Question

Answer True or False

5.              According to the trade model of David Ricardo, the direction of trade is determined by absolute advantage.

6.              Adam Smith and David Ricardo reasoned that in a world of two countries, at least one country will be worse off as the result of trade.

7.              A country with high wages can export to a country with low wages, given sufficiently high labor productivity in the exporting country.

8.              According to the mercantilists, a nation's welfare would improve if it maintained a surplus of exports over imports.

Answer 1

5. According to the trade model of David Ricardo, the direction of trade is determined by absolute advantage.

The answer is: "False"

The Ricardian Model of Trade is developed by English political economist David Ricardo in his magnum opus On the Principles of Political Economy and Taxation(1817). Ricardo strengthens the case for free trade by giving it a theoretical framework based on the logic of comparative advantage.

6.Adam Smith and David Ricardo reasoned that in a world of two countries, at least one country will be worse off as the result of trade.

The answer is: "False"

Bilateral trade agreements are agreements between countries to promote trade and commerce. They eliminate trade barriers such as tariffs, import quotas, and export restraints in order to encourage trade and investment.

7. A country with high wages can export to a country with low wages, given sufficiently high labor productivity in the exporting country.

The answer is: "True"

Labor productivity is largely driven by investment in capital, technological progress, and human capital development. Business and government can increase the labor productivity of workers by direct investing in or creating incentives for increases in technology and human or physical capital.

8. According to the mercantilists, a nation's welfare would improve if it maintained a surplus of exports over imports.

The answer is: "True"

The mother nations of colonies benefited most from mercantilism. This is because the colonial home nations (such as Spain or Britain) used.