Exam 3: Sources of Comparative Advantage

In the absence of transportation costs, free trade results in the equalization of the prices of traded goods, as well as resource prices, in the trading nations.

The theory of overlapping demands asserts that trade in manufactured goods is stronger the less similar the demand structures of two countries.

Industrial policy seeks to direct resources to declining industries in which productivity is low, linkages to the rest of the economy are weak, and future competitiveness is remote.

According to the product life cycle theory, the last stage of a product's trade cycle is when it becomes an import-competing good.

Assume the cost of transporting autos from Japan to Canada $\underline { \text { exceeds } }$ the pretrade price difference for autos between Japan and Canada. Trade in autos is:

According to the factor endowment model, countries heavily endowed with land will:

Recent studies of U.S. resource endowments indicate that the United States is most abundant in unskilled labor, followed by semi-skilled labor and skilled labor.

The Heckscher-Ohlin theory contends that over a period of years a country that initially is an exporter of a product will become an importer of that product.

That the division of labor is limited by the size of the market best applies to which explanation of trade?

Empirical testing by Wassily Leontief gave support to the Heckscher-Ohlin theory of trade.

Europe's jumbo-jet manufacturer, Airbus, has justified receiving governmental subsidies on the grounds that the subsidies prevent the United States from becoming a monopoly in the jumbo-jet market.

For the United States, empirical studies indicate that over the past two decades the cost of international transportation relative to the value of U.S. imports has:

With economies of scale and decreasing unit costs, a country has the incentive to:

Proponents of ____ maintain that government should enact policies that encourage the development of emerging, "sunrise" industries.

Which of the following $\underline {\text { best } }$ applies to the theory of overlapping demands?

Which nation has sometimes been characterized as being a "pollution haven" due to its lenient environmental standards that encourage the production of pollution-intensive goods?

Which of the following is a $\underline { \text { long-run } }$ theory, emphasizing changes in the trading position of a nation over a number of years?

Industrial processes that add weight or bulk to a commodity are likely to be located near the resource market to minimize transportation costs.

Although the theory of comparative advantage explains trade in manufactured goods, it has no explanatory value for trade in business services.

When considering the effects of transportation costs, the conclusions of our trade model must be modified. This is because transportation costs result in: