Given the production-possibilities-frontier/community-indifference-curve diagram below,Where P is the autarky production point, C is the free trade consumption point, P1 Represents autarky prices, and P2 represents free-trade prices, the free-trade production Point is __________ and the autarky consumption point is __________.

A) R; G B) R; P C) P; G D) G; P A) R; G B) R; P C) P; G D) G; P

Exam 6: Gains From Trade in Neoclassical Theory

(This question pertains to material in the appendix.) Explain the economist's distinction, in discussion of the compensation principle, between "potential" gains from trade and "actual" gains from trade. Why are the gains only "potential" when that word is used?

Free

(Essay)

4.9/5

(40)

Question 1

Correct Answer:

Answered by Examlex AI Copilot

The economist's distinction between "potential" gains from trade and "actual" gains from trade is based on the idea that while trade has the potential to benefit both parties involved, the actual realization of those benefits depends on various factors such as market conditions, negotiation skills, and the specific terms of the trade agreement.

When the economist refers to "potential" gains from trade, they are highlighting the theoretical benefits that could be achieved if trade were to occur under ideal conditions. These potential gains are based on the concept of comparative advantage, where each party specializes in producing the goods or services in which they have a relative efficiency, and then trades with each other to maximize overall output and consumption.

However, the gains from trade are only "potential" because they are not guaranteed to be fully realized in practice. In reality, there may be barriers to trade such as tariffs, quotas, or transportation costs that limit the extent to which the potential gains can be actualized. Additionally, there may be asymmetries in bargaining power or information between the parties involved, leading to an unequal distribution of the gains from trade.

Therefore, while the potential gains from trade provide a theoretical framework for understanding the benefits of trade, the actual gains from trade are contingent on a range of real-world factors that can impact the outcome of trade negotiations and agreements.

Given the following graph showing production-possibilities frontiers for country A and country B in a situation where both countries are on the same community indifference curve S₁ in autarky: Prior to trade, P_X/P_Y in country A is __________ P_X/P_Y in country B, and, when trade begins, country A will import good __________.

Free

(Multiple Choice)

4.8/5

(35)

Question 2

Correct Answer:

Verified

Suppose that a country's factors of production are "completely specific" to the industries In which they are located (i.e., factors in the X industry would contribute nothing to Y Output if they were employed in the Y industry and factors in the Y industry would Contribute nothing to X output if they were employed in the X industry). In addition, Suppose that the country has an autarky P_X/P_Y that is greater than the world P_X/P_Y. In this Situation, if the country is opened to international trade, it will

Free

(Multiple Choice)

4.9/5

(40)

Question 3

Correct Answer:

Verified

Suppose that the trade pattern of a country is that it exports foodstuffs and imports fancy sports equipment. Can you make a case that trade acts like a regressive tax in its impact on the distribution of real income and welfare within the country? Explain.

(Essay)

4.8/5

(31)

Question 4

If two countries with increasing opportunity costs have identical PPFs but different tastes,

(Multiple Choice)

4.9/5

(26)

Question 5

(a) Using the neoclassical production-possibilities frontier/indifference curve approach, build the case that free trade is preferable to autarky for a country. Then explain how an economist could still say that trade can be beneficial to the country even if trade causes the community indifference curve map to change such that the country appears to lose welfare on the basis of the original autarky income distribution. (b) It has often been pointed out in this course that, within a country, a movement to freer trade, while helping some people, can hurt other people. Thinking over various parts of this course, indicate two groups of people within a country who can have their well-being reduced because of the opening of the country to trade and very briefly explain why their welfare can be reduced.

(Essay)

4.8/5

(43)

Question 6

Illustrate and explain, for each statement below, why the statement is either TRUE or False. Assume a two-commodity world in each case. (a) "If a country has an absolutely fixed production pattern, i.e., resources used in each industry are completely specific to their respective industry, then this country cannot experience any welfare gain when moving from autarky to free trade." (b) "It is possible that, even if two countries have identical production- possibilities frontiers, trade between the countries can enhance the well-being of each country, in comparison with well-being under autarky."

(Essay)

4.8/5

(32)

Question 7

In the neoclassical model of trade, the movement of a country from autarky to free trade Generally results in specialization in production, the situation in the Classical model.

(Multiple Choice)

5.0/5

(37)

Question 8

In the equilibrium trading position in a two-country model of trade, why must the trade triangles of the two countries be congruent (identical)? What role does the slope of the world price line play in making the triangles congruent?

(Essay)

4.7/5

(30)

Question 9

(a) Suppose that two countries have identical increasing-opportunity-costs production-possibilities frontiers (PPFs). Illustrate and carefully explain why, under certain conditions, the two countries can have an incentive to trade with each other. In addition, illustrate and explain how they can therefore both gain from trade. (b) Suppose that two countries, in a situation where they each have an increasing-opportunity-costs production-possibilities frontier (PPF), have identical tastes and preferences (demands). Illustrate and carefully explain why, under certain conditions, the two countries can have an incentive to trade with each other. Why can they gain from trade?

(Essay)

4.8/5

(32)

Question 10

Given the following diagram showing a fixed-quantity production-possibilities frontier, a Community indifference curve, and the associated autarky price line, if this country is Opened to trade through exposure to different relative prices, the country can attain

(Multiple Choice)

4.8/5

(29)

Question 11

In the neoclassical (or modern) theory, two countries with identical production-possibilities frontiers (PPFs)

(Multiple Choice)

4.9/5

(36)

Question 12

If a country's P_X/P_Y in autarky is less than the P_X/P_Y on the world market, then this country has a comparative advantage in the good, and, if the country now engages in international trade and moves along its production-possibilities frontier, its Production of the X good will .

