#1
According to the theory of comparative advantage, what determines a country's pattern of trade?
The relative opportunity costs of producing goods
ExplanationCountries specialize in goods with lower opportunity costs, driving trade patterns.
#2
Who introduced the concept of absolute advantage in international trade?
Adam Smith
ExplanationAdam Smith pioneered the idea that a country should produce what it's most efficient at.
#3
What is the opportunity cost of producing a unit of a good?
The value of the next best alternative foregone
ExplanationOpportunity cost is the value sacrificed by choosing one option over the next best alternative.
#4
Which of the following is NOT a factor influencing comparative advantage?
Government subsidies
ExplanationGovernment subsidies are not a factor in determining comparative advantage.
#5
Which of the following is an assumption of the Ricardian model of international trade?
All of the above
ExplanationFactors like constant technology and resources are assumed in the Ricardian model.
#6
Which factor is NOT considered in the Heckscher-Ohlin model?
Demand conditions
ExplanationHeckscher-Ohlin model disregards demand conditions as a factor.
#7
Which of the following best describes the law of comparative advantage?
A country should produce only what it can produce most efficiently compared to other countries.
ExplanationEfficiency in production guides a country's focus, as per the law of comparative advantage.
#8
What does the theory of comparative advantage suggest about the benefits of international trade?
It suggests that all countries can benefit from trade by specializing in producing goods they have a comparative advantage in.
ExplanationMutual gains occur when countries specialize in what they do best, per comparative advantage theory.
#9
What is the main assumption of the theory of comparative advantage?
Labor and capital are immobile between industries.
ExplanationThe theory assumes immobility of labor and capital across industries.
#10
Which trade theory suggests that countries should specialize in the production of goods that use their abundant factors of production?
Heckscher-Ohlin theory
ExplanationHeckscher-Ohlin theory advises specializing in goods using abundant factors.
#11
In international trade theory, what does the Linder hypothesis suggest?
Countries with similar preferences tend to trade more with each other.
ExplanationSimilar preferences drive increased trade between countries, per the Linder hypothesis.
#12
Which of the following is a limitation of the Ricardian model?
All of the above
ExplanationVarious limitations, including unrealistic assumptions, apply to the Ricardian model.
#13
Which economist is most closely associated with the development of the theory of comparative advantage?
David Ricardo
ExplanationDavid Ricardo is the key figure in formulating the theory of comparative advantage.
#14
What does the concept of 'revealed comparative advantage' refer to?
A country's comparative advantage is revealed through its trade patterns.
ExplanationTrade patterns unveil a country's comparative advantage, as per the concept.
#15
According to the product life cycle theory, in which stage of a product's life cycle is production typically shifted overseas?
Maturity stage
ExplanationProduction moves overseas during the maturity stage of the product life cycle.
#16
What does the Leontief Paradox refer to in international trade?
The finding that the US was relatively abundant in labor but exported capital-intensive goods
ExplanationThe paradox reveals the unexpected export pattern of capital-intensive goods by a labor-abundant country like the US.
#17
What does the gravity model of trade suggest?
Trade is directly related to the GDP of trading partners
ExplanationThe gravity model posits a direct relationship between trade and the GDP of trading partners.