Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

If the U.S.post-trade consumption point lies along its production possibilities schedule,the United States achieves a higher level of welfare with trade than without trade.

Assume that labor is the only factor of production and that wages in the United States equal $20 per hour while wages in the United Kingdom equal $10 per hour.Production costs would be lower in the United States than the United Kingdom if:

There are two explanations of constant opportunity costs: (1)factors of production are imperfect substitutes for each other; (2)all units of a given factor have different qualities.

If Japan and France have identical production possibilities curves and identical community indifference curves:

The Ricardian theory of comparative advantage assumes only two nations and two products,labor can move freely within a nation,and perfect competition exists in all markets.

Who gains more from trade,when nations are of unequal economic size?

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

A terms-of-trade index that equals 150 indicates that compared to the base year:

Given a two-country and two-product world,the United States would enjoy all the attainable gains from free trade with Canada if it:

Under free trade,Sweden enjoys all of the gains from trade with Holland if Sweden:

The mercantilists contended that because one nation's gains from trade come the expense of its trading partners,not all nations could simultaneously realize gains from trade.

Refer to Table 2.1.Mutually advantageous trade will occur between the United States and the United Kingdom so long as one ton of steel trades for:

According to Figure 2.2,imports for Canada total:

A nation achieves autarky equilibrium at the point where its community indifference curve is tangent to its production possibilities schedule.

An improvement in a nation's terms of trade occurs if the prices of its exports rise relative to the prices of its imports over a given time period.

Is it possible for comparative advantage to change,thus changing the direction of trade?

Table 2.2.Output possibilities for South Korea and Japan -Refer to Table 2.2.According to the principle of absolute advantage,Japan should:

Increasing opportunity costs suggest that:

The marginal rate of transformation equals the absolute slope of a country's production possibilities schedule.

Constant opportunity costs suggest that the relative cost of producing one product in terms of the other will remain the same no matter where a nation chooses to locate on its production-possibilities schedule.