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Question 1 (6 points) Which of the following is true? A) David Ricardo proposed the theory of absolute advantage as the basis for trade. B) Absolute advantage is based on comparing the opportunity costs of trading partners. C) The Ricardian model assumes labor is perfectly mobile. D) Adam Smith proposed the theory of comparative advantage as the basis for trade in The Wealth of Nations Question 2 (6 points) Answer the question(s) below based on the information in the following table Country Goods 3 4 2 (numbers indicate hours of labor per unit of output) Refer to the table above. Country A has absolute advantage in A) Good X B) Good Y CNeither X nor Y D) Both X and YQuestion 3 (6 points) If a nation has no absolute advantage, then it A) cannot gain from trade B) can only gain from trade if it raises its productivity levels C) still gains from trade D) can only gain from trade if it produces outside its production possibilities curve. Question 4 (6 points) Answer the question(s) below based on the information in the following table Country 3 4 2 (numbers indicate hours of labor per unit of output) Refer to the table above. If countries were to trade along the lines of absolute advantage A) B would import Y from A B) A would export X to B C) neither country would want to trade. D) More information is needed to determine the pattern.Question 5 (6 points) Use the data in the table below to answer the following question(s): Table 3.1 Output per Hour Worked United States Mexico Computers Shoes 3 pairs pairs Based on Table 3.1, the opportunity cost of a pair of shoes in the United States is A) three computers. B) one computer. C two computers. D) one-half computer

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Answer #1

1) C. The Ricardian  model assumes labor is perfectly mobile.

2) A. Good X

Because country A takes less hours to produce X

3) C) still gains from trade

Comparative advantage is the basis of trade.

4) B. A would export X to B

5) D) one half computer

Opportunity cost of shoes in US = 3/6= 0.5

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