Describe the gravity model of international trade.
What will be an ideal response?
POSSIBLE RESPONSE: The gravity model of international trade suggests that trade flows between two countries will be larger as the economic sizes of the two countries are larger, the geographic distance between them is smaller, and other impediments to trade are smaller. Economic size is measured by a country's gross domestic product (GDP), which represents both its production capability and the income that is generated by its production. Geographical distance drives the costs and risks of transporting goods between countries. The greater the distance between countries, the greater the costs and risks associated with transporting goods. Impediments to trade include restrictive government trade policies, lack of a common language, lack of a common currency, a lack of trading history between the countries, an absence of preferential trade agreements, and government corruption in one or both countries.
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You have a bond that pays $18 per year in coupon payments. Which of the following would result in a decrease in the price of your bond?
A) The likelihood that the firm issuing your bond will default on debt decreases. B) Coupon payments on newly-issued bonds rise to $22 per year. C) The price of a share of stock in the company rises. D) Coupon payments on newly-issued bonds fall to $15 per year.
Suppose the United States can produce either 1 ton of potato or 0.5 tons of wheat per worker per year, while Ireland can produce either 3 tons of potatoes or 2 tons of wheat per worker per year. There can be mutual gains from trade if: a. the United States specializes in potatoes because of its comparative advantage in producing potatoes
b. the United States specializes in wheat production because of its absolute advantage in producing wheat. c. the United States specializes in wheat production because of its comparative advantage in producing wheat. d. the United States specializes in potatoes because of its absolute advantage in producing potatoes.
An increase in supply is caused by:
A) an increase in resource prices. B) suppliers' expectations of higher prices in the future. C) an increase in the price of a good using the same resources. D) a decrease in the price of a good using the same resources.
Suppose all workers are identical but working for Ajax is more pleasant than working for Acme. In all other nonwage aspects, the two firms offer the same job characteristics. We would expect:
A. wage rates at Ajax to be higher than at Acme. B. wage rates at Ajax to be lower than at Acme. C. wage rates at Ajax and Acme to be the same. D. workers at Ajax would have to be monitored more closely than those at Acme.