Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

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.

According to the principle of comparative advantage, an open trading system results in resources being channeled from uses of low productivity to those of high productivity.

Is it possible to add up the preferences of all consumers in an entire nation?

Under free trade, Canada would $\underline {\text { not } }$ enjoy any gains from trade with Sweden if Canada:

According to the principle of comparative advantage, specialization and trade increase a nation's total output since:

If Argentina has a comparative advantage over Brazil in beef relative to coffee, Argentina will specialize in beef production.

Concerning international trade restrictions, which of the following is $\underline { \text { false } }$ ? Trade restrictions:

In a two-product, two-country world, international trade can lead to increases in:

The expression "importance of being unimportant" suggests that if one nation is much larger than the other, the larger nation realizes most of the gains from trade while the smaller nation realizes fewer gains from trade.

Table 2.3. Terms of Trade Export Price Index Import Price Index Country 1990 2004 1990 2004 Mexico 100 220 100 200 Sweden 100 160 100 150 Spain 100 155 100 155 France 100 170 100 230 Denmark 100 120 100 125 -Referring to Table 2.3, which country's terms of trade did $\underline { \text { not change } }$ between 1990 and 2004?

The dynamic gains from trade include all of the following $\underline { \text { except } }$ :

Figure 2.2 illustrates trade data for Canada. The figure assumes that Canada attains international trade equilibrium at point $\underline { C . }$ Figure 2.2. Canadian Trade Possibilities -Referring to Figure 2.2, Canada has a comparative advantage in:

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.

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

The terms of trade represents the rate of exchange between a country's exports and imports.

It is possible for a nation not to have an absolute advantage in anything; but it is not possible for one nation to have a comparative advantage in everything and the other nation to have a comparative advantage in nothing.

International trade leads to increased welfare if a nation can achieve a post-trade consumption point lying inside of its production-possibilities schedule.

Ricardo's model of comparative advantage assumed all of the following except:

By reducing the overall volume of trade, import restrictions tend to reduce a nation's gains from trade.

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