7 Written Questions
6 Multiple Choice Questions
- 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.
- 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.
- 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.
- 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 situation where a country has a high capital-to-labor ratio relative to another country.
- Dissimilar good with different factor intensities are lumped together in trade statistics.
6 True/False Questions
Adam Smith's Wealth of Nations → the situation where a country has a high capital-to-labor ratio relative to another country.
Portfolio Capital → The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.
Foreign Direct Investment (FDI) → The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.
The Heckschler-Ohlin Model → A country has a comparative advantage in (and will export) that good which is intensive in the use of that country's abundant resource.
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.
The importance of being unimportant → 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.