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.

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

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

According to the mercantilists,a nation's welfare would improve if it maintained a surplus of exports over imports.

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

If productivity in the German computer industry grows faster than it does in the Japanese computer industry,the opportunity cost of each computer produced in Japan increases relative to the opportunity cost of a computer produced in Germany.

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

Figure 2.1. Production Possibilities Schedule -Referring to Figure 2.1,the relative cost of aluminum in terms of steel is:

With increasing opportunity costs,a nation totally specializes in the production of the commodity of its comparative advantage; with constant opportunity costs,a nation partially specializes in the production of the commodity of its comparative advantage.

Figure 2.2 illustrates trade data for Canada. The figure assumes that Canada attains international trade equilibrium at point C. Figure 2.2. Canadian Trade Possibilities -Consider Figure 2.2.With specialization,Canada produces:

Assume 1990 to be the base year.If by the end of 2004 a country's export price index rose from 100 to 130 while its import price index rose from 100 to 115,its terms of trade would equal 113.

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.

The existence of exit barriers tends to delay the closing of inefficient firms that face international competitive disadvantages.

Table 2.1. Output Possibilities of the U.S. and the U.K. -Referring to Table 2.1,the United States has the absolute advantage in the production of:

When a nation is in autarky and maximizes its living standard,its consumption and production points are:

The introduction of community indifference curves into our trading example focuses attention on the nation's:

If the international terms of trade settle at a level that is between each country's opportunity cost:

The terms of trade is given by:

If Argentina has a comparative advantage over Brazil in beef relative to coffee,Argentina will specialize in beef production.

Assume that the United States and Canada engage in trade.If the international terms of trade coincides with the U.S.cost ratio,the United States realizes all of the gains from trade with Canada.