Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

The writings of G.MacDougall emphasized which of the following as an explanation of a country's competitive position?

If two nations of approximately the same size and with similar taste patterns participate in international trade,the gains from trade tend to be shared about equally between them.

According to J.S.Mill,if we know the domestic demand expressed by both trading partners for both products,the equilibrium terms of trade can be defined.

A nation that gains from trade will find its consumption point being located:

Referring to Figure 2.1,the relative cost of aluminum in terms of steel is:

The gains from international trade increase as:

According to Ricardo,a country will have a comparative advantage in the product in which its:

Assume that Canada has a comparative advantage in wheat and a comparative disadvantage in autos.As the Canadian demand for wheat increases,Canada's equilibrium terms of trade improves.

It is possible for a nation not to have an absolute advantage in anything; but it is not possible for one nation to have a comparative advantage in everything and the other nation to have a comparative advantage in nothing.

In a two-country,two-product world,the statement "Japan enjoys a comparative advantage over France in steel relative to bicycles" is equivalent to:

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

If a country's terms of trade improve,it must exchange more exports for a given amount of imports.

The best explanation of the gains from trade that David Ricardo could provide was to describe only the outer limits within which the equilibrium terms of trade would fall.This is because Ricardo's theory did not recognize how market prices are influenced by:

Refer to Table 2.1.If trade opens up between the United States and the United Kingdom,American firms should specialize in producing:

Modern trade theory recognizes that the pattern of world trade is governed by both demand conditions and supply conditions.

Modern trade theory contends that the pattern of world trade is governed by

Figure 2.2.Canadian Trade Possibilities -Referring to Figure 2.2,Canada has a comparative advantage in:

With increasing opportunity costs,comparative advantage depends on a nation's supply conditions and demand conditions; with constant opportunity costs,comparative advantage depends only on demand conditions.

If Hong Kong and Taiwan had identical labor costs but were subject to increasing costs of production:

Referring to Figure 2.1,the relative cost of steel in terms of aluminum is: