Exam 3: Sources of Comparative Advantage

Ricardo's theory of comparative advantage is a static theory that does not consider changes in international competitiveness over the long run.

Empirical studies conclude that U.S. environmental policies are a more important determinant of trade performance than capital, raw materials, labor skills, and wages.

Among the determinants underlying a country's international competitiveness in business services (e.g., construction) are:

When transportation costs are added to our trade model, the degree of specialization in production between two countries increases as do the gains from trade.

The Leontief paradox:

The Leontief Paradox was the first major challenge to the product-life-cycle theory of trade.

Owners of resources specific to export industries tend to lose from international trade, while owners of factors specific to import-competing industries tend to gain.

Figure 3.1 China - US Trade Possibilities -Considering Figure 3.1 which of the following would be true?

Hong Kong is relatively abundant in labor, while Canada is relatively abundant in capital. In both countries the production of shirts is relatively more labor intensive than the production of computers. According to the factor endowment theory, Hong Kong will have a(n):

A larger variety of products results from international trade especially if:

Generally speaking, transportation costs are more important than production costs as a source of comparative advantage.

The product-life-cycle model contends that when a new product is introduced to the home market, it generally requires low-skilled labor to produce it.

According to the specific factors trade theory:

According to Ricardian theory, comparative advantage depends on relative differences in labor productivity.

Concerning the influence that transportation costs have on the location of industry, which of the following industries has generally attempted to locate production facilities $\underline { \text { close } }$ to resource supplies?

According to the product-life-cycle theory, the first stage of a product's trade cycle is when it is introduced to the home market.

Which of the following suggests that a nation will export the commodity in the production of which a great deal of its relatively abundant and cheap factor is used?

The factor-endowment theory highlights the relative abundance of a nation's resources as the key factor underlying comparative advantage.

If Japanese workers receive $\underline { \text { lower } }$ wages in the production of autos than do American workers:

According to the factor-price-equalization theory, international trade results in the relative differences in resource prices between nations being eliminated.