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1. (5 points) In theory, national gains from trade permit the winners from freer trade to
compensate the losers from freer trade and still leave everyone better off.
2. (5 points) In the specific factors model with mobile labor and sector-specific capital in
both sectors, the return to capital must be the same in both sectors.
3. (5 points) A decrease in the capital-labor ratio raises the marginal product of capital.
4. (5 points) In the specific factors model, the slope of the production possibility frontier
(PPF) is a straight line because of constant returns in production.
5. (5 points) One difference between the Ricardian model and the Specific Factors Model of
trade is that in the former model the marginal product of labor is constant, while in the
latter it is a decreasing function of labor.
6. (5 points) Both the Ricardian model and the Specific Factors Model of trade predict that
once a country opens up to trade, it completely specializes in the comparative advantage
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This document was uploaded on 01/18/2014.
- Spring '14