True or False. You must explain WHY the statement is true or false; need two or
ID: 1162999 • Letter: T
Question
True or False. You must explain WHY the statement is true or false; need two or more sentences of explanation
1. Free Trade is always beneficial for a country.
2. Both the Ricardian and H-O model predict that the pattern of trade is determined largely by country differences in productivity.
3. The autarky relative price ratio (X to Y) of 10 in USA and of 30 in Japan implies that Japan has a comparative advantage in the production of good Y.
4. Comparative Advantage leads to absolute advantage in trade, and vice versa.
5. A change in people’s tastes and preferences always leads to an increase in the Terms of Trade for a country.
6. With free trade, the industrialized countries gain at the expense of the agricultural countries.
7. With free trade, all countries gain.
8. In a 2X2X2 model, free trade leads to identical rental rate levels in both countries.
9. In the Neo-Classical model in autarky, a country can produce only one good at a time.
Explanation / Answer
Answer 1) false.
no free trade can lead to immiserizing growth.
where economic growth could result in a country being worse off than before the growth.
Answer 2) false
Ricardian model of comparative advantage has trade motivated by differences in labour productivity using different technologies. H-O model did not require production technology to vary between countries, so the H-O model has identical production technology everywhere.
Answer 3) true, USA has comparative advantage in good x, bcoz the relative price of good x is lower in USA, thus opportunity cost of producing good x is lower in USA, so Japan has comparative advantage in good y
Answer 4) false , comparative advantage doesn't imly absolute advantage
Country is said to have an absolute advantage if the country can produce a good at a lower cost than another. this means that fewer resources are needed to provide the same amount of goods as compared to the other country.
If one nation has a lower opportunity cost than another to produce a good, it has a comparative advantage.
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