NEOCLASSICAL TRADE THEORY:
Tools to Be Employed
A. Essay Questions
1. Suppose that, from an initial individual consumer equilibrium position in the indifference
curve-budget line diagram, the prices of both goods rise by 10 percent. What happens to
the position and slope of the budget line? Why does the consumer’s level of satisfaction
from a given money income fall? Illustrate and explain. Would it be acceptable for an
economist to say that the level of satisfaction of the consumer fell by exactly 10 percent?
Why or why not?
Answer: The budget line shifts inward in a parallel manner. The slope is unchanged. The
consumer will now be on a lower indifference curve. No, it cannot be claimed that the
level of satisfaction of the consumer fell by exactly 10 percent.
Difficulty: 02 Medium
Topic: The Theory of Consumer Behavior
AACSB: Analytical Thinking
Blooms: Understand
Learning Objective: 05-01
2. Suppose that, from an initial individual consumer equilibrium position in the indifference
curve-budget line diagram, the price of good X rises while the price of good Y falls.
What will happen to the relative consumption of the two goods by the consumer and
1
why? Can it be specified whether the consumer’s level of satisfaction has increased or
decreased because of this change in absolute and relative prices? Why or why not?
Could the satisfaction level of some consumers increase and the satisfaction level of other
consumers decrease because of the price changes? Explain.
Answer: Consumption will shift toward the lower priced good, i.e., the consumer substitutes the
now cheaper good for some of the now relatively more expensive good. The consumer’s
level of satisfaction may rise, fall, or stay the same.
Difficulty: 03 Hard
Blooms: Analyze
3. “If constant returns to scale exist for a firm, then a 10 percent rise in all factor
prices will lead to a 10 percent decline in the equilibrium quantity of output for a
given budget. However, if increasing returns to scale exist, a 10 percent rise in all
factor prices will lead to a less than 10 percent decline in the equilibrium quantity
of output for a given budget.”
Assess the validity of this statement.
Answer: This statement is not valid. The concept of “returns to scale” only refers to the
relationship between a proportional change in all inputs and the corresponding change in
output.
Difficulty: 03 Hard
Topic: Production Theory
Blooms: Evaluate
4. Explain, using the isoquant-isocost diagram, why a rise in the rental rate of capital
coupled with no change in the wage rate will lead to a rise in the price of the capital-
intensive good relative to the price of the labor-intensive good.
Answer: The prices of both goods will rise, but the price increase of the capital-intensive good
will be relatively greater since it uses relatively more of capital.
Blooms: Understand
5. Explain why any point on an economy’s PPF must be associated with a point on the
production efficiency locus in the Edgeworth box diagram.
2
Answer: The PPF is essentially a reformatted version of the production efficiency locus. They
convey the same info in a different “setting.”
Difficulty: 01 Easy
Topic: The Derivation of the Production Possibilities Frontier
AACSB: Reflective Thinking
Blooms: Remember
6. The textbook has developed the Edgeworth box diagram and the concept of the
production efficiency locus or contract curve in the context of the production of two
goods with two factors. Apply the Edgeworth box apparatus to the context of
consumption of two goods by two consumers, and, in particular, explain how welfare for
the two consumers as a whole when on the contract curve relates to welfare when the
consumers are not on the contract curve.
Answer: Points off the contract curve depict inefficient allocations in the sense that one or both
consumers can be made better off by a redistribution of the goods (with no consumer
suffering a loss)
.
Difficulty: 03 Hard
Blooms: Create
B. Multiple-Choice Questions
7. In the following Edgeworth box diagram for a country’s production,
a. point T has greater output of the A good than does point R.

b. output of the A good is greater at point S as at point R.
c. a plotting of the output combinations along the “diagonal” results in the production-
possibilities frontier for this country.
d. good A is the relatively labor-intensive good and good B is the relatively capital-
intensive good.
3
Answer: a
Difficulty: 01 Easy
Blooms: Remember
8. In the diagram in Question #7 above,
a. a movement from point S to point T involves an increase in the capital/labor ratio

used in the production of good A.
b. if the PPF is plotted from the “contract curve” (or “production efficiency locus”), the
production combination of goods A and B associated with point R is on the PPF.
c. if the PPF is plotted from the “contract curve” (or “production efficiency locus”), with
good A on the vertical axis and good B on the horizontal axis, the production
combination of goods A and B associated with the 0B origin is at the origin of the
PPF graph.
d. if the PPF is plotted from the “contract curve” (or “production efficiency locus”),
with good A on the vertical axis and good B on the horizontal axis, the production
combination of goods A and B associated with point T is further up the vertical
axis than the production combination associated with point S.
Answer: d
Difficulty: 01 Easy
Blooms: Remember
9. In the diagram in Question #7 above, a movement from point S to point T will lead to
__________ in the capital/labor ratio used in the production of good A and __________
in the capital/labor ratio used in the production of good B.
a. an increase; will lead to a decrease

