Question

True or False. Explain clearly WHY it is true or false

1. In the Neo-Classical model, when both countries are less willing to trade, this will always lead to the same equilibrium level for the terms of trade.

2. Differences in relative factor endowments among countries cannot explain Intra-Industry Trade.

3. Economic growth always leads to increased trade flows.

Answer 1

In neo classical model when both countries are less willing to trade, this will always lead to same equilibrium level for the terms of trade.

The above statement is true, because the equilibrium in neo classical model depends on how countries demand for goods and if there is less willing to trade in between the two countries, this situation always lead to same equilibrium level for the terms of trade.

2 Difference in realtive factor endowment among countries cannot explain Intra Industry Trade.

The above statement is true because Intra-industry trade means to the exchange of similar products relating to the same industry. The term is usually explained to international trade, where the same types of goods or services are both imported and exported.So difference in relative factor endowment amnong counties cannot explain intra industry trade.

3.Economic growth always leads to increased trade flow.
  
This statement is false because it is not necessary that economic growth always leads to increased trade flow.