Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

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.

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

When a nation requires fewer resources than another nation to produce a product,the nation is said to have a:

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

For the commodity terms of trade to improve,a country's export price index must rise relative to its import price index over a given time period.

The equilibrium prices and quantities established after trade are fully determinate if we know:

The domestic cost ratios of nations set the outer limits to the equilibrium terms of trade.

If productivity in the German computer industry grows faster than it does in the Japanese computer industry,the opportunity cost of each computer produced in Japan increases relative to the opportunity cost of a computer produced in Germany.

-Referring to Table 2.3,which countries' terms of trade improved between 1990 and 2004?

Assume 1990 to be the base year.If by the end of 2004 a country's export price index rose from 100 to 130 while its import price index rose from 100 to 115,its terms of trade would equal 113.

The terms of trade is given by the prices:

Given free trade,small nations tend to benefit the most from trade since they:

All of the following may be exit barriers except

The theory of reciprocal demand best applies when two countries are of equal economic size,so that the demand conditions of each nation have a noticeable impact on market prices.

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

The use of indifference curves helps us determine the point:

Referring to Table 2.1,the United States has the absolute advantage in the production of:

Unlike Adam Smith,David Ricardo's trading principle emphasizes the:

-Referring to Table 2.3,which countries' terms of trade worsened between 1990 and 2004?

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.