Question

hich of the following is TRUE regarding international trade?

Trade benefits everyone compared to autarky

A country will prefer autarky if it has absolute advantage in producing every good

Trade benefits occur through a rise in real wages

None of the above

6.Sunshine Smoothies imports $5,000 of mangoes and buys $5,000 of strawberries from local farmers. It pays $1,000 in wages and $1,000 in rent. It sells $8,000 worth of smoothies to local consumers and ships $5,000 of frozen smoothies abroad. Which of the following statements regarding the firm's impact on the national income accounts is TRUE?

It contributes $13,000 to consumption and investment

It contributes $3,000 to value added

It contributes $2,000 to income

It contributes (-$5000) to net exports

7 Which of the following could be consistent with a rise in the unemployment rate?

Employment grew faster than the labor force

Unemployment increased at a slower pace than the labor force

The participation rate shrank as the labor force grew

The gap between the participation rate and the employment-population ratio narrowed

8The exponent (a) in the production function reflects all of the following, EXCEPT:

Diminishing returns to capital

The share of income paid to capital

A parameter limiting the impact of TFP on growth

An input into the gross return on capital

Answer 1

Q5

Trade benefits everyone compared to autarky- True

Reason-

In the above figure we assume that country A has an absolute advantage in X production and Country B in Y production.
Before trade both the countries produce at autarky points Aa(for county A) where the production and consumption point is Aa and Similarly for country B where the autarky point is Ab.

After trade Country A will specialise in X production and produce at point A and consume at point C. Trade triangle is area under CGA and export GA to country B.

Country B will specialise in Y production and produce at point B and consume at point C. Trade triange is area BAC, where it will AB to country A.

AFTER TRADE THE CIC curve will shift rightwards to CIC'.

HENCE TRADE BENEFITS EVERYONE COMPARED TO AUTARKY.

# Even if a country will have an absolute advantage in production of every good, it will not prefer autarky because on comparing the opportunity costs we will see that one country will have a comparative advantage over the other country.

# During trade a country will specialise in that commodity in which the cost of production is comparatively lower than the other country. So one country will produce that commodity in which the wages paid are comparatively low.