Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

Figure 2.1. Production Possibilities Schedule -Refer to Figure 2.1.If the relative cost of steel were to rise,then the production possibilities schedule would:

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.

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

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

A nation benefits from international trade if it can achieve a higher indifference curve than it can in autarky.

Because the Ricardian theory of comparative advantage was based only on a nation's supply conditions,it could only determine the outer limits within which the equilibrium terms of trade would lie.

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

Table 2.2. Output possibilities for South Korea and Japan -Refer to Table 2.2.With international trade,what would be the maximum number of VCRs that Japan would be willing to export to South Korea in exchange for each ton of steel?

The mercantilists would have objected to:

Assume that the United States is more efficient than the United Kingdom in the production of all goods.Mutually beneficial trade is possible according to the principle of absolute advantage,but is impossible according to the principle of comparative advantage.

Is it possible to estimate the gains from 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:

With trade,a country will maximize its satisfaction when it:

All of the following may be exit barriers except

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.

The principle of absolute advantage asserts that mutually beneficial trade can occur even if one nation is absolutely more efficient in the production of all goods.

Table 2.2. Output possibilities for South Korea and Japan -Referring to Table 2.2,the opportunity cost of one VCR in Japan is:

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

If Canada has a higher wage level and higher labor productivity than Mexico,Canada will necessarily produce a good at a higher labor cost than Mexico.

Unlike the mercantilists,Adam Smith maintained that: