Chapter 2

Question 1

Economic philosophy in 17th and 18th centuries, in England, Spain, France, Portugal and the Netherlands.

Answer 1

Mercantilism

Question 2

Belief that nation could become rich and powerful only by exporting more than it imported.

Answer 2

Mercantilism

Question 3

Mercantilism is an Economic philosophy in 17th and 18th centuries, in what countries?

Answer 3

England, Spain, France, Portugal and the Netherlands.

Question 4

According to Mercantilism Export surpluses brought _______

Answer 4

inflow of gold and silver

Question 5

Trade policy was to encourage exports and restrict imports

Answer 5

The Mercantilists’ Views on Trade

Question 6

One nation gained only at the expense of another.

Answer 6

The Mercantilists’ Views on Trade

Question 7

Mercantilists measured wealth of a nation by____.

Answer 7

stock of precious metals it possessed

Question 8

Today, we measure wealth of a nation by its ______

Answer 8

stock of human, man-made and natural resources available for producing goods and services.

Question 9

The greater the _______, the greater the flow of goods and services to satisfy human wants, and the higher the standard of living.

Answer 9

stock of resources

Question 10

Trade Based on Absolute Advantage by?

Answer 10

Adam Smith

Question 11

A nation has _______over another nation if it can produce a commodity more efficiently.

Answer 11

absolute advantage

Question 12

When one nation has __________ in production of a commodity, but _________with respect to the other nation in a second commodity, both nations can gain by specializing in their absolute advantage good and exchanging part of the output for the commodity of its absolute disadvantage.

Answer 12

absolute advantage, an absolute disadvantage

Question 13

, both nations can gain by _________in their absolute advantage good and exchanging part of the output for the commodity of its absolute disadvantage.

Answer 13

specializing

Question 14

This can take place if both countries specialize in their absolute advantage

Answer 14

Mutually beneficial trade

Question 15

Adam Smith and other classical economists advocated a policy of _______, or minimal government interference with economic activity.

Answer 15

laissez-faire

Question 16

This would cause world resources to be utilized most efficiently, maximizing world welfare.

Answer 16

Free trade

Question 17

These benefit both countries.

Answer 17

Specialization and trade

Question 18

Even if one nation is less efficient than (has absolute disadvantage with respect to) the other nation in production of both commodities, there is still a basis for mutually beneficial trade.

Answer 18

Law of Comparative Advantage

Question 19

The original idea of comparative advantage was based on the

Answer 19

labor theory of value:

Question 20

The value or price of a commodity depends exclusively on the amount of labor used to produce it.

Answer 20

labor theory of value

Question 21

The opportunity cost of a good is the amount of a second good that must be given up to release just enough resources to produce one additional unit of the first good

Answer 21

opportunity cost theory

Question 22

A curve that shows alternative combinations of the two commodities a nation can produce by fully using all resources with best available technology.

Answer 22

Production Possibilities Frontier

Question 23

In the PPF Constant opportunity costs arise when:

Answer 23

1. Resources are either perfect substitutes for each other or used in fixed proportion in production of both commodities, and
2. All units of the same factor are homogeneous.

Question 24

In the absence of trade, a nation’s production possibilities frontier also represents its

Answer 24

consumption frontier.

Question 25

Increased output resulting from specialization and trade represents nations’ gains from trade, allowing nations to ______

Answer 25

consume outside production possibilities frontier.

Question 26

Under constant cost conditions, nations will ______in their comparative advantage

Answer 26

completely specialize

Question 27

With complete specialization in both nations, the equilibrium-relative commodity price of each commodity lies between the _______in each nation.

Answer 27

pretrade relative commodity price

Question 28

What demonstrates “the importance of being unimportant.”

Answer 28

small country case,

Question 29

Argued that costs of production would be lower in the U.S. in industries where U.S. labor was more than twice as productive as U.K. labor.

Answer 29

McDougall (1951 and 1952)

Question 30

McDougall found positive relationship between ____ and _____; that supports Ricardian Theory

Answer 30

labor productivity and exports

Question 31

In the 17th century a group of men (merchants, bankers, government officials, and philosophers) wrote essays on international trade that advocated an economic philosophy known as

Answer 31

Mercantilism

Question 32

In their view, a country becomes rich if it exports more than it imports

Answer 32

The Mercantilists' View on Trade

Question 33

The surplus in trade balance will result in an inflow of precious metals; gold and silver.

Answer 33

The Mercantilists' View on Trade

Question 34

*The accumulation of precious metals means a _______and_______ nation.

Answer 34

richer, more powerful

Question 35

■Countries have to do their best to increase exports and restrict imports.

Answer 35

Mercantilism

Question 36

Since all countries cannot have surplus at the same time and because the stock of metals is fixed in the short run, a country gains from trade only at the________

Answer 36

expense of others.

Question 37

was measured by the stock of metals they possess.

Answer 37

Wealth of nations

Question 38

In contrast, today we measure wealth of a nation by its _______ available for producing goods and services.

Answer 38

stock of human, man-made, and natural resources

Question 39

■Mercantilists advocated strict government control of economic activity because gain from trade comes at the expense of other nations

Answer 39

(i.e. zero-sum-game).

Question 40

as nations plagued by high levels of unemployment seek to restrict imports in an effort to stimulate domestic production and employment

Answer 40

resurgence of neo-mercantilism

Question 41

the most influential of the mercantilist writers, and his Eng land’s Treasure by Foreign Trade was the outstanding exposition of mercantilist thought on trade.

Answer 41

Thomas Munn

Question 42

According to the mercantilist view trade is a _________, wherein imports weaken the nation and exports strengthen it.

Answer 42

zero-sum game

Question 43

According to __________, trade between two nations is based on absolute advantage.

Answer 43

Adam Smith

Question 44

He advocated that both the nations should gain from trade.

Answer 44

Adam Smith

Question 45

According to Adam Smith, trade between two nations is based on

Answer 45

absolute advantage.

Question 46

When one nation is more efficient than another in the production of one commodity but is less efficient than the other nation in producing a second commodity, then both nations can gain by each specializing in the production of the commodity of its

Answer 46

absolute advantage

Question 47

When one nation is more efficient than another in the production of one commodity

Answer 47

has an absolute advantage

Question 48

A country less efficient than the other nation in producing a second commodity

Answer 48

(or has an absolute disadvantage with respect to)

Question 49

By this process, resources are efficiently utilized and the output of both commodities will rise

Answer 49

Absolute advantage

Question 50

■The growth in output measures the gains from specialization in production available to be divided between the two nations through trade

Answer 50

Absolute advantage

Question 51

■In contrast to the mercantilists, Smith believed that all nations would gain from free trade and strongly advocated a policy of ________

Answer 51

laissez-faire:

Question 52

■As little government interference with the economic system as possible.

Answer 52

laissez-faire:

Question 53

In Absolute advantage_______ would lead to efficient use of resources and would maximize world welfare

Answer 53

■Free trade

Question 54

are invariably rationalized in terms of national welfare.

Answer 54

Trade restrictions

Question 55

According to the law of ___________, even if one nation is less efficient than (has an absolute disadvantage with respect to) the other nation in the production of both commodities, there is still a basis for mutually beneficial trade.

Answer 55

comparative advantage

Question 56

The first nation should specialize in the production and export of the commodity in which its absolute disadvantage is smaller and import the commod ity in which its absolute disadvantage is greater

Answer 56

Law of comparative advantage

Question 57

Limitations of comparative advantage

Answer 57

1. Oversimplified 2. No transportation cost 3. constant returns to scale 4. Ignores differences in taste and preferences 5. static model

Question 58

A limitation of comparative advantage that states labor is only factor considered

Answer 58

Oversimplified

Question 59

A limitation of comparative advantage that states it is unrealistic and may have an increasing and decreasing rts

Answer 59

constant returns to scale

Question 60

A limitation of comparative advantage that states people or countries have a same demand

Answer 60

ignores differences in taste and preferences

Question 61

A limitation of comparative advantage that states does not account changes in technology overtime

Answer 61

static model

Question 62

Economic philosophy in 17th and 18th centuries, in England, Spain, France, Portugal and the Netherlands.

Answer 62

Mercantilism

Question 63

Mercantilism emerged in 17th and 18th centuries, in what countries

Answer 63

England, Spain, France, Portugal and the Netherlands.

Question 64

■Belief that nation could become rich and powerful only by exporting more than it imported

Answer 64

Mercantilism

Question 65

Export surpluses brought inflow of gold and silver. I

Answer 65

The Mercantilists' Views on Trade

Question 66

One nation gained only at the expense of another.

Answer 66

The Mercantilists' Views on Trade

Question 67

T or F Even if one nation is less efficient than (has absolute disadvantage with respect to) the other nation in production of both commodities, there is still a basis for mutually beneficial trade.

Answer 67

T, based on Law of comparative advantage

Question 68

This nation should specialize in the production and export of the commodity in which its absolute disadvantage is _______(this is the commodity of its comparative advantage) and import the commodity in which its absolute disadvantage in _______ (this is the commodity of its comparative disadvantage).

Answer 68

smaller , greater

Question 69

A nation can export goods even if it has a comparative disadvantage in producing both the goods only when the wages it pays to labors are so low that eventually price of at least one commodity is lower than the nation which has a C.A

Answer 69

Comparative Advantage with Money

Question 70

Thus, the nation with the _________in the production of a commodity has a comp-adv. in that commodity.

Answer 70

lower opportunity cost

Question 71

How much is the trade deficit of the Philippines

Answer 71

4.8 billion dollars

Question 72

Gains from trade deficit

Answer 72

1. There is a trade surplus of services OFWs

Question 73

Why does Thailand and vietnam has a high trade surplus compared to the Philippines

Answer 73

They have a manufacturing industry centered for exporting

Question 74

This manages the gold reserves of The Philippines

Answer 74

BSP

Question 75

Reasons for selling gold reserves

Answer 75

-to control inflation -to boost foreign exchange rate -to diversify investment

Question 76

Considered the positive sum game

Answer 76

Comparative Advantage