Exam 2: Foundations of Modern Trade Theory Comparative Advantage

Assume 1990 to be the base year.If by the end of 2004 a country's export price index rose from 100 to 125 while its import price index rose from 100 to 125, its terms of trade would equal 100.

According to the principle of comparative advantage, an open trading system results in resources being channeled from uses of low productivity to those of high productivity.

In defending its strategy of production outsourcing, Apple Inc.notes that

The gains from international trade increase as

According to your text, international trade has little impact on jobs because

With trade, a country will maximize its satisfaction when it

Mercantilism refers to a system of restraints on imports and the promotion of exports, as used by governments in the 1600s and 1700s.

Is it possible to estimate the gains from trade?

Complete specialization usually occurs under the assumption of increasing-opportunity costs.

The British economist G.MacDougall compared the labor productivity ratios and export ratios for the United Kingdom and the United States in order to test

It is possible for a nation not to have an absolute advantage in anything, but it is not possible for one nation to have a comparative advantage in everything and the other nation to have a comparative advantage in nothing.

Outsourcing (offshoring)

Given free trade, small nations tend to benefit the most from trade since they

Which American companies are participating in international trade as never before?

How does Southwest Airlines justify its outsourcing of some of its telephone reservation work to people in India?

Figure 2.2. Canadian Trade Possibilities ​ ​ -Consider Figure 2.2.With specialization, Canada produces

Compared to Ricardian trade theory, modern trade theory provides a more general view of comparative advantage since it is based on all factors of production rather than just labor.

Exhibit 15.1 At the Plaza Accord of 1985, the Group-of-Five nations agreed to drive the value of the dollar downward (i.e., depreciation) so as to help reduce the U.S. trade deficit. Answer the following question(s) on the basis of this information. -In Figure 2.3, the marginal rate of transformation of autos into wheat is

Germany has the comparative advantage in producing steel.

Assume 1990 to be the base year.If by the end of 2004 a country's export price index rose from 100 to 140 while its import price index rose from 100 to 160, its terms of trade would equal 120.