Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

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

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.

Figure 2.4 Production Possibilities Frontier -In Figure 2.4 one ton of wheat can be produced at a cost of

Critics maintain that outsourcing by American businesses results in jobs moving to low-wage countries,to the disadvantage of American workers.

The theory of reciprocal demand best applies when two countries are of equal economic size,so that the demand conditions of each nation have a noticeable impact on market prices.

When a nation achieves autarky equilibrium:

Answer questions 205 and 206 using the information in the following table Output per labor hour (tons) Steel Aluminum Germany 30 80 Brazil 20 40 -Germany has the absolute advantage in producing both steel and aluminum.

Which theory attempted to explain why a favorable balance of trade could only exist in the short run,since it would automatically be eliminated in the long run?

According to Adam Smith,international trade was a "win-win" situation since all nations could enjoy gains from trade.

Both Adam Smith and David Ricardo

With trade,a country will maximize its satisfaction when it:

If an economy is characterized by increasing opportunity costs,increasing the production of steel by constant amounts results in a constant rate of decrease in the production of autos.

Assume that Germany has higher labor productivity and higher wage levels than France.Germany can produce a commodity more cheaply than France if its productivity differential more than offsets its wage differential.

A nation achieves autarky equilibrium at the point where its community indifference curve is tangent to its production possibilities schedule.

Figure 2.2 illustrates trade data for Canada.The figure assumes that Canada attains international trade equilibrium at point C. Figure 2.2.Canadian Trade Possibilities -According to Figure 2.2,exports for Canada total:

Figure 2.2 illustrates trade data for Canada.The figure assumes that Canada attains international trade equilibrium at point C. Figure 2.2.Canadian Trade Possibilities -Consider Figure 2.2.With specialization,Canada produces:

Modern trade theory contends that the pattern of world trade is governed by

If the international terms of trade lies beneath (inside) the Mexican cost ratio,Mexico is worse off with trade than without trade.

Today,about ______ percent of a typical Ford vehicle comes from parts,components,and services purchased from external suppliers,many of which are outside of the United States.

According to Adam Smith,mutually beneficial trade requires each nation to be the least-cost producer of at least one good that it can export to its trading partner.