Exam 2: Foundations of Modern Trade Theory Comparative Advantage

Assume that a mid-sized company is launching an online store.It has to transform

Unlike Adam Smith, David Ricardo's trading principle emphasizes the

Figure 2.2. Canadian Trade Possibilities ​ ​ -Consider Figure 2.2.In the absence of trade, Canada would produce and consume

The United States has an absolute disadvantage to Spain on wine production.According to David Ricardo, specialization can be more efficient only in the following circumstances:

If productivity in the German computer industry grows faster than it does in the Japanese computer industry, the opportunity cost of each computer produced in Japan increases relative to the opportunity cost of a computer produced in Germany.

According to the mercantilists, a nation's welfare would improve if it maintained a surplus of exports over imports.

When nations are of similar size and have similar taste patterns, the gains from trade

The best explanation of the gains from trade that David Ricardo could provide was to describe only the outer limits within which the equilibrium terms of trade would fall.This is because Ricardo's theory did NOT recognize how market prices are influenced by

There are two explanations of constant opportunity costs: (1) factors of production are imperfect substitutes for each other; (2) all units of a given factor have different qualities.

If a production possibilities frontier appears as a downward sloping straight line, which of the following occurs?

For the commodity terms of trade to improve, a country's import price index must rise relative to its export price index over a given time period.

Autarky is defined as

Ricardo's theory of comparative advantage was of limited real-world validity because it was founded on the

In autarky equilibrium, a nation realizes the lowest possible level of satisfaction given the constraint of its production possibilities frontier.

According to the principle of absolute advantage, international trade is beneficial to the world if one nation has an absolute cost advantage in the production of one good while the other nation has an absolute cost advantage in the other good.

The equilibrium prices and quantities established after trade are fully determinate if we know

If the U.S.post-trade consumption point lies along its production possibilities frontier, the United States achieves a higher level of welfare with trade than without trade.

International trade is based on the notion that

The trade theories of Adam Smith and David Ricardo viewed the determination of competitiveness from the demand side of the market.

Advocates of outsourcing by American firms maintain that its advantages consist of