Chapter 2: Labor Productivity and Comparative Advantage - The Ricardian Model

Explanations:

Opportunity cost; comparative advantage;
Parper labor argument; derived demand;
Gains from trade; absolute advantage;
Unit labor requirement; nontraded goods.

Multiple Choice Questions 1. Countries trade with each other because they are _______ and because of ______. A. different, costs B. similar, scale economies C. different, scale economies D. similar, costs E. None of the above. 2. Trade between two countries can benefit both countries if A. each country exports that good in which it has a comparative advantage. B. each country enjoys superior terms of trade. C. each country has a more elastic demand for the imported goods. D. each country has a more elastic supply for the supplied goods. E. Both C and D. 3. The Ricardian theory of comparative advantage states that a country has a comparative advantage in widgets if A. output per worker of widgets is higher in that country. B. that country's exchange rate is low. C. wage rates in that country are high. D. the output per worker of widgets as compared to the output of some other product is higher in that country. E. Both B and C. 4. In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ____unit labor requirements A. One B. two C. three D. four E. five 5. A country engaging in trade according to the principles of comparative advantage gains from trade because it A. is producing exports indirectly more efficiently than it could alternatively. B. is producing imports