Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

Which of the following trade theories asserts that within the outer limits of the terms of trade,the actual terms of trade is determined by the relative strength of each country's demand for the other country's product?

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

A country with high wages can export to a country with low wages,given sufficiently high labor productivity in the exporting country.

As international trade proceeds,a country will produce more of its import- competing product.

Under free trade,Sweden enjoys all of the gains from trade with Holland if Sweden:

If Canada produces computers at a lower relative cost than Germany,Canada is said to have a comparative disadvantage in computers.

The theory of reciprocal demand best applies when one country has a "large" economy and the other country has a "small" economy.

According to Ricardo,a country will have a comparative advantage in the product in which its:

The Ricardian model of comparative advantage is based on all of the following assumptions except:

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.

Ricardo's theory of comparative advantage does not take into account demand conditions when determining relative commodity prices.

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

The principle of absolute advantage asserts that mutually beneficial trade can occur even if one nation is absolutely more efficient in the production of all goods.

Improvements in productivity may lead to decreasing comparative costs if

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

The theory of reciprocal demand does not well apply when one country:

Adam Smith

If a production possibilities curve is bowed out (i.e.,concave) in appearance,production occurs under conditions of:

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

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