Exam 2: Foundations of Modern Trade Theory Comparative Advantage

With increasing opportunity costs, a nation totally specializes in the production of the commodity of its comparative advantage; with constant opportunity costs, a nation partially specializes in the production of the commodity of its comparative advantage.

Ricardo's theory of comparative advantage was of limited relevance to the real world since it assumed that labor was only one of several factors of production.

For the United States, outsourcing tends to result from

Figure 2.2. Canadian Trade Possibilities ​ ​ -Consider Figure 2.2.With trade, Canada consumes

Concerning possible determinants of international trade, which are sources of comparative advantage?

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

The marginal rate of transformation equals the absolute slope of a country's production possibilities frontier.

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, one ton of wheat can be produced at a cost of

"The equilibrium relative commodity price at which trade takes place is determined by the conditions of demand and supply for each commodity in both nations.Other things being equal, the nation with the more intense demand for the other nation's exported good will gain less from trade than the nation with the less intense demand." This statement was first proposed by

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 wheat into autos is

International economists use the production possibilities frontier to help explain

According to the trade model of David Ricardo, the direction of trade is determined by absolute advantage.

The efficiency gains that _______ provide(s) for economies are not a one-time occurrence but an ongoing process that fosters long-run economic growth.

Assume that the United States and Canada engage in trade.If the international terms of trade coincides with the Canadian cost ratio, the United States realizes all of the gains from trade with Canada.

The introduction of community indifference curves into our trading example focuses attention on the nation's

The principle of comparative advantage contends that a nation should specialize in and export the good in which its absolute advantage is smallest or its absolute disadvantage is greatest.

The terms of trade is given by the prices

Ricardo's model of comparative advantage assumed all of the following EXCEPT

MacDougall's empirical study of comparative advantage was based on the notion that a product's labor cost is underlaid by labor productivity and the wage rate.

According to the principle of comparative advantage, specialization and trade increase a nation's total output since