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CHAPTER 2 FOUNDATIONS OF MODERN TRADE THEORY: COMPARATIVE ADVANTAGE MULTIPLE-CHOICE QUESTIONS 1. The mercantilists would have objected to: a. Export promotion policies initiated by the government b. The use of tariffs or quotas to restrict imports c. Trade policies designed to accumulate gold and other precious metals d. International trade based on open markets 2. Unlike the mercantilists, Adam Smith maintained that: a. Trade benefits one nation only at the expense of another nation b. Government control of trade leads to maximum economic welfare c. All nations can gain from free international trade d. The world’s output of goods must remain constant over time 3. The trading principle formulated by Adam Smith maintained that: a. International prices are determined from the demand side of the market b. Differences in resource endowments determine comparative advantage c. Differences in income levels govern world trade patterns d. Absolute cost differences determine the immediate basis for trade 4. Unlike Adam Smith, David Ricardo’s trading principle emphasizes the: a. Demand side of the market b. Supply side of the market c. Role of comparative costs d. Role of absolute costs 5. When a nation requires fewer resources than another nation to produce a product, the nation is said to have a(n): a. Absolute advantage in the production of the product b. Comparative advantage in the production of the product c. Lower marginal rate of transformation for the product d. Lower opportunity cost of producing the product 6. According to the principle of comparative advantage, specialization and trade increase a nation’s total output since: a. Resources are directed to their highest productivity b. The output of the nation’s trading partner declines c. The nation can produce outside of its production possibilities curve d. The problem of unemployment is eliminated 7. In a two-product, two-country world, international trade can lead to increases in: a. Consumer welfare onl