Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

The commodity terms of trade are found by dividing a country's import price index by its export price index.

The earliest statement of the principle of comparative advantage is associated with:

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.

The existence of exit barriers tends to delay the closing of inefficient firms that face international competitive disadvantages.

Increasing opportunity costs suggest that:

Will it be impossible to keep low-skilled jobs in the U.S.?

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 -Referring to Table 2.2, the opportunity cost of one VCR in Japan is:

The basis for trade is explained by the principle of absolute advantage according to David Ricardo and the principle of comparative advantage according to Adam Smith.

Because the Ricardian trade theory recognized only how supply conditions influence international prices, it could determine:

MacDougall's empirical study of comparative advantage was based on the notion that a product's labor cost is underlaid by labor productivity and the wage rate.