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1.1 Production possibilities frontier and trade theory
A. Foundation Training
I. Fill in the Blanks: Fill in each blank with a suitable word. (1 mark each)
1. The production possibilities frontier (PPF) shows the locus of the of two
goods given the existing and
.
2. The slope of the PPF measures the of the good on the x-axis.
3. If there is no international trade, the is the production possibilities
frontier.
4. The slope of the PPF shows the .
5. In the two-country model, the country with a flatter PPF has a in producing
the good on the x-axis.
6. If a country with external trade specializes according to the principle of comparative
advantage, its will further expand.
II. True / False Questions: The following statements are about production possibilities frontier and trade theory. For each one of them, if it is correct, put a in the box; if it is wrong, put a in the box and explain why it is wrong on the lines provided. (2 marks each)
1. Since the marginal cost will finally rise, the PPF may not be downward sloping.
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.1
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2. An increase in resources will increase the intercept of the PPF.
3. If the PPF of a country is flatter than the trade line, then it has a comparative advantage inproducing the good on the x-axis.
4. Trade expands a country’s consumption possibilities.
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B. Reinforcement Training
I. Multiple Choice Questions (1 mark each)
1.
Referring to the diagram above, which of the following conditions may shift the production possibilities frontier from PPF1 toPPF2?(1) An increase in resources, but production technology is unchanged.(2) Advancement in the production technologies of the two goods, but the quantity of
resources is unchanged.(3) Advancement in the production technology of computers, but the quantity of
resources and production technology of mobile phones are unchanged.A. (1) onlyB. (1) and (2) onlyC. (2) and (3) onlyD. (1), (2) and (3)
2.
Referring to the diagram above, which of the following conditions may shift the production possibilities frontier from PPF1 to PPF2?(1) An increase in resources, but the production technology is unchanged.(2) Advancement in the production technologies of the two goods, but the quantity of
resources is unchanged.(3) Advancement in the production technology of mobile phones, but the quantity of
resources and production technology of computers are unchanged.A. (3) only
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.3
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B. (1) and (2) onlyC. (2) and (3) onlyD. (1), (2) and (3)
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3.
Referring to the diagram above, the production possibilities frontier of an economy shifts from PPF1 to PPF2. This implies(1) consumption possibilities have expanded.(2) the production technology has improved.(3) the quantity of resources has increased.A. (1) onlyB. (1) and (2) onlyC. (2) and (3) onlyD. (1), (2) and (3)
4.
PPFA and PPFB in the diagram above are the production possibilities frontiers of Countries A and B respectively. Which of the following are true?(1) The opportunity cost of producing cars is lower for Country A.(2) Country A has an absolute advantage in producing cars.(3) Country B has a comparative advantage in producing food.A. (1) and (2) onlyB. (1) and (3) onlyC. (2) and (3) onlyD. (1), (2) and (3)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.5
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5.
PPFA in the diagram above is the production possibilities frontier of Country A. If the terms of trade are 1X = 2Y, which of the following is incorrect?A. Country A’s consumption possibilities will expand.B. Country A will completely specialize in one good.C. Country A has a comparative advantage in producing Good X.D. The slope of PPFA is greater than that of the trade line.
6. PPFA, PPFB and PPFW in the diagram below are the production possibilities frontiers of Country A, Country B and the world respectively. If the production point is X, which of the following is correct?
A. Both countries completely specialize.B. Country A produces both goods, so does Country B.C. Country A produces both goods, but Country B completely specializes.D. Country B produces both goods, but Country A completely specializes.
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7. In the diagram below, Country A produces and consumes at point A when the production possibilities frontier is at PPFA. When it shifts to PPFB, which of the following statements about Country A is correct?
A. Country A will not consume at point B.B. Country A will not consume at point C.C. Country A may consume at point B or point C.D. The productivity of Country A has risen.
8. In the diagram below, curve PPF is the production possibilities frontier of Country A. Under autarky, point A is the point of production and consumption of Country A. After trade, curve TT is the trade line after specialization. Which of the following about Country A is correct?
A. Country A has a comparative advantage in producing Good X.B. Country A has a higher cost in producing Good X than Good Y.C. Country A will consume more Good X and Good Y.D. Based on the principle of comparative advantage, Country A should export
Good Y and import Good X.
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II. Short Questions
1. What is the production possibilities frontier? (2 marks)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.8
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III. Structured Questions
Level 11. Country A only produces and consumes Good X and Good Y. To produce 1X, a trade-off
of 2Y is needed. With no trade, Country A consumes 10X and 10Y. Suppose now Country A can trade at the terms of trade of 1X for 1Y, and after complete specialization and trade, Country A still consumes an equal amount of Good X and Good Y.(a) Draw Country A’s production possibilities frontier and trade line. Mark its
production point after trade. (4 marks)(b) Mark in the diagram in (a) the consumption point of Country A after trade, and
calculate its gains from trade. (2 marks)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.9
Good Y
Good X0
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2. Suppose there are only two goods: X and Y. Economy A has 10 units of resources, and each unit can produce 4X or 1Y.(a) Draw the production possibilities frontier of the economy. (2 marks)(b) What are the marginal costs of Good X and Good Y respectively? (2 marks)(c) With the aid of a diagram, explain how the following conditions affect the PPF of
the economy.(i) The quantity of resources increases from 10 to 15 units. (2 marks)(ii) With an advancement in the technology of Good Y, each unit of resources can
produce 2Y. (2 marks)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.10
Good Y
Good X0
Good Y
Good X0
Good Y
Good X0
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Level 23. The diagram below shows the production possibilities frontiers (PPF) of Country A and
Country B.
Answer the following questions according to the diagram above.(a) Which country has an absolute advantage in the production of Good X? Explain.
(2 marks)(b) Which country has a comparative advantage in the production of Good X? Explain.
(4 marks)(c) Draw the production possibilities frontier of the world (PPFW) in the diagram above.
(3 marks)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.11
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4. Country A has 50 units of resources and each unit can produce 1X or 4Y. Suppose Country A is a price taker in the international market, and the terms of trade are 1X = 1Y. Before and after trade, Country A consumes an equal amount of X and Y.(a) Calculate the outputs of X and Y before trade. (2 marks)(b) Calculate the quantity of X and Y consumed before trade. (2 marks)(c) After trade, which good will Country A specialize in? Explain. (2 marks)(d) Calculate the quantities of imports and exports. Explain. (2 marks)(e) Calculate the gains from trade (in terms of goods) after trade. (2 marks)(f) (i) Draw the production possibilities frontier of Country A. (2 marks)
(ii) Draw the consumption possibilities frontier of Country A after trade. (2 marks)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.12
Good Y
Good X0
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1.2 Comparative advantage and its relationship with globalization
A. Foundation Training
I. Fill in the Blanks: Fill in each blank with a suitable word. (1 mark each)
1. Economic refers to the process of which international trade and
production activities across countries or regions become more frequent.
2. We can examine economic globalization from the ,
and international economic cooperation.
3. Globalization of production activities includes , which means the
rapid shifting of the comparative advantage of a good or a component part from one
region to another along with changes in economic development.
4. For international economic cooperation, besides the active promotion of globalization by
the , the and the World Bank, regional economic
arrangements have also been set up.
5. is favourable to global economic growth, but it also brings
higher financial risks.
6. Rapid economic development leads to faster consumption of . In case of
lenient government policies in environmental conservation, pollution will worsen, which
is unfavourable to development.
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.14
Name: ( ) Class: Date:
II. True / False Questions: The following statements are about comparative advantage and its relationship with globalization. For each one of them, if it is correct, put a
in the box; if it is wrong, put a in the box and explain why it is wrong on the lines provided. (2 marks each)
1. The integration of worldwide markets affects goods markets, financial and investmentmarkets and labour market.
2. The globalization of production activities means that different countries’ specializingin producing goods that they have a comparative advantage.
3. Globalization enhances economic growth and gives more choice to consumers.
4. Globalization leads to a higher income for labour worldwide. This benefits everyone.
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.15
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B. Reinforcement Training
I. Multiple Choice Questions (1 mark each)
1. Which of the following is not an international body which promotes economic globalization?A. The World BankB. Friends of the EarthC. The World Trade OrganizationD. The International Monetary Fund
2. Which of the following are the causes of globalization?(1) The widespread use of the Internet.(2) Lower communications and transportation costs.(3) Fewer barriers on trade and capital flow in all countries.A. (1) and (2) onlyB. (1) and (3) onlyC. (2) and (3) onlyD. (1), (2) and (3)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.16
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II. Short Questions
1. (a) What is economic globalization? (2 marks)(b) What are the features of the economic globalization of the goods markets and
financial markets? Give one example for each. (4 marks)
2. (a) What is dynamic comparative advantage? (2 marks)(b) Explain the relationship between globalization and dynamic comparative advantage.
(3 marks)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.17
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3. Briefly explain how the International Monetary Fund (IMF) and the World Trade Organization (WTO) promote economic globalization. (4 marks)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.18
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III. Structured Questions
Level 11. During recent years, many multinational enterprises have expanded their businesses to
emerging markets such as China, India, Vietnam, the Middle East and Russia. Explain the effects of the above phenomenon on the following people.(a) Local firms in the emerging markets running similar businesses to the multinational
enterprises. (3 marks)(b) Consumers in the emerging markets. (3 marks)(c) Workers in the emerging markets. (3 marks)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.19
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2. During recent years, many multinational enterprises have relocated their production lines from developed countries to developing countries such as China, India, Central America and South America where costs of wages and rent are lower. Will the above phenomenon bring gain or loss to the following people? Explain.(a) Workers in developing countries. (3 marks)(b) Workers in developed countries. (4 marks)(c) Consumers in developed countries. (3 marks)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.20
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News Commentary Questions
Study the following report on anti-WTO demonstrations and answer the questions.
A01 Local news Daily News 16 December 2005
Korean farmers protest against developed countries subsidizing agricultural products
During the WTO Ministerial Conference yesterday, two groups of South Korean farmers marched separately to the US Consulate General. They protested against developed countries’ huge agricultural subsidies, which lead to the dumping of agricultural products overseas at low prices, threatening the livelihood of farmers worldwide. The protestors demanded that the European Union and the US stop subsidizing agricultural products as soon as possible. More than 100 members of local and overseas bodies onwomen’s interests also staged a demonstration. They criticized developed countries for exploiting women’s interests in the name of free trade, and the multinational enterprises for looting the resources of poor countries.
(a) What is dumping? (2 marks)(b) Developed countries dump agricultural products in poor countries. What are its effects
on the farmers and consumers of poor countries? Explain. (4 marks)(c) Based on your own knowledge, give two reasons for the opposition to economic
globalization. (6 marks)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.21
Groups of Korean farmers are angry with developed countries for greatly subsidizing agricultural products.
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Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.23
121–126 89–120 64–88
33–63 0–32
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1.1 Production possibilities frontier and trade theory
A. Foundation Training
I. Fill in the Blanks: Fill in each blank with a suitable word. (1 mark each)
1. The production possibilities frontier (PPF) shows the locus of the maximum output
combinations of two goods given the existing resources endowment and
technological level .
2. The slope of the PPF measures the opportunity cost of the good on the x-axis.
3. If there is no international trade, the consumption possibilities frontier is the
production possibilities frontier.
4. The slope of the PPF shows the comparative advantage .
5. In the two-country model, the country with a flatter PPF has a comparative advantage
in producing the good on the x-axis.
6. If a country with external trade specializes according to the principle of comparative
advantage, its consumption possibilities will further expand.