b. an increase; also will lead to an increase
c. a decrease; also will lead to a decrease
d. a decrease; will lead to an increase
Answer: c
Difficulty: 01 Easy
Blooms: Remember
10. If, for a consumer, (MUA/PA) is greater than (MUB/PB), then the consumer
4
a. has an incentive to consume relatively more of good A, which will increase his/her
MUA.
b. has an incentive to consume relatively more of good A, which will decrease his/her
MUA.
c. has an incentive to consume relatively more of good B, which will increase his/her
MUB.
d. has an incentive to consume relatively more of good B, which will decrease his/her
MUB.
Answer: b
Difficulty: 01 Easy
Blooms: Remember
11. In the following table of production possibilities for a country,
Good X Good Y
0 units 13 units
1 unit 10 units
2 units 6 units
3 units 0 units
there are __________ opportunity costs in the production of good X, and there
are __________ opportunity costs in the production of good Y.
a. increasing; increasing
b. increasing; constant
c. constant; increasing
d. constant; decreasing
Answer: a
Difficulty: 01 Easy
Blooms: Remember
12. Two indifference curves for an individual consumer __________ intersect; two
community indifference curves for a country __________.
a. cannot; also cannot intersect

b. cannot; can intersect under some circumstances
c. can; can also intersect under some circumstances
d. can; cannot intersect
5
Answer: b
Difficulty: 01 Easy
Blooms: Remember
13. Which one of the following sequences of specifications of relative preferences for
bundles of goods A, B, and C by a consumer indicates the property of transitivity (where
“>” indicates that the preferred bundle is on the left, “<” indicates that the preferred
bundle is on the right, and “=” means indifference between the bundles)?
a. A > B; B > C; C>A

b. A > B; B = C; C=A
c. A < B; C < A; B>C
d. A = C; B > C; A>B
Answer: c
Difficulty: 01 Easy
Blooms: Remember
14. In the following table of production possibilities for a country,
Good X Good Y
400 units 0 units

300 units 100 units
200 units 180 units
100 units 240 units
0 units 280 units
there are __________ opportunity costs when moving to greater production of good X
and __________ when moving to greater production of good Y.
a. increasing; decreasing
b. decreasing; constant
c. constant; increasing
d. increasing; increasing
Answer: d
Difficulty: 01 Easy
6
Blooms: Remember
15. Suppose that, in the isoquant-isocost diagram, with given relative factor prices, an
equilibrium input combination of 10 units of capital and 30 units of labor yields an
output level for the firm of 120 units. Suppose that, for this firm, at the same relative
factor prices but with a larger budget, an equilibrium input combination of 15 units of
capital and 45 units of labor yields an output level of 160 units. Viewing these input-
output relationships, an economist would say that, in its production process, this firm
experiences
a. increasing returns to scale.

b. constant returns to scale.
c. decreasing returns to scale.
d. increasing returns to scale, constant returns to scale, or decreasing returns to scale –
cannot be determined without more information.
Answer: c
Difficulty: 01 Easy
Blooms: Understand
16. In the Edgeworth box diagram for production,
a. a point off the “contract curve” (or “production efficiency locus”) cannot have more
production of one of the goods than can some point on the curve.
b. a point off the “contract curve” (or “production efficiency locus”) can involve more
production of both goods than can any point on the curve.
c. a movement from autarky to trade can be associated with a movement along the
“contract curve” (or “production efficiency locus’).
d. the “contract curve” (or “production efficiency locus”) will always be the “diagonal”
of the box.
Answer: c
Blooms: Understand
17. In the following graph showing an isoquant and an isocost line, at point X,
7
MPPL/MPPK is __________ w/r and the producer has an incentive to use relatively more
__________ in producing the given output.
a. greater than; capital

