Exam 2: Foundations of Modern Trade Theory Comparative Advantage

The mercantilists maintained that a free-trade policy best enhances a nation's welfare.

Constant opportunity costs suggest that the relative cost of producing one product in terms of the other will remain the same no matter where a nation chooses to locate on its production-possibilities frontier.

If Spain's weather is better for growing wine grapes than Denmark's, it can be said that Spain has a(n)

The terms of trade is given by

According to J.S.Mill, if we know the domestic demand expressed by both trading partners for both products, the equilibrium terms of trade can be defined.

If the international terms of trade settles at a level that is between each country's opportunity cost,

Assume that the United States is more efficient than the United Kingdom in the production of all goods.Mutually beneficial trade is possible according to the principle of absolute advantage, but is impossible according to the principle of comparative advantage.

If Canada experiences constant opportunity costs, its supply schedule of steel will be

Critics maintain that outsourcing by American businesses results in jobs moving to low-wage countries, to the disadvantage of American workers.

The Ricardian model of comparative advantage includes all of the following assumptions EXCEPT

Is it possible to add up the preferences of all consumers in an entire nation?

International trade leads to increased welfare if a nation can achieve a post-trade consumption point lying inside of its production-possibilities frontier.

The earliest theorist to discuss the principle of comparative advantage was

In Adam Smith's trade theory, ______ is the only factor of production and is of one quality (homogeneous).

If a country's terms of trade worsens, it must exchange fewer exports for a given amount of imports.

Because the Ricardian theory of comparative advantage was based only on a nation's supply conditions, it could only determine the outer limits within which the equilibrium terms of trade would lie.

Figure 2.1. Production Possibilities Frontier -Refer to Figure 2.1.If the relative cost of steel were to rise, then the production possibilities frontier would

The example of Rubbermaid in Wooster, Ohio shows us that

David Ricardo's simplified trade model is based on all of these assumptions EXCEPT

With increasing opportunity costs, comparative advantage depends on a nation's supply conditions and demand conditions; with constant opportunity costs, comparative advantage depends only on demand conditions.