II. True / False Questions: The following statements are about production possibilities frontier and trade theory. For each one of them, if it is correct, put a in the box; if it is wrong, put a in the box and explain why it is wrong on the lines provided. (2 marks each)
1. Since the marginal cost will finally rise, the PPF may not be downward sloping.
PPF must slope downward, but since the marginal cost will finally rise, the PPF is
generally concave to the origin.
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T1
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2. An increase in resources will increase the intercept of the PPF.
An increase in resources will lead to a parallel outward shift of the PPF. / Advancement
in technology will increase the intercept of the PPF.
3. If the PPF of a country is flatter than the trade line, then it has a comparative advantage inproducing the good on the x-axis.
4. Trade expands a country’s consumption possibilities.
External trade expands a country’s consumption possibilities.
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T2
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B. Reinforcement Training
I. Multiple Choice Questions (1 mark each)
1.
Referring to the diagram above, which of the following conditions may shift the production possibilities frontier from PPF1 toPPF2?(1) An increase in resources, but production technology is unchanged.(2) Advancement in the production technologies of the two goods, but the quantity of
resources is unchanged.(3) Advancement in the production technology of computers, but the quantity of
resources and production technology of mobile phones are unchanged.A. (1) onlyB. (1) and (2) onlyC. (2) and (3) onlyD. (1), (2) and (3)
2.
Referring to the diagram above, which of the following conditions may shift the production possibilities frontier from PPF1 to PPF2?(1) An increase in resources, but the production technology is unchanged.(2) Advancement in the production technologies of the two goods, but the quantity of
resources is unchanged.(3) Advancement in the production technology of mobile phones, but the quantity of
resources and production technology of computers are unchanged.A. (3) only
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T3
B
Elective Part 2, pp.37–39, Qs.1–5, 7 and 9–10.
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B. (1) and (2) onlyC. (2) and (3) onlyD. (1), (2) and (3)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T4
A
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3.
Referring to the diagram above, the production possibilities frontier of an economy shifts from PPF1 to PPF2. This implies(1) consumption possibilities have expanded.(2) the production technology has improved.(3) the quantity of resources has increased.A. (1) onlyB. (1) and (2) onlyC. (2) and (3) onlyD. (1), (2) and (3)
4.
PPFA and PPFB in the diagram above are the production possibilities frontiers of Countries A and B respectively. Which of the following are true?(1) The opportunity cost of producing cars is lower for Country A.(2) Country A has an absolute advantage in producing cars.(3) Country B has a comparative advantage in producing food.A. (1) and (2) onlyB. (1) and (3) onlyC. (2) and (3) onlyD. (1), (2) and (3)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T5
A
B
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5.
PPFA in the diagram above is the production possibilities frontier of Country A. If the terms of trade are 1X = 2Y, which of the following is incorrect?A. Country A’s consumption possibilities will expand.B. Country A will completely specialize in one good.C. Country A has a comparative advantage in producing Good X.D. The slope of PPFA is greater than that of the trade line.
6. PPFA, PPFB and PPFW in the diagram below are the production possibilities frontiers of Country A, Country B and the world respectively. If the production point is X, which of the following is correct?
A. Both countries completely specialize.B. Country A produces both goods, so does Country B.C. Country A produces both goods, but Country B completely specializes.D. Country B produces both goods, but Country A completely specializes.
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T6
D
D
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7. In the diagram below, Country A produces and consumes at point A when the production possibilities frontier is at PPFA. When it shifts to PPFB, which of the following statements about Country A is correct?
A. Country A will not consume at point B.B. Country A will not consume at point C.C. Country A may consume at point B or point C.D. The productivity of Country A has risen.
8. In the diagram below, curve PPF is the production possibilities frontier of Country A. Under autarky, point A is the point of production and consumption of Country A. After trade, curve TT is the trade line after specialization. Which of the following about Country A is correct?
A. Country A has a comparative advantage in producing Good X.B. Country A has a higher cost in producing Good X than Good Y.C. Country A will consume more Good X and Good Y.D. Based on the principle of comparative advantage, Country A should export
Good Y and import Good X.
