QUESTION The major advantage of mercantilism was that it viewed trade as a zero-sum game. Indicate whether the statement is true or false. ANSWER FALSE The flaw with mercantilism was that it viewed trade as a zero-sum game. (A zero-sum game is one in which a gain by one country results in a loss […]
QUESTION According to the theory of comparative advantage, potential world production is greater with unrestricted free trade than it is with restricted trade. Indicate whether the statement is true or false. ANSWER TRUE The basic message of the theory of comparative advantage is that potential world production is greater with unrestricted free trade than […]
QUESTION In his book The Wealth of Nations, Adam Smith supported the mercantilist assumption that trade is a zero-sum game. Indicate whether the statement is true or false. ANSWER FALSE In his 1776 landmark book The Wealth of Nations, Adam Smith attacked the mercantilist assumption that trade is a zero-sum game, with the argument […]
QUESTION According to Adam Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade these for goods produced by other countries. Indicate whether the statement is true or false. ANSWER TRUE According to Adam Smith, countries should specialize in the production of goods for which […]
QUESTION According to Ricardo’s theory of comparative advantage, it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to import goods that it produces less efficiently. Indicate whether the statement is true or false. ANSWER TRUE According to Ricardo’s theory of comparative advantage, it […]
QUESTION Ricardo’s theory of comparative advantage is a major intellectual weapon for advocates of free trade because it provides a strong rationale for encouraging free trade. Indicate whether the statement is true or false. ANSWER TRUE Ricardo’s theory of comparative advantage provides a strong rationale for encouraging free trade and is powerful enough to […]
QUESTION Free trade is likely to increase a country’s stock of resources and the efficiency with which it utilizes those resources. Indicate whether the statement is true or false. ANSWER TRUE Opening an economy to trade is likely to generate dynamic gains of two sorts. First, free trade might increase a country’s stock of […]
QUESTION Mercantilism, propagated in the sixteenth and seventeenth centuries, advocated that countries should simultaneously encourage both imports and exports. Indicate whether the statement is true or false. ANSWER FALSE Propagated in the sixteenth and seventeenth centuries, mercantilism advocated that countries should simultaneously encourage exports and discourage imports.
QUESTION The Nobel Prize-winning economist Paul Samuelson argued that contrary to the standard interpretation, in certain circumstances the theory of comparative advantage predicts that a rich country might actually be worse off by switching to a free trade regime with a poor nation. Indicate whether the statement is true or false. ANSWER TRUE Nobel […]
QUESTION David Ricardo’s theory of comparative advantage was the first to explain why unrestricted free trade is beneficial to a country. Indicate whether the statement is true or false. ANSWER FALSE Proposed in 1776, Adam Smith’s theory of absolute advantage was the first to explain why free trade is beneficial to a country.