Question

18H. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

11. Production of traded goods falls in countries that export them.

12. International trade allows the world to use its resources more efficiently but one country’s gains are another country’s losses.

13. A country’s ability to produce a specific good with fewer resources than another country determines whether it has an absolute advantage in producing the good.

14. Comparative advantage is based on the opportunity costs of producing particular goods.

15. World output will be maximized when each country produces according to its comparative advantage.

16. Limits to mutually beneficial trade are determined by the opportunity costs of producing the two goods in each country.

17. Assume that the limits to mutually beneficial trade between the U.S. and India are 1Machine = 3Cloth and 1Machine = 5Cloth, respectively. The closer the ratio is to the U.S. ratio of 1Machine = 3Cloth, the better it is for India.

18. Small countries tend to benefit more from trade because their demand for products from large countries would tend to be lower than the large country’s demand for their products.

19. Even with international trade, a country must remain inside or on its production possibilities frontier.

20. Constant opportunity costs result in upward sloping supply curves and concave production possibility frontiers.

Answer 1

11. The statement is False. When a country exports some goods the it's production will definitely increase in the domestic country as it needs to fulfill both the domestic and foreign demand.

12. The statement is False. International Trade allows both the countries to benefit.

13. The statement is True. A country has an absolute advantage when it producss a product with fewer resources as comapred to other country.

14. The statement is True.

15. The statement is True. When there are only two countries and both are producing according to their comapritive advantage then the world output consisting of two countries will be maximized.

16. The statement is True.

17. The statement is True. As it will be closer to U.S. ratio, the opportunity cost of one machine for India will be lower and it will be for India.

18. The statement is True. Small countries would like to trade with other small countries.

19. The statement is False. With international trade, a country's production possibilities frontier might shift outward and the country can be on a higher production possibilities frontier.

20. The statement is False. With constant opportunity costs, the production possibility frontiers is linear and downward sloping.