Ricardian Model of International Trade Quiz

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Questions and Answers

Why do governments restrict imports of some goods, according to the text?

To maintain a country's distribution of income (correct)

Because the Ricardian model is often incorrect in predicting mutual benefits from trade

To benefit domestic consumers

To prevent trade wars between hostile countries

When foreign-made goods do not meet domestic quality standards

What is a limitation of the Ricardian two-country two-good model, as discussed in the text?

When both countries have the same technology available

Determining which country specializes in which good

When one country has an absolute advantage in both goods

When one country has significantly lower wages than another

Predicting the effect of trade on income distribution (correct)

In international trade, why can income distribution be significantly affected?

Different countries using various currencies

When rich countries exploit poor countries

Some resources are immobile in the short run (correct)

The dominance of one country in dictating trade terms

Due to government corruption

According to the Ricardian model, under what conditions can trade be mutually beneficial?

When one country has an absolute advantage in both goods Signup and view all the answers

What can potentially lead to import restrictions on goods?

Foreign-made goods not meeting domestic quality standards Signup and view all the answers

Why is it important for countries to consider income distribution in international trade?

To predict the effect of trade on income distribution Signup and view all the answers

Why do governments sometimes impose restrictions on imports?

To protect domestic industries and jobs. Signup and view all the answers

What is a common misconception regarding the Ricardian model of international trade?

It predicts trade to be largely disadvantageous for all parties involved. Signup and view all the answers

What aspect does the Ricardian two-country two-good model NOT address?

Production advantages when one country has lower wages. Signup and view all the answers

Why can international trade significantly affect income distribution?

Due to immobility of resources in the short run. Signup and view all the answers

What is a key objective behind imposing restrictions on imports?

To limit the availability of foreign-made products that may not meet quality standards. Signup and view all the answers

Why do some governments restrict imports of certain goods?

Trade is always harmful and should be restricted. Signup and view all the answers

How does international trade impact income distribution according to the text?

Different industries employing different factors of production affects income distribution. Signup and view all the answers

What is a key factor influencing Japan's trade policies regarding rice production?

Japan exports most of its rice crop due to a lack of comparative advantage. Signup and view all the answers

Who developed the specific factors model?

Paul Samuelson and Ronald Jones Signup and view all the answers

How is labor defined in the specific factors model?

Mobile factor Signup and view all the answers

Study Notes

International Trade

International trade can be mutually beneficial, but governments restrict imports of some goods due to substantial effects on a country's distribution of income.
Trade can have significant harmful effects on some segments of a country's economy.

Ricardian Model

The Ricardian model demonstrates that trade can be mutually beneficial.
However, it does not consider the effect of trade on income distribution.
The model predicts potential benefits from trade, but not when one country has an absolute advantage in the production of both goods or significantly lower wages than the other country.

Income Distribution

International trade can have important effects on the distribution of income because some resources are immobile in the short run.
Trade can have important effects on the distribution of income because different industries employ different factors of production.

Specific Factors Model

The specific factors model was developed by Paul Samuelson and Ronald Jones.
In this model, labor is defined as a mobile factor.
Land is treated as a specific factor, meaning it cannot be used outside of a particular sector of an economy.
Capital is also treated as a specific factor.
A factor of production that can be used in any sector of an economy is a mobile factor.

Trade Policies

Japan's trade policies with regard to rice reflect the fact that Japanese rice farmers have significant political power.

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Description

Test your knowledge on the Ricardian model of international trade and why governments may restrict imports despite the benefits of trade. Questions cover topics such as distribution of income, trade wars, and quality standards for imports.