Determinants and Effects of Free Trade Theory Quiz
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Questions and Answers

According to the text, which argument suggests that free trade exploits less productive countries?

  • Exploitation argument (correct)
  • Pauper labor argument
  • Productivity and competitiveness argument
  • Relative productivity and multi-commodities case

    • What does the 'pauper labor argument' in free trade theory emphasize?

  • The importance of high wages in promoting fair competition
  • The role of skilled labor in driving international trade
  • The need for strict regulations on labor productivity
  • The detrimental effects of low wages on other countries (correct)

    • In the context of international trade, what is the main insight of the Ricardian model?

  • Gains from trade are not influenced by relative wages
  • Labor productivity is irrelevant in determining comparative advantage
  • Absolute advantage determines trade patterns (correct)
  • Trade occurs only when countries have identical resource endowments

    • In the Ricardian model, what is the role of relative productivity in determining comparative advantage?

    <p>$Relative ext{ }productivity = Output ext{ }per ext{ }unit ext{ }of ext{ }labor$</p> Signup and view all the answers

    What is one of the assumptions of the Ricardian model of international trade?

    <p>$Constant ext{ }returns ext{ }to ext{ }scale$</p> Signup and view all the answers

    Study Notes

    Free Trade and Exploitation

    • The argument that suggests free trade exploits less productive countries is the "pauper labor argument".

    Pauper Labor Argument

    • The pauper labor argument in free trade theory emphasizes that low-wage labor in developing countries is exploited by multinational corporations.

    Ricardian Model

    Main Insight

    • The main insight of the Ricardian model in international trade is that countries should specialize in producing goods for which they have a comparative advantage.

    Role of Relative Productivity

    • In the Ricardian model, relative productivity plays a role in determining comparative advantage, as countries specialize in goods where their productivity is higher compared to other countries.

    Assumptions of the Ricardian Model

    • One of the assumptions of the Ricardian model of international trade is that there are only two goods and two countries.

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    Description

    Test your knowledge on the determinants and effects of free trade with this quiz based on the trade theory. Explore the motivations behind free trade and understand the arguments for and against it.

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