1. Assume a specific factors economy produces two goods, cloth and food, and that when representing the output of this economy graphically, cloth is on the x-axis and food is on the y-axis.

When the price of cloth increases by 10% and the price of food does not change,

A) the outputs of the two goods does not change

B) the wage rate rise by more than the increase in the price of cloth

C) labor shifts from cloth sector to the food sector.

D) the output of cloth rises

2) When opening up to trade, an economy

a) exports the good whose relative price has increased and imports the good whose relative price has decreased

b) exports and imports the good whose relative price has decreased

c) exports the good whose relative price has decreased and imports the good whose relative price has increased

d) exports and imports the good whose relative price has increased

3) Movement of labor from a Foreign country to the domestic (Home) economy

a) increases the marginal product of labor at Home

b) increases the marginal product of labor in Foreign

c) leaves the marginal product of land unchanged in both countries

d) occurs only if the marginal product of labor is higher in Foreign than at Home

4) Trade hurts

a) the factor that is specific to the export sector of each country

b) all factors in the economy

c) the factor that is specific to the import-competing sectors.

d) mobile factors