International Trade Concepts

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Questions and Answers

Which country has an absolute advantage in coffee production according to the example provided?

Both countries
Country B
Country A (correct)
Neither country

A country can have a comparative advantage even if it lacks an absolute advantage in any good.

True (A)

What is the definition of opportunity cost?

The value of the next best alternative foregone when choosing one option over another.

According to the Heckscher-Ohlin (H-O) theory, international trade is influenced by differences in countries' relative factor __________.

endowments Signup and view all the answers

What does comparative advantage focus on?

Opportunity costs (C) Signup and view all the answers

Match the following terms with their definitions:

Absolute Advantage = Produces more of a good with the same resources Comparative Advantage = Produces a good at a lower opportunity cost Opportunity Cost = Next best alternative foregone Heckscher-Ohlin Theory = Trade based on factor endowments Signup and view all the answers

According to the comparative advantage concept, the opportunity cost of producing wine in Country A is greater than in Country B.

False (B) Signup and view all the answers

What is the formula for calculating the opportunity cost of producing a good?

Opportunity Cost of Good A = Quantity of Good B Forgone / Quantity of Good A Produced Signup and view all the answers

What does the Heckscher-Ohlin (H-O) Theorem suggest about goods exported and imported by a country?

Countries export goods using their abundant factors intensively and import goods that use scarce factors. (D) Signup and view all the answers

The Rybczynski Theorem states that an increase in the supply of one factor will lead to an increase in the output of the other good.

False (B) Signup and view all the answers

What is the primary purpose of a Production Possibility Frontier (PPF)?

To illustrate the maximum possible combinations of two goods that an economy can produce using its resources efficiently. Signup and view all the answers

A __________ PPF indicates that opportunity costs increase as more resources are allocated to producing one good.

bowed-out Signup and view all the answers

What shape does a PPF with constant average costs take?

Straight line (C) Signup and view all the answers

Match the following theorems with their descriptions:

H-O Theorem = Countries export goods using abundant factors. Rybczynski Theorem = Increase in one factor raises output of the good using that factor. PPF = Illustrates combinations of two goods and production efficiency. Signup and view all the answers

Points inside the PPF indicate efficient production.

False (B) Signup and view all the answers

How does trade enable countries to consume beyond their PPF?

By allowing countries to specialize based on comparative advantage. Signup and view all the answers

A labor-abundant country typically exports __________ goods.

labor-intensive Signup and view all the answers

What does a bowed-out PPF suggest about the production of goods?

Opportunity costs increase as more of one good is produced. (B) Signup and view all the answers

Flashcards

Absolute Advantage

A country produces more of a good with the same resources compared to another country.

Comparative Advantage

Lower opportunity cost of producing a good compared to another country.

Opportunity Cost

Value of the next best alternative forgone when choosing something.

H-O Theory (Factor Endowment)

Trade driven by differences in factors like capital and labor between nations and how goods use them.