DIŞ TİCARET

Classical Trade Theory which is constructed upon both the Theory of Absolute Advantage and the Theory of Comparative Advantage postulates that the basis of the comparative advantage is the labor theory of value. The correct answer is " A " .

The first economists who developed a more detailed analysis on the differences in productivity are Eli Heckscher and Bertil Ohlin. The correct answer is " C ".

Indifference curve (I)
It represents the total demand of a country. The correct answer is " E ".

The Factor Endowments and the HeckscherOhlin Theory, or simply the Heckscher Ohlin Theory, developed upon the weaknesses of the previous theories has some simplifying assumptions. Instead of examining them at the stage where the analysis stands, it’d be more effective to give them before starting to analyze the theory as a whole. The Heckscher-Ohlin Theory stands on twelve simplifying assumptions. The correct answer is " E ".

In a perfectly competitive market or simply in perfect competition, there are many firms that are producing a homogeneous commodity. Thus, the commodit-ies within the market are identical in every respect. There are many consumers who are ready to buy the commodities that are produced identically. As there are no restrictions imposed, it’s easy for the new firms to enter into the market and for the existing firms to exit out from the market. The participants of the market, the firms and the consumers are well-informed about the prices and
the facts related with the market. The correct answer is " C ".

Perfect competition is one of the four types of the market types that the economists identify. The other market types are monopolistic competition, oligopoly and monopoly. Monopolistic competition is a market type in which many firms produce similar but differentiated commodities and compete with each other. The correct answer is " B ".

There is free trade between the trading countries: This assumption postulates that there are no obstacles on the free movement of commodities such as tariffs or non-tariff restrictions. Moreover, there are no transportation costs that can constitute a restriction on the free trade. The correct answer is " D ".

General equilibrium of an economy is determined by the intersection of the production possibilities frontier, the autarky relative price line, and the indifferent curve. The correct answer is " A ".

Paul Samuelson (1915-2009) was an American economist who wrote the largest-selling economics textbook ever in 1948, namely Economics: An Introductory
Analysis. He explained the principles of Keynesian economics and the way of economics thinking in his widelyreferred book. This book of his has done its nineteenth edition and has been sold in almost forty languages. Apart from this book, he has various studies devoted to economics. He was the first American economist who won the Nobel prize in economics (MIT Economics). The correct answer is " B ".

Factor-Intensity Reversal explains the situation in which a commodity is the labor-intensive commodity in the labor-abundant country and the capital intensive commodity in the capitalabundant country.  The Factor-Intensity Reversal rests on the elasticity of substitution of factors of production. Elasticity of substitution of factors of production measures the ease with which one factor of production can be substituted for another within the production as the relative price of the factor declines. The correct answer is " A ".

In the international trade analysis, production possibilities frontier (PPF) represents the total supply of the trading country while total demand is exhibited by the indifference curve (I).

Opportunity cost of a choice is the highest valued alternative that is given up. It is the quantity ratio of the production decrease in the commodity to the production increase in the other commodity as the production moves along the production possibilities frontier.

One of the assumptions is that there is perfect competition in the commodities and the factor markets in both countries. In a perfectly competitive market, there are many firms that are producing a homogeneous commodity. Thus, the commodities within the market are identical in every respect. There are many consumers who are ready to buy the commodities that are produced identically.

The production possibilities frontier of a labor-abundant country is skewed toward the axis that measures the labor-intensive commodity. The production possibilities frontier of a capital-abundant country is skewed toward the axis that measures the capital-intensive commodity.

The quantities of the commodities that a country would like to export and import are perfectly represented by an offer curve. Offer curve of a country gives the country’s willingness to export and import in terms of relative quantities.

The Classical Trade Theory or simply the Ricardian Model assumes that comparative advantage of the countries solely depends on the relative differences in the productivity of labor. Nevertheless, it does not explain the reason of these productivity differences. In other words, the Ricardian Model does not clarify the basis of the comparative advantage. Heckscher-Ohlin Theory was developed so as to respond to two questions that had not been answered by the Classical Trade Theory: (1) What is the determinant of the comparative advantage of the countries? (2) How does international trade affect the earnings of the factors of production within the trading countries?

In a perfectly competitive market or simply in perfect competition, there are many firms that are producing a homogeneous commodity. Thus, the commodities within the market are identical in every respect. There are many consumers who are ready to buy the commodities that are produced identically. As there are no restrictions imposed, it’s easy for the new firms to enter into the market and for the existing firms to exit out from the market. The participants of the market, the firms and the consumers are well-informed about the prices and the facts related with the market.

Stolper-Samuelson Theorem depends on the International Factor Price Equalization Theorem. In spite of the similarities between them, Stolper Samuelson Theorem explains the distribution of income effects of international trade within a trading country while International Factor Price Equalization Theorem deals with the international distribution of income effects of international trade.

Although the assumptions of the Stolper Samuelson Theorem seem logical, it constitutes the initial stage in explaining the distribution of income effects of international trade. The Theorem can be extended by taking into consideration the magnification effect. According to the magnification effect, an increase or a decrease in the price of a commodity has a greater effect in the same direction on the income of the factor used intensively in its production.

Factor-Intensity Reversal explains the situation in which a commodity is the labor-intensive commodity in the labor-abundant country and the capital-intensive commodity in the capital abundant country.The Factor-Intensity Reversal rests on the elasticity of substitution of factors of production.