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T7
B
B
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II. Short Questions
1. What is the production possibilities frontier? (2 marks)
PPF shows the locus of the maximum output combination of two goods given the resources
endowment and technological level. (2)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T8
Elective Part 2, p.39, Q.1.
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III. Structured Questions
Level 11. Country A only produces and consumes Good X and Good Y. To produce 1X, a trade-off
of 2Y is needed. With no trade, Country A consumes 10X and 10Y. Suppose now Country A can trade at the terms of trade of 1X for 1Y, and after complete specialization and trade, Country A still consumes an equal amount of Good X and Good Y.(a) Draw Country A’s production possibilities frontier and trade line. Mark its
production point after trade. (4 marks)(b) Mark in the diagram in (a) the consumption point of Country A after trade, and
calculate its gains from trade. (2 marks)
(a) Diagram: production possibilities frontier (2), trade line (1),
production point after trade is point C: 30Y and 0X (1)
(b) Diagram: consumption point after trade is point B: 15Y and 15 X (1),
gains from trade: 5X and 5Y (1)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T9
Elective Part 2, pp.40–41, Qs.1–2 and 5–6.
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2. Suppose there are only two goods: X and Y. Economy A has 10 units of resources, and each unit can produce 4X or 1Y.(a) Draw the production possibilities frontier of the economy. (2 marks)(b) What are the marginal costs of Good X and Good Y respectively? (2 marks)(c) With the aid of a diagram, explain how the following conditions affect the PPF of
the economy.(i) The quantity of resources increases from 10 to 15 units. (2 marks)(ii) With an advancement in the technology of Good Y, each unit of resources can
produce 2Y. (2 marks)
(a)
(2)
(b) Marginal cost of X: 0.25 Y (1)
Marginal cost of Y: 4X (1)
(c) (i) Diagram: PPF shifts upward (1) with the slope unchanged (1)
(ii) Diagram: y-intercept increases to 20 (1), x-intercept remains constant (1)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T10
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Level 23. The diagram below shows the production possibilities frontiers (PPF) of Country A and
Country B.
Answer the following questions according to the diagram above.(a) Which country has an absolute advantage in the production of Good X? Explain.
(2 marks)(b) Which country has a comparative advantage in the production of Good X? Explain.
(4 marks)(c) Draw the production possibilities frontier of the world (PPFW) in the diagram above.
(3 marks)
(a) Insufficient information for answer. (2)
(b) Country B: The cost of 1X = 0.5Y (1)
Country A: The cost of 1X = 1Y (1)
Since Country B has a lower cost, it has a comparative advantage in Good X. (2)
(c)
(3)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T11
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4. Country A has 50 units of resources and each unit can produce 1X or 4Y. Suppose Country A is a price taker in the international market, and the terms of trade are 1X = 1Y. Before and after trade, Country A consumes an equal amount of X and Y.(a) Calculate the outputs of X and Y before trade. (2 marks)(b) Calculate the quantity of X and Y consumed before trade. (2 marks)(c) After trade, which good will Country A specialize in? Explain. (2 marks)(d) Calculate the quantities of imports and exports. Explain. (2 marks)(e) Calculate the gains from trade (in terms of goods) after trade. (2 marks)(f) (i) Draw the production possibilities frontier of Country A. (2 marks)
(ii) Draw the consumption possibilities frontier of Country A after trade. (2 marks)
(a) 40X; 40Y (2)
(b) 40X; 40Y (2)
(c) Country A’s cost of producing 1Y is 0.25X, which is lower than the terms of trade. Since
Country A has a comparative advantage in the production of Good Y, it will specialize in
Y. (2)
(d) Country A will produce 200 units of Y with all its resources, and export 100 units of
Y. (1)
In other words, Country A imports 100X and exports 100Y. (1)
(e) The consumption of both goods increases by 60 units. This is Country A’s gains from
trade. (2)
(f) Diagram: PPF (2), consumption possibilities frontier after trade (2)
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Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T13
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1.2 Comparative advantage and its relationship with globalization
A. Foundation Training
I. Fill in the Blanks: Fill in each blank with a suitable word. (1 mark each)
1. Economic globalization refers to the process of which international trade and
production activities across countries or regions become more frequent.
2. We can examine economic globalization from the integration of worldwide markets ,
globalization of production activities and international economic cooperation.
3. Globalization of production activities includes dynamic comparative advantage ,
which means the rapid shifting of the comparative advantage of a good or a component
part from one region to another along with changes in economic development.
4. For international economic cooperation, besides the active promotion of globalization by
the World Trade Organization , the International Monetary Fund and the World
Bank, regional economic arrangements have also been set up.
5. Free flow of capital across countries is favourable to global economic growth, but it
also brings higher financial risks.
6. Rapid economic development leads to faster consumption of resources . In case of
lenient government policies in environmental conservation, pollution will worsen, which
is unfavourable to sustainable development.
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T14
Name: ( ) Class: Date:
II. True / False Questions: The following statements are about comparative advantage and its relationship with globalization. For each one of them, if it is correct, put a
in the box; if it is wrong, put a in the box and explain why it is wrong on the lines provided. (2 marks each)
1. The integration of worldwide markets affects goods markets, financial and investmentmarkets and labour market.
2. The globalization of production activities means that different countries’ specializingin producing goods that they have a comparative advantage.
The globalization of production activities means that different countries’ specializing
in different parts of a good which they have a comparative advantage in the globalproduction chain.
3. Globalization enhances economic growth and gives more choice to consumers.
4. Globalization leads to a higher income for labour worldwide. This benefits everyone. Globalization leads to a higher income for labour worldwide, but it also affects income
distribution. Global income disparity may worsen.
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T15
Name: ( ) Class: Date:
B. Reinforcement Training
I. Multiple Choice Questions (1 mark each)
1. Which of the following is not an international body which promotes economic globalization?A. The World BankB. Friends of the EarthC. The World Trade OrganizationD. The International Monetary Fund
2. Which of the following are the causes of globalization?(1) The widespread use of the Internet.(2) Lower communications and transportation costs.(3) Fewer barriers on trade and capital flow in all countries.A. (1) and (2) onlyB. (1) and (3) onlyC. (2) and (3) onlyD. (1), (2) and (3)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T16
B
D
Elective Part 2, p.39, Qs. 6 and 8.
Name: ( ) Class: Date:
II. Short Questions
1. (a) What is economic globalization? (2 marks)(b) What are the features of the economic globalization of the goods markets and
financial markets? Give one example for each. (4 marks)
(a) Economic globalization is the process of which international trade and production
activities across countries or regions become more frequent. (2)
(b) Goods markets: More international trade / the establishment of free trade areas /
the cancellation of quotas / standardization of commodities / international trade
laws (Any one) (2)
Financial markets: Capital flow across countries / foreign direct investment across
countries (Any one) (2)
2. (a) What is dynamic comparative advantage? (2 marks)(b) Explain the relationship between globalization and dynamic comparative advantage.
(3 marks)
(a) Dynamic comparative advantage means the comparative advantage in a good or
component part will shift from one region to another along with changes in economic
development. (2)
(b) Globalization speeds up the shifting of comparative advantage. (1)
Developed countries relocate the production lines of mature products to developing
countries where the costs of labour and rent are lower. Therefore, people of the
developed countries turn to the development and application of more advanced
technology to develop high value-added industries. (2)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T17
Elective Part 2, pp.39–40, Qs.2–4.
Name: ( ) Class: Date:
3. Briefly explain how the International Monetary Fund (IMF) and the World Trade Organization (WTO) promote economic globalization. (4 marks)
IMF: To promote orderly exchange (1)
and stabilize the international financial markets (1)
through the promotion of international financial and monetary cooperation.