b. greater than; labor
c. less than; capital
d. less than; labor
Answer: c
Difficulty: 01 Easy
Blooms: Remember
18. In the Edgeworth box diagram in production with two goods and two factors of
production,
a. a movement from any point off the “production efficiency locus” (“contract curve”)
to any point on the locus must involve greater production of one good and less
production of the other good.
b. a movement from any point on the “production efficiency locus” (“contract curve”)
to any point off the locus must involve less production of both goods.
c. a point that is off the “production efficiency locus” (“contract curve”) must be
associated with unemployment of at least one of the factors of production.
d. a movement from any point on the “production efficiency locus” (“contract curve”)
to another point on the locus must involve greater production of one good and
less production of the other good.
Answer: d
Difficulty: 01 Easy
Blooms: Remember
19. The equilibrium condition for consumer behavior pertaining to goods A and B is
8
__________.
a. (MUB/PA) = (MUA/PB)
b. MUB = MUA
c. (MPPB/MPPA) = (PB/PA)
d. (MUB/MUA) = (PB/PA)
Answer: d
Difficulty: 01 Easy
Blooms: Remember
20. You are given the following two possible community indifference curve maps for a
country, where curves S1 and S’1 pertain to income distribution #1 and curves S2 and S’2
pertain to income distribution #2:
The differing shapes of the curves in these two maps could reflect the fact that in income
distribution #2, in comparison with income distribution #1, a greater share of total
income is held by individuals who value __________. In addition, in this diagram, point
B is preferred to point A __________.
a. good X relatively more highly than good Y; on the basis of income distribution #2 but
not on the basis of income distribution #1
b. good X relatively more highly than good Y; on the basis of income distribution #1 but
c. good Y relatively more highly than good X; on the basis of income distribution #2 but
d. good Y relatively more highly than good X; on the basis of income distribution #1 but
9
Answer: d
Blooms: Understand
21. The slope of a consumer indifference curve at any given point on the curve reflects
(ignoring the negative sign)
a. the marginal rate of transformation (MRT) in production of one commodity into the
other commodity.
b. the marginal rate of technical substitution (MRTS) between the factors of production.
c. the relative prices of the commodities in the consumption bundle of goods.
d. the marginal rate of substitution (MRS) of the consumer between the two goods.
Answer: d
Difficulty: 01 Easy
Blooms: Remember
22. A production isoquant shows the various combinations
a. of two factors of production that can produce the same amount of output of a good.
b. of two factors of production that can be hired by a firm for the same cost.
c. of two goods that can be produced by the firm with the same quantity of the factors of
production.
d. of two goods that bring an equivalent satisfaction level to an individual consumer.
Answer: a
Difficulty: 01 Easy
Blooms: Remember
23. The equilibrium condition for producers (i.e., the condition that exists when the isocost
line is tangent to an isoquant) is __________.
a. (MPPL/r) = (MPPK/w)
b. (MPPL/MPPK) = (w/r)
c. (MUB/MUA) = (PB/PA)
d. (MUB/PA) = (MUA/PB)
10
Answer: b
Difficulty: 01 Easy
Blooms: Remember
24. Given the following table showing various combinations of goods X and Y that bring
equal satisfaction to an individual consumer:
good X good Y
2 units 10 units
3 units 9 units
4 units 6 units
5 units 2 units
In this table, as the individual consumes a greater amount of X, a __________ amount of

good Y is given up for each additional unit of good X. This pattern suggests that, as
more of good X is consumed and less of good Y is consumed, the ratio MUX/MUY is
__________.
a. larger; increasing, which contradicts economists’ usual expectations

b. larger; decreasing, which conforms to economists’ usual expectations
c. smaller; increasing, which contradicts economists’ usual expectations
d. smaller; decreasing, which conforms to economists’ usual expectations
Answer: a
Blooms: Understand
25. The curve in the following diagram is called an __________, and its slope (ignoring the
negative sign) indicates the ratio __________.
a.. isoquant; w/r
11
b. isoquant; MPPL/MPPK
c. isocost line; w/r
d. isocost line; MPPL/MPPK
Answer: b
Difficulty: 01 Easy
Blooms: Remember
26. Suppose that, in the context of the Edgeworth box diagram in production, there are
constant returns to scale in each of the two industries and that one good is relatively
labor-intensive in its production process and the other good is relatively capital-intensive
in its production process. In considering this Edgeworth box diagram and the PPF that
can be derived from it,
a. all points on the “diagonal” of the Edgeworth box diagram will have corresponding
points on the PPF.
b. no point on the “diagonal” of the Edgeworth box diagram will correspond to a point
on the PPF.
c. the PPF will show increasing opportunity costs.
d. the PPF will show constant opportunity costs.
Answer: c
Difficulty: 01 Easy
Blooms: Remember
12

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International Economics 9th Edition Appleyard Test Bank 1

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International Economics 9th

Edition Appleyard Test Bank

Test Bank: https://testbankpack.com/p/test-bank-

Assess the validity of this statement.

7. In the following Edgeworth box diagram for a country’s production,

a. point T has greater output of the A good than does point R.

8. In the diagram in Question #7 above,

a. a movement from point S to point T involves an increase in the capital/labor ratio

a. an increase; will lead to a decrease

11. In the following table of production possibilities for a country,

a. cannot; also cannot intersect

a. A > B; B > C; C>A

14. In the following table of production possibilities for a country,

400 units 0 units

a. increasing returns to scale.

16. In the Edgeworth box diagram for production,

a. greater than; capital

22. A production isoquant shows the various combinations

In this table, as the individual consumes a greater amount of X, a __________ amount of

a. larger; increasing, which contradicts economists’ usual expectations

a.. isoquant; w/r

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