True or False. You must explain WHY the statement is true or false; need two or

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

1.) False, bcoz it might lead to immiserizing Growth, & the exporting nation is at loss.

Also free trade can also lead to political domination by some powerful nation

2) false, H-O model is based on differential factor endowments whereas productivity can be same across nations

3) true bcoz good y is produced at relatively lower cost in Japan, thus it has C.A. in good y

4)false, both are different concepts, having a comparative advantage in production of a good imply that opportunity cost of producing that good is lower, while absolute advantage imply that production of the good occurs at lower absolute cost.

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