Exam 2: Foundations of Modern Trade Theory Comparative Advantage

Which question is a concern of modern trade theory?

Unlike the mercantilists, Adam Smith maintained that

Trade increases the amount of goods that are available for each country to

Figure 2.2. Canadian Trade Possibilities ​ ​ -According to Figure 2.2, exports for Canada total

The so-called ______ shows the amount of one product that a nation must sacrifice in order to obtain one more unit of the second product.

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

The basic idea of mercantilism was that wealth consisted of the goods and services produced by a nation.

When testing the Ricardian theory of comparative advantage in 1951, MacDougall found that nations tend to export goods in which their labor productivity is relatively high.

Suppose that a country's post-trade consumption point lies outside of its production possibilities frontier.As a result, the country

The Ricardian theory of comparative advantage assumes only two nations and two products, that labor can move freely within a nation, and that perfect competition exists in all markets.

Which of the following statements is FALSE?

When a nation achieves autarky equilibrium,

The mercantilists contended that because one nation's gains from trade come from the expense of its trading partners, not all nations could simultaneously realize gains from trade.

John Stuart Mill's theory of reciprocal demand best applies when trading partners

The terms of trade represents the rate of exchange between a country's exports and imports.

Is it possible for comparative advantage to change, thus changing the direction of trade?

In the absence of trade, a nation is in equilibrium where a community indifference curve

Improvements in productivity may lead to decreasing comparative costs if

Although J.S.Mill recognized that the region of mutually beneficial trade is bounded by the cost ratios of two countries, it was not until David Ricardo developed the theory of reciprocal demand that the equilibrium terms of trade could be determined.

Because the Ricardian trade theory recognized only how supply conditions influence international prices, it could determine