Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

In the absence of trade,a nation is in equilibrium where a community indifference curve:

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

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.

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

Concerning possible determinants of international trade,which are sources of comparative advantage? Differences in:

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

The price-specie-flow mechanism illustrated why nations could not maintain trade surpluses or trade deficits over the long run.

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.

A term-of-trade index that equals 90 indicates that compared to the base year:

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.

Table 2.3. Terms of Trade -Referring to Table 2.3,which country's terms of trade did not change between 1990 and 2004?

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

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

When nations are of similar size,and have similar taste patterns,the gains from trade

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

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.

Adam Smith

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

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.

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