7 Written questions
6 Multiple choice questions
- Financial assets including, stocks, bonds, deposits, and currencies.
- states 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.
- A 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.
- The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.
- Dissimilar good with different factor intensities are lumped together in trade statistics.
- Different countries produce different varieties of the same product to sell to consumers in various countries with differences in preferences.
6 True/False questions
The Product Life Cycle Theory of Trade → 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.
Mercantilism → Financial assets including, stocks, bonds, deposits, and currencies.
Absolute Advantage → A country has an absolute advantage in a good if it can produce that good by using fewer inputs than its trading partner
Gains from trade → are 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.
Dynamic Gains from Trade → The gains from trade that occur over time because trade causes an increase in a country's economic growth or induces greater efficiency in the use of existing resources.
Explanations for Intra-industry trade → Production is spread around the world with various countries producing components that are assembled and sold around the world. Each country specializes in a particular component in order to gain economies of large scale production.