326 test 1

Within each country that opens itself to international trade,

some factor owners gain, but other factor owners lose

For trade to take place, a country must face a world relative price that is

Different from the relative price that would prevail in the absence of trade

The graph to the right depicts a specific factors economy that produces two goods: cloth and food Assuming that the country is open to trade, at the lower relative price, (Pc / Pf)^1, the economy

Imports cloth and exports food

A country has comparative advantage in producing a good if

It's opportunity cost of producing that good is lower than elsewhere

According to the gravity model, a characteristic that tends to affect the probability of trade existing between any two countries is

The distance between them

Assume a specific factors economy produces two goods, cloth and food, and that when representing the output of this economy graphically, cloth is on the x-axis and food is on the y-axis When the price of cloth increases by 1% and the price of food does not change,

The marginal product of labor in the cloth sector falls.

In each sector of a specific factors economy, profit-maximizing employers will demand labor up to the point where

The marginal product of labor times the price of the product equals the wage rate

Although trade creates gains for some and losses for others, economists do not, generally, stress the income redistribution effects of international trade. Which of the following is NOT a reason why economists tend to de-emphasize the impact of international trade on the distribution of income?

Those that lose from trade tend to be marginally impacted by trade, poorly organized, and largely devoid of political influence.

In claiming that "size matters", the gravity model asserts that there is a strong empirical relationship between the size of a country's economy and the

Volume of its imports and exports

When opening up to trade, an economy

exports the good whose relative price has increased and imports the good whose relative price has decreased

The current process of increasing economic integration among national economies, better known as globalization

is actually the world's second wave of such integration.

An important insight of international trade theory is that when countries exchange goods and services one with the other, it

is usually beneficial to both countries