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.
QUESTION A certain amount of friction is involved when resources are required to move from one economic activity to another. Indicate whether the statement is true or false. ANSWER TRUE Resources do not always shift quite easily from one economic activity to another. The process creates friction and human suffering too.
QUESTION Free trade refers to a situation in which a government, through quotas or duties, attempts to influence what its citizens can buy from another country, or what they can produce and sell to another country. Indicate whether the statement is true or false. ANSWER FALSE Free trade refers to a situation in which […]
QUESTION The new trade theory emerged from the thought that the ability of firms to attain economies of scale might have important implications for international trade. Indicate whether the statement is true or false. ANSWER TRUE The new trade theory began to emerge in the 1970s when a number of economists pointed out that […]
QUESTION Smith, Ricardo, and Heckscher-Ohlin suggested that a country’s economy would gain only if its citizens buy products that are made in that country. Indicate whether the statement is true or false. ANSWER FALSE The theories of Smith, Ricardo, and Heckscher-Ohlin tell us that a country’s economy may gain if its citizens buy certain […]
QUESTION While Vernon’s theory is useful for explaining the pattern of international trade in the modern world, its relevance during the period of American global dominance seemed more limited. Indicate whether the statement is true or false. ANSWER FALSE Vernon’s theory may be useful for explaining the pattern of international trade during the period […]
QUESTION The first theory of international trade that emerged in England asserted that gold and silver were the mainstays of national wealth and essential to vigorous commerce. Indicate whether the statement is true or false. ANSWER TRUE The first theory of international trade, mercantilism, emerged in England in the mid-sixteenth century and asserted that […]
QUESTION New trade theory stresses that in some cases countries specialize in the production of particular products because of underlying differences in factor endowments. Indicate whether the statement is true or false. ANSWER FALSE New trade theory stresses that in some cases countries specialize in the production and export of particular products not because […]
QUESTION The main tenet of mercantilism was that it was in a country’s best interests to maintain a trade surplus. Indicate whether the statement is true or false. ANSWER TRUE The main tenet of mercantilism was that it was in a country’s best interests to maintain a trade surplus (to export more than it […]
