Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

A term-of-trade index that equals 90 indicates that compared to the base year:

Table 2.2. Output possibilities for South Korea and Japan $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Output per Worker per day }$ Caunty Tons of Steel VCR.s South Korea 80 40 Japan 20 20 -Refer to Table 2.2. With international trade, what would be the maximum number of VCRs that Japan would be willing to export to South Korea in exchange for each ton of steel?

Incomplete specialization may be caused by

Complete specialization usually occurs under the assumption of increasing opportunity costs.

A nation realizes maximum gains from trade at the point where the international terms-of-trade line is tangent to its community indifference curve.

Concerning possible determinants of international trade, which are sources of comparative advantage? Differences in:

If the international terms of trade settle at a level that is between each country's opportunity cost:

A terms-of-trade index that equals 150 indicates that compared to the base year:

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 -According to Figure 2.2, $\underline { \text { imports } }$ for Canada total:

Figure 2.1. Production Possibilities Schedule -Refer to Figure 2.1. If the relative cost of aluminum were to rise, then the production possibilities schedule would:

Do national security concerns lead to incomplete specialization?

The gains from international trade $\underline { \text { increase } }$ as:

Ricardo's theory of comparative advantage was of limited relevance to the real world since it assumed that labor was only one of several factors of production.

With constant opportunity costs, a nation will achieve the greatest possible gains from trade if it partially specializes in the production of the commodity of its comparative disadvantage.

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

The principle of comparative advantage contends that a nation should specialize in and export the good in which its absolute advantage is smallest or its absolute disadvantage is greatest.

Table 2.2. Output possibilities for South Korea and Japan $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Output per Worker per day }$ Caunty Tons of Steel VCR.s South Korea 80 40 Japan 20 20 -Refer to Table 2.2. According to the principle of comparative advantage:

Figure 2.1. Production Possibilities Schedule -Refer to Figure 2.1. If the relative cost of steel were to rise, then the production possibilities schedule would:

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.

The terms of trade is given by the prices: