Chapter 2 The Gains from Trade 5

3. If the world price of food fell, the country would generally

Answer: (d)

4. With trade, the market value of exports is

Answer: (d)

5. If this country were to lose 10 percent of its clothing endowment it would

Answer: (e)

Questions 6–10 concern a situation where 2 countries have identical preferences, but country A has an endowment with more food and less clothing than B.

6. Under autarky, the relative price of food will be

Answer: (a)

7. Under autarky, country B

Answer: (d)

8. With free trade between countries with equal incomes,

Answer: (d)

9. With free trade, country A will

Answer: (a)

10. If country B’s clothing endowment increases,

Answer: (e)

11. In free trade equilibrium,

Answer: (b)

12. The slope (in absolute value) of the budget line represents

Answer: (d)

13. Two countries produce different varieties of the same two goods, food and clothing. If there is zero

net trade in clothing, there must also be

Answer: (a)

Questions 14–15 concern the following scenario:

There are two commodities, food and clothing. In autarky an individual is a net seller of food. His country opens up to trade and the price of food drops. He remains a net seller of food.

14. He receives no compensation. How does opening up to trade change welfare in the country?

Answer: (b)

15. All net sellers of food receive enough compensation to keep them at the same level of welfare. How

Answer: (a)