Exam 4: Trade: Factor Availability and Factor Proportions Are Key

Increasing-cost production-possibility curves are bowed out from the origin.

In the figure given below AB is the production-possibility curve of Canada. In the absence of trade, the price ratio is 1 bushel of wheat/bale of cotton as shown by the line PQ. The international price ratio is 0.25 bushels of wheat/bale of cotton as shown by the line RS. I₁ and I₂ are the pre-trade and the post trade community indifference curves of Canada respectively. In the absence of trade Canada will:

The figure given below shows the production-possibility curves of Canada (AB) and the Rest of the World (CD). The pre-trade price ratio in Canada and the Rest of the World are given by the lines P₁ and P₃ respectively. The international price ratio faced by the countries is represented by the line P₂. I?₁ and I₂ are the pre-trade and post-trade social indifference curves for both Canada and the Rest of the World respectively. Before Canada entered into a trade with the rest of the world, the total amount of cotton produced in the world was _____ bales and the total amount of wheat produced in the world was _____ bushels.

In international trade jargon, constant cost production-possibility curves are associated with _____ specialization while increasing cost production-possibility curves are associated with _____ specialization.

Which of the following statements is true about production-possibility curves?

China has 20% of the world's population but only 10% of the world's farmable land. Which of the following will be predicted by the Heckscher-Ohlin theory, if China begins to trade with other countries?

Assume that country X produces two goods-sugar and shoes-and that the country's production possibility curve is "bowed-out." As the country produces more sugar the opportunity cost of sugar in terms of shoes foregone will:

The figure given below shows the post-trade production and consumption points in country Y. AB is the production-possibility curve of country Y. I₁ is the community indifference curve of country Y. Here country Y's production-possibility curve indicates that it faces _____ marginal costs of production.