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7 Written questions

6 Multiple choice questions

  1. Financial assets including, stocks, bonds, deposits, and currencies.
  2. 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.
  3. 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.
  4. The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.
  5. Dissimilar good with different factor intensities are lumped together in trade statistics.
  6. Different countries produce different varieties of the same product to sell to consumers in various countries with differences in preferences.

6 True/False questions

  1. The Product Life Cycle Theory of TradeAs 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. MercantilismFinancial assets including, stocks, bonds, deposits, and currencies.


  3. Absolute AdvantageA country has an absolute advantage in a good if it can produce that good by using fewer inputs than its trading partner


  4. Gains from 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.


  5. Dynamic Gains from TradeThe 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.


  6. Explanations for Intra-industry tradeProduction 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.


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