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Exam 3: Sources of Comparative Advantage

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Question 1

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Which trade theory suggests that comparative advantage tends to shift from one nation to another as a product matures?

A) Interindustry trade theory
B) Intraindustry trade theory
C) Product life cycle theory
D) Overlapping demand theory

E) B) and D)
F) B) and C)

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Question 2

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Europe's jumbo-jet manufacturer,Airbus,has justified receiving governmental subsidies on the grounds that the subsidies prevent the United States from becoming a monopoly in the jumbo-jet market.

A) True
B) False

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Question 3

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According to the theory of overlapping demands,trade in manufactured goods would be greater among two wealthy countries than among a wealthy country and a poor country.

According to the product life cycle model,comparative advantage shifts from cheap-labor countries to high-technology countries after a manufactured good becomes standardized.

The Heckscher-Ohlin theory explains comparative advantage as the result of differences in countries':

Which trade theory is tantamount to a short-run version of the factor price equalization theory?

Because seasons in the Southern Hemisphere are opposite those in the Northern Hemisphere,one would expect intra-industry trade to occur in agricultural products.

Which of the following suggests that by widening the market's size,international trade can permit longer production runs for manufacturers,which leads to increasing efficiency?

Recent studies of U.S.resource endowments indicate that the United States is most abundant in unskilled labor,followed by semi-skilled labor and skilled labor.

When transportation costs are added to our trade model,the degree of specialization in production between two countries increases as do the gains from trade.

When transportation costs are added to our trade model,the low-cost exporting country produces less,consumes more,and exports less than that which occurs in the absence of transportation costs.

The theory of overlapping demands applies best to trade in manufactured goods.

What is the focus of the product life cycle theory,and where is it applicable?

Proponents of ____ maintain that government should enact policies that encourage the development of emerging,"sunrise" industries.

The theory of overlapping demands contends that international trade in manufactured products is strongest among nations with similar income levels.

According to the factor-price-equalization theory,international trade results in the relative differences in resource prices between nations being eliminated.

The Leontief Paradox was the first major challenge to the product-life-cycle theory of trade.

According to the factor-endowment theory,a nation will import that good for which a large amount of the relatively abundant resource is used.

With decreasing costs,a country has an incentive to partially specialize in the product of its comparative advantage.

Industrial processes that add weight or bulk to a commodity are likely to be located near the resource market to minimize transportation costs.