Classical Trade Technology

Question 1

Definitions: Comparative Advantage

Answer 1

Comparative advantage is an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners.

Question 2

Definitions: Absolute Advantage

Answer 2

Absolute advantage is when a producer can produce a good or service in greater quantity for the same cost, or the same quantity at a lower cost, than other producers.

Question 3

What are the classical driving forces behind international trade flows

Answer 3

Technological differences between nations

Question 4

What is Autarky?

Answer 4

Self-sufficiency, i.e. No international trade

Question 5

What does the per capita welfare level depend on?

Answer 5

Absolute Cost Differences

Question 6

What is terms of trade defined as?

Answer 6

The relative price of exports in terms of imports

Question 7

How many factors of production are involved in a Ricardian model?

Answer 7

One

Question 8

What do the assumptions of constant returns to scale and perfect competition imply?

Answer 8

That if a good is produced in equilibrium, the price level in the output market must be equal to the cost of production

Question 9

π=?

Answer 9

π= (p-c)x

Question 10

Under Perfect Competition, what does the firm treat the price it can fetch for a unit of output as?

Answer 10

A parameter beyond its control, something determined by the marketplace. Firms are thus price takers.

Question 11

What is the Production Possibilities Frontier Defined as?

Answer 11

All possible efficient production points given the available factors of production and the state of technology

Question 12

What are 3 notes regarding the PPF?

Answer 12

1. It is a technical specification and doesn’t depend on any market condition
2. The PPF depends on the available factors of production, if more labourers are available, more goods can be produced: and
3. The PPF depends on the state of technology, if new production techniques become available, more goods may be produced with the same amount of factors of production

Question 13

What are the assumptions for the Ricardian Model set up?

Answer 13

Perfect Competition.
Perfect Labour markets, taken in this instance to mean that although labour is mobile across sectors it is immobile across countries

Question 14

What does marginal product of labour refer to?

Answer 14

The extra output attained by using one more unit of labour

Question 15

When do opportunities for trade between nations arise?

Answer 15

When relative, or comparative productivity ratios differ

Question 16

What is Autarky Price in a Ricardian Model determined by?

Answer 16

Technical coefficients of the productivity table