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The gravity model of trade describes an exact physical relationship between trade, distance and size of trading partners.
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- The gravity model of international trade predicts that the trade volume between any two countries increases 1. with the distance between the countries. 2. with the GDP of the countries.The gravity model allows to directly compare the effect on borders on trade to the effect of distance on trade. True FalseIn the Heckscher-Ohlin model with trade the wage in a country that produces both goods will depend on its labour abundance. True False
- It is often asserted that the United States no longer manufactures anything, and that instead it imports manufactured goods from countries like China. Critically evaluate both sides of this argument.In the specific factor model, with free trade the relative price of imported goods cannot be _____ than in autarky.In the specific factor model with labour as a mobile factor, introducing trade lowers the welfare of workers increases output and consumption in the world. increases the welfare of all the owners of specific factors in Home. induces a Pareto improvement for the economy that exports more.
- The law of comparative advantages in trade typically applies only to trade between nations and favors the party who has the highest opportunity cost. True FalseWhich of the following is not a use of the concept of terms of trade? Select one: a) Current price trends may be analyzed b) The causes for price changes may be analyzed c) Changes in price may be forecasted d) Gains from trade may be analyzed e) Domestic inflation may be estimatedCompare the HO model with Linder Hypothesis and explain the main differences between them in determining international trade pattern and direction.
- The failure of the Doha round of negotiation after many years has led to an increase in regional trade agreements. Using trade theory, discuss the effect of regional trade agreements in Africa and their potential in improving economic outcomes (employment, prices, etc.).According to the Heckscher-Ohlin model, free trade would lead to an equalization of wage rate internationally. Explain why we do not observe that result in the real world, where, for instance, there is great discrepancy in wage rate between developed and developing countriesStandard trade Model When comparing the agricultural sectors of the USA and the UK, we can analyze it within the framework of the standard trade model, also known as the neoclassical trade model. This model assumes perfect competition, constant returns to scale, and comparative advantage based on differences in factor endowments. Here's how the standard model can be applied to the agricultural sectors of the USA and the UK: a) Land: The USA has vast amounts of arable land, which can be used for agriculture. Its large land endowment can give it a comparative advantage in the production of various agricultural commodities. b) Labor: The UK's agricultural sector might not have a significant comparative advantage in labor-intensive agriculture due to relatively high labor costs compared to countries with lower wage levels. However, it may focus on niche agricultural products or high-value crops that require specialized labor or have specific geographical advantages. c) Capital: The…