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7 Written questions

6 Multiple choice questions

  1. As new products mature, comparative advantage shifts from one country to another. New products are intensive in highly skilled workers (inventors, engineers), giving highly educated countries a comparative advantage. As a product matures large scale production takes over, favoring capital abundant countries. Finally, production becomes routine, and labor abundant countries have the comparative advantage.
  2. the situation where a country has a high capital-to-labor ratio relative to another country.
  3. The economic doctrine that contends a country's wealth is determined by its holdings of precious metals and espouses trade policies that promote the accumulation of gold and silver.
    *The school of thought that advocated policies designed to generate trade surpluses, so as to increase a country's holdings of gold.
  4. Different countries produce different varieties of the same product to sell to consumers in various countries with differences in preferences.
  5. A corporation's purchase of real assets, such as production facilities and equipment, in a foreign country.
  6. the smaller of two trading economies receives the greatest gains from trade.
    Trade benefits both trading countries
    Gains due to differences in absolute advantage between countries.

6 True/False questions

  1. Comparative AdvantageA country has a comparative advantage in the production of a good if the relative cost (opportunity cost) of producing that good is lower than that of its trading partner.

          

  2. The Stolper-Samuelson Theorystates that as countries move towards free trade, each country's abundant factor receives a higher rate of payment, and each country's scarce factor is harmed by a lower rate of return.
    o U.S example- Our abundant factor is highly skilled labor, which will benefit from expanded trade with China. Our scarce factor is unskilled labor which is harmed by trade with China.

          

  3. Intra-industry tradeare demonstrated by showing that each country moves to a higher CIC. OR, by showing that both countries can have higher levels of consumption of both goods.

          

  4. The Index of Opennessare demonstrated by showing that each country moves to a higher CIC. OR, by showing that both countries can have higher levels of consumption of both goods.

          

  5. The Heckschler-Ohlin Modelstates that as countries move towards free trade, each country's abundant factor receives a higher rate of payment, and each country's scarce factor is harmed by a lower rate of return.
    o U.S example- Our abundant factor is highly skilled labor, which will benefit from expanded trade with China. Our scarce factor is unskilled labor which is harmed by trade with China.

          

  6. Portfolio CapitalThe acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.

          

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