Question

characteristic that tends to affect the probability of trade existing 6) According to the gravity model, a characteri between any two countries is A) their cultural affinity. B) the average weight/value of their traded goods. C) their colonial-historical ties. D) the distance between them. E) the number of different product varieties produ of different product varieties produced by their industries. 7) Why does the gravity model work? A) Large economies became large because they wer B) Large economies have relatively large incomes, a ecame large because they were engaged in international trade. trade and investment. elatively large incomes, and hence spend more on government promotion of C) Large economies have relatively larger areas, wh s have relatively larger areas, which raises the probability that a productive activity will take place within the borders of that country D) Large economies tend to have large incomes and tend to spend more on imports. E) Large economies tend to avoid trading with small economies. 8) The two neighbors of the United States do a lot more trade with the United States than a economies of equal size. A) This contradicts predictions from gravity models. B) This is consistent with predictions from gravity models. C) This is irrelevant to any inferences that may be drawn from gravity models. D) This is because these neighboring countries have exceptionally large GDP's. E) This relates to Belgium's trade record with the U.S. 9) A country engaging in trade according to the principles of comparative advantage gains from trade because it A) is producing exports indirectly more efficiently than it could alternatively. B) is producing imports indirectly more efficiently than it could domestically. C) is producing exports using fewer labor units. D) is producing imports indirectly using fewer labor units. E) is producing exports while outsourcing services. 10) In the Ricardian model, comparative advantage is likely to be due to A) scale economies. B) home product taste bias. C) greater capital availability per worker. D) labor productivity differences. E) political pressure.

Answer 1

Answer 6. D. The distance between them

Reason- Gravity model tells us that the bilateral trade between two countries depend on the size of the economy and the distance between them.

Answer 7. D. Large economies tend to have large incomes and tend to spend more on imports.

Reason-When income rises, demand for goods and services rises, ao import demand also rises.

Answer 8. This is consistent with predictions from the gravity model.

Reason- Europe is farther away than United States , so trade is more with United States.

Answer 9. B) is producing imports indirectly more efficiently than it could domestically.

Reason- When a country imports it can consume more than what it can produce domestically.

Answer 10. D. Labor productivity differences

Reason- Higher labor productivity will lead to comparative advantage.