Exam 2: Foundations of Modern Trade Theory: Comparative Advantage

International trade is based on the notion that:

Adam Smith contended that gold,silver,and other precious metals constituted the wealth of a nation.

If Canada experiences constant opportunity costs,its supply schedule of steel will be:

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

The basis for trade is explained by the principle of absolute advantage according to David Ricardo and the principle of comparative advantage according to Adam Smith.

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

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

The price-specie-flow mechanism illustrated why one nation's gains from trade were accompanied by another country's losses.

By reducing the overall volume of trade,import restrictions tend to reduce a nation's gains from trade.

Given free trade,small nations tend to benefit the most from trade since they:

Incomplete specialization may be caused by

Assuming increasing cost conditions,trade between two countries would not be likely if they have:

Because the Ricardian theory of comparative advantage was based only on a nation's demand conditions,it could not fully explain the distribution of the gains from trade among trading partners.

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

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

According to the principle of absolute advantage,international trade is beneficial to the world if one nation has an absolute cost advantage in the production of one good while the other nation has an absolute cost advantage in the other good.

Under free trade,Canada would not enjoy any gains from trade with Sweden if Canada:

As a result of international trade,specialization in production tends to be:

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

The basic idea of mercantilism was that wealth consisted of the goods and services produced by a nation.