WTO: To promote free trade. (1)
For example (any of the following examples): (1)
To hold multilateral trade negotiations regularly to eliminate trade barriers and
discriminative measures. / To monitor member states’ practical implementation of
international trade agreements so as to promote international trade. / To solve
trade disputes between member states, and to impose trade sanctions against those
which have breached the trade agreements. / To help developing and undeveloped
economies integrate into the world trade system.
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T18
Name: ( ) Class: Date:
III. Structured Questions
Level 11. During recent years, many multinational enterprises have expanded their businesses to
emerging markets such as China, India, Vietnam, the Middle East and Russia. Explain the effects of the above phenomenon on the following people.(a) Local firms in the emerging markets running similar businesses to the multinational
enterprises. (3 marks)(b) Consumers in the emerging markets. (3 marks)(c) Workers in the emerging markets. (3 marks)
(a) Local firms running similar businesses to multinational enterprises will suffer
losses. (1)
It is because they face greater competition. (1)
They may even have to close down due to the loss of comparative advantage. (1)
(b) Consumers in the emerging markets will benefit. (1)
It is because the prices are lower (1)
and they have more choice. (1)
(c) Workers in emerging markets will benefit. (1)
It is because greater demand means higher wages. (2)
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T19
Elective Part 2, p.40, Qs.3–4.
Name: ( ) Class: Date:
2. During recent years, many multinational enterprises have relocated their production lines from developed countries to developing countries such as China, India, Central America and South America where costs of wages and rent are lower. Will the above phenomenon bring gain or loss to the following people? Explain.(a) Workers in developing countries. (3 marks)(b) Workers in developed countries. (4 marks)(c) Consumers in developed countries. (3 marks)
(a) Workers in developing countries will benefit. (1)
It is because greater demand means higher wages. (2)
(b) Workers in developed countries will suffer a loss. (1)
It is because they have lower wages due to lower demand. (1)
However, in the long run, the workers will also benefit if they can change to another
higher value-added occupation. (2)
(c) Consumers in developed countries will benefit. (1)
It is because prices are lower. (2)
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Name: ( ) Class: Date:
News Commentary Questions
Study the following report on anti-WTO demonstrations and answer the questions.
A01 Local news Daily News 16 December 2005
Korean farmers protest against developed countries subsidizing agricultural products
During the WTO Ministerial Conference yesterday, two groups of South Korean farmers marched separately to the US Consulate General. They protested against developed countries’ huge agricultural subsidies, which lead to the dumping of agricultural products overseas at low prices, threatening the livelihood of farmers worldwide. The protestors demanded that the European Union and the US stop subsidizing agricultural products as soon as possible. More than 100 members of local and overseas bodies onwomen’s interests also staged a demonstration. They criticized developed countries for exploiting women’s interests in the name of free trade, and the multinational enterprises for looting the resources of poor countries.
(a) What is dumping? (2 marks)(b) Developed countries dump agricultural products in poor countries. What are its effects
on the farmers and consumers of poor countries? Explain. (4 marks)(c) Based on your own knowledge, give two reasons for the opposition to economic
globalization. (6 marks)
(a) Dumping means a country exports its products at a price lower than the production
cost. (2)
(b) The demand for local agricultural products falls. Farmers of poor countries receive less
Chapter 1 Extension of Trade Theory ©Hong Kong Educational Publishing Co.T21
Groups of Korean farmers are angry with developed countries for greatly subsidizing agricultural products.
Elective Part 2, p.46.
Name: ( ) Class: Date:
income. (2)
Cheaper agricultural products benefit consumers in poor countries. (2)
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Name: ( ) Class: Date:
(c) Under economic globalization, economic restructuring is needed for some countries.
Workers of the eliminated industries lose their jobs. This may give rise to serious social
problems. (3)
Enterprises of developing countries can hardly compete with multinational enterprises.
This hinders the economic development of the developing countries and worsens the
income disparity between countries. (3)
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121–126 89–120 64–88
33–63 0–32