Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

The mercantilists maintained that a free-trade policy best enhances a nation's welfare.

Compared to Ricardian trade theory,modern trade theory provides a more general view of comparative advantage since it is based on all factors of production rather than just labor.

The trading-triangle concept is used to indicate a nation's:

If Canada experiences constant opportunity costs,its supply schedule of steel will be:

By reducing the overall volume of trade,import restrictions tend to reduce a nation's gains from trade.

Ricardo's theory of comparative advantage was of limited real-world validity because it was founded on the:

The trade theories of Adam Smith and David Ricardo viewed the determination of competitiveness from the demand side of the market.

Although J.S.Mill recognized that the region of mutually beneficial trade is bounded by the cost ratios of two countries,it was not until David Ricardo developed the theory of reciprocal demand that the equilibrium terms of trade could be determined.

Assume 1990 to be the base year.If by the end of 2004 a country's export price index rose from 100 to 125 while its import price index rose from 100 to 125,its terms of trade would equal 100.

Consider Figure 2.2.With specialization,Canada produces:

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.

Explain the Law of Comparative Advantage.

The theory of reciprocal demand best applies when one country has a "large" economy and the other country has a "small" economy.

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.

Discuss the pitfalls of outsourcing,especially as experienced by Boeing.

Under free trade,Canada would not enjoy any gains from trade with Sweden if Canada:

Is it possible to add up the preferences of all consumers in an entire nation?

The Ricardian model of comparative advantage is based on all of the following assumptions except:

According to Figure 2.2,exports for Canada total:

A fall in the price of imports or a rise in the price of exports will: