Exam 3: Sources of Comparative Advantage

Assume that Country A,in the absence of trade,finds itself relatively abundant in labor and relatively scarce in land.The factor endowment theory reasons that with free trade,the internal distribution of national income in Country A will change in favor of:

Empirical testing by Wassily Leontief gave support to the Heckscher-Ohlin theory of trade.

Generally speaking,transportation costs are more important than production costs as a source of comparative advantage.

When considering the effects of transportation costs,the conclusions of our trade model must be modified.This is because transportation costs result in:

That the division of labor is limited by the size of the market best applies to which explanation of trade?

Which of the following suggests that a nation will export the commodity in the production of which a great deal of its relatively abundant and cheap factor is used?

A larger variety of products results from international trade especially if:

The Heckscher-Ohlin theory suggests that land-abundant nations will export land-intensive goods while labor-abundant nations will export labor-intensive goods.

Does factor price equalization occur in the real world?

Owners of resources specific to export industries tend to lose from international trade,while owners of factors specific to import-competing industries tend to gain.

Intraindustry trade can be explained by product differentiation,economies of scale,seasons of the year,and transportation costs.

Economists agree that wages of unskilled workers are being held down by

Industrial processes that add weight or bulk to a commodity are likely to be located near the resource market to minimize transportation costs.

The simultaneous import and export of computers by Germany is an example of:

The factor-endowment theory highlights the relative abundance of a nation's resources as the key factor underlying comparative advantage.

Although the theory of comparative advantage explains trade in manufactured goods,it has no explanatory value for trade in business services.

Classical trade theory emphasized which of the following as an underlying explanation of the basis for trade?

Which of the following best applies to the theory of overlapping demands?

A product will be traded only if the cost of transporting it between nations is less than the pretrade difference between their relative product prices.

According to the theory of intraindustry trade,many manufactured goods undergo a trade cycle in which the home country initially is an exporter and eventually becomes an importer of a product.