(Multiple Choice)

4.9/5

(24)

Question 13

Which of the following does not contribute to a basis for trade between two countries?

(Multiple Choice)

4.8/5

(41)

Question 14

Given the production-possibilities-frontier/community-indifference-curve diagram below,Where P is the autarky production point, C is the free trade consumption point, P₁ Represents autarky prices, and P₂ represents free-trade prices, the free-trade production Point is and the autarky consumption point is .

(Multiple Choice)

4.9/5

(35)

Question 15

In the diagram in Question #16 above, suppose that this country is opened to trade from This initial situation where the dashed line indicates autarky prices [(P_X/P_Y)_autarky]. With This opening to trade,

(Multiple Choice)

4.7/5

(40)

Question 16

"In a situation of increasing opportunity costs, trade can be beneficial to bothcountries if they have identical PPFs or if they have identical tastes. However, trade cannot be beneficial to either country if the countries have identical PPFs and identical tastes." Is this statement correct or incorrect? Illustrate and explain.

(Short Answer)

4.7/5

(29)

Question 17

If country A's (P_X/P_Y) in autarky is greater than the (P_X/P_Y) on the world market, then, as the country moves from autarky to trade, the relative price of good X facing A's producers will , and A's producers will hence want to shift their production toward producing .

(Multiple Choice)

4.8/5

(31)

Question 18

If a country's P_X/P_Y in autarky is less than the P_X/P_Y on the world market, then, as the Country moves from autarky to trade, the relative price of good Y will for Home consumers. Thus, consumers with a strong relative preference for good would tend to oppose the movement to trade.

(Multiple Choice)

4.8/5

(40)

Question 19

In the following graph, at point W (and ignoring the negative signs), the marginal rate of transformation (MRT) in production __________ the marginal rate of substitution (MRS) in consumption.

(Multiple Choice)

4.9/5

(36)

Question 20

Showing 1 - 20 of 28

Exam 6: Gains From Trade in Neoclassical Theory

(This question pertains to material in the appendix.) Explain the economist's distinction, in discussion of the compensation principle, between "potential" gains from trade and "actual" gains from trade. Why are the gains only "potential" when that word is used?

Suppose that the trade pattern of a country is that it exports foodstuffs and imports fancy sports equipment. Can you make a case that trade acts like a regressive tax in its impact on the distribution of real income and welfare within the country? Explain.

If two countries with increasing opportunity costs have identical PPFs but different tastes,

In the neoclassical model of trade, the movement of a country from autarky to free trade Generally results in __________ specialization in production, __________ the situation in the Classical model.

In the equilibrium trading position in a two-country model of trade, why must the trade triangles of the two countries be congruent (identical)? What role does the slope of the world price line play in making the triangles congruent?

Given the following diagram showing a fixed-quantity production-possibilities frontier, a Community indifference curve, and the associated autarky price line, if this country is Opened to trade through exposure to different relative prices, the country can attain

In the neoclassical (or modern) theory, two countries with identical production-possibilities frontiers (PPFs)

Which of the following does not contribute to a basis for trade between two countries?

In the diagram in Question #16 above, suppose that this country is opened to trade from This initial situation where the dashed line indicates autarky prices [(PX/PY)autarky]. With This opening to trade,

If country A's (PX/PY) in autarky is greater than the (PX/PY) on the world market, then, as the country moves from autarky to trade, the relative price of good X facing A's producers will __________, and A's producers will hence want to shift their production toward producing __________.

In the following graph, at point W (and ignoring the negative signs), the marginal rate of transformation (MRT) in production __________ the marginal rate of substitution (MRS) in consumption.

Early Trade Theories: Mercantilism and the Transition to the Classical World of David Ricardo

The Classical World of David Ricardo and Comparative Advantage

Extensions and Tests of the Classical Model of Trade

Introduction to Neoclassical Trade Theory: Tools to Be Employed

Offer Curves and the Terms of Trade

The Basis for Trade: Factor Endowments and the Heckscher-Ohlin Model

Empirical Tests of the Factor Endowments Approach

Post Heckscher-Ohlin Theories of Trade and Intra-Industry Trade

Economic Growth and International Trade

International Factor Movements

The Instruments of Trade Policy

The Impact of Trade Policies

Arguments for Interventionist Trade Policies

Political Economy and Us Trade Policy

Economic Integration

International Trade and the Developing Countries

The Balance-Of-Payments Accounts

The Foreign Exchange Market

International Financial Markets and Instruments: an Introduction

The Monetary and Portfolio Balance Approaches to External Balance

Price Adjustments and Balance-Of-Payments Disequilibrium

National Income and the Current Account

Economic Policy in the Open Economy Under Fixed Exchange Rates

Economic Policy in the Open Economy Under Flexible Exchange Rates

Prices and Output in the Open Economy: Aggregate Supply and Demand

Fixed or Flexible Exchange Rates

The International Monetary System: Past, Present, and Future

Filters

In the neoclassical model of trade, the movement of a country from autarky to free trade Generally results in specialization in production, the situation in the Classical model.

In the diagram in Question #16 above, suppose that this country is opened to trade from This initial situation where the dashed line indicates autarky prices [(P_X/P_Y)_autarky]. With This opening to trade,

If country A's (P_X/P_Y) in autarky is greater than the (P_X/P_Y) on the world market, then, as the country moves from autarky to trade, the relative price of good X facing A's producers will , and A's producers will hence want to shift their production toward producing .