Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

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

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 comparative advantage in producing steel.

With increasing opportunity costs,a nation totally specializes in the production of the commodity of its comparative advantage; with constant opportunity costs,a nation partially specializes in the production of the commodity of its comparative advantage.

Constant opportunity costs suggest that the relative cost of producing one product in terms of the other will remain the same no matter where a nation chooses to locate on its production-possibilities schedule.

If Hong Kong and Taiwan had identical labor costs but were subject to increasing costs of production:

Modern trade theory concerns the following questions

The MacDougall study of comparative advantage hypothesized that in those industries in which U.S.labor productivity was relatively high,U.S.exports to the world should be lower than U.K.exports to the world,after adjusting for wage differentials.

In defending its strategy of production outsourcing,Apple Inc.notes that

Discuss the pitfalls of outsourcing,especially as experienced by Boeing.

Suppose that a country's post-trade consumption point lies inside of its production possibilities curve.This means that the country

International trade tend to be complete,rather than partial,when there occurs

Southwestern Airlines justifies its outsourcing of some of its telephone reservation work to people in India on the grounds that outsourcing

Although Apple Inc.employees some 40,000 workers in the United States,it licenses most of the production of its Ipads and Ipods to Foxconn Technology Group,a company located in

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

With increasing opportunity costs,comparative advantage depends on a nation's supply conditions and demand conditions; with constant opportunity costs,comparative advantage depends only on demand conditions.

Assuming increasing cost conditions,trade between two countries would not be likely if they have:

According to the trade model of David Ricardo,the direction of trade is determined by absolute advantage.

Table 2.2.Output possibilities for South Korea and Japan -Refer to Table 2.2.According to the principle of absolute advantage,Japan should:

Assume 1990 to be the base year.If by the end of 2004 a country's export price index rose from 100 to 140 while its import price index rose from 100 to 160,its terms of trade would equal 120.

Unlike the mercantilists,Adam Smith maintained that: