Exercise 2 Solution Chapter 2 Trade-offs, Comparative Advantage, and the Market System 2.1 Production Possibilities Frontiers and Opportunity Costs 1) Scarcity A) stems from the incompatibility between limited resources and unlimited wants. B) can be overcome by discovering new resources. C) can be eliminated by rationing products. D) is a bigger problem in market economies than in socialist economies. Answer: A Comment: Recurring Diff: 2 Page Ref: 38/38
Words: 1739 - Pages: 7
when one nation is less efficient than another nation in the production of all commodities. 1. Mercantilism 2. The law of comparative advantage 3. The labor theory of value 4. The law of absolute advantage 2. The ability of one nation to produce a commodity using fewer resources than another nation is: 1. absolute advantage 2. comparative advantage 3. mercantilism 4. specialization 3. According to the following table, the US can gain from trade with the UK by
Words: 341 - Pages: 2
The theory of international trade: 1. Mercantilism Theory. 2. Absolute Advantage Theory. 3. Comparative Advantage Theory. 4. Heckscher-Ohlin's Theory 5. Porter’s Diamond of Competitive Advantage Theory. Mercantilism The first theory of international trade ,mercantilism, engaged in England in the Mid 16th century holding that a countries wealth is measured by its holdings of treasure which usually means its gold & silver. The principal assertion of mercantilism was that gold and silver
Words: 4024 - Pages: 17
TUTORIAL WEEK 1 ANSWERS Comparative Advantage and the Basis for Trade Question 1 a) What is the production possibility curve and what does it reflect? b) With this in mind, construct a PPC for two products and label two points, one attainable and one unattainable. Next consider what it means to be on the PPC. c) Consider two points on the PPC. Now consider a movement along the PPC from one of these points to the next. Look at the initial situation and the final one. What does this movement
Words: 3475 - Pages: 14
involved in the international market it is very interesting how absolute and comparative advantage give great insight to the process acquiring and distributing goods in an exchange market. Industrial Sheet Metal is backed by management that has been at the same location for over 30 years but has always dealt with local customers. Based on the surrounding competition Industrial Sheet Metal proves to have both absolute and competitive advantages in its market. The company is a sheet metal fabrication company
Words: 629 - Pages: 3
TRADE THEORIES: International trade theories are simply different theories to explain international trade. Trade is the concept of exchanging goods and services between two people or entities. International trade is then the concept of this exchange between people or entities in two different countries. People or entities trade because they believe that they benefit from the exchange. They may need or want the goods or services. While at the surface, this many sound very simple, there is a great
Words: 1106 - Pages: 5
ensure a positive trade balance.Critics: possible only for short term; assumes static world economy. Absolute advantage (Adam Smith) Countries benefit from exporting what they make cheaper than anyone else But: nations without absolute advantage do not gain from trade. Comparative advantage (David Ricardo) Nations can gain from specialization, even if they lack an absolute advantage 2: Absolute advantage: Countries benefit from exporting what they make cheaper than anyone else But: nations
Words: 488 - Pages: 2
------------------------------------------------- The development of the classical theories of international trade between countries March 30, 2016 Danel Louw 17752302 March 30, 2016 Danel Louw 17752302 Contents Introduction 1 1 Mercantilism 2 2 Absolute Advantage 2 3 Comparative Advantage 3 4 Factor Proportions 4 5 Bibliography 6 * * Introduction International trade may seem simple. It is simply the exchange of goods between two people or entities from two different countries. People trade because
Words: 1083 - Pages: 5
person has an absolute advantage in which activities? Someone can produce more per unit of time will always be given absolute advantage in that given activity. Michelle’s has the absolute advantage in both potatoes and chickens simply because her opportunity cost of raising chickens is four lbs. of potatoes per chicken. James’ O.C. of chickens is two pounds of potatoes per chicken. * Which person has comparative advantage in potatoes? Michelle has the comparative advantage in potatoes since
Words: 461 - Pages: 2
CHAPTER T W O 2 International Economics Tenth Edition The Law of Comparative Advantage (Part 1) Dominick Salvatore John Wiley & Sons, Inc. In this chapter: Introduction The Mercantilists’ Views on Trade Trade Based on Absolute Advantage: Adam Smith Trade Based on Comparative Advantage: David Ricardo Comparative Advantage and Opportunity Costs The Basis for and the Gains from Trade under Constant Costs Introduction Basic questions: What is the basis for
Words: 969 - Pages: 4
