7 Written questions
6 Multiple choice questions
- 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.
- 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.
- 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.
- 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.
- 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.
- Occurs when a country imports and exports the same good.
6 True/False questions
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.
Portfolio Capital → The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.
Explanations for Intra-industry trade → Occurs when a country imports and exports the same good.
Capital Abundant → the situation where a country has a high capital-to-labor ratio relative to another country.
Mercantilism → Financial assets including, stocks, bonds, deposits, and currencies.
Portfolio Investment → The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.