Question

1. True/False/Uncertain: There may always be someone who loses from trade. (Hint: when T/F/U questions do not specify a model, your answer must consider all models that could apply, explain how they apply, and what their response would be.)

2. True/False/Uncertain: According to the Ricardian model, relative prices are always dictated by your country's labor productivity in each industry. 2. True/False/Uncertain: According to the Ricardian model, relative prices are always dictated by your country's labor productivity in each industry.

Answer 1

1. False. This is because there are chances such as in Recardian model of comparative advantage that both could gain from trade although the extent of gain depends on various factors.

2. True. In Recardian theory, relative prices are determined by the opportunity cost and opportunity cost depends upon labour productivity in each industry. If labour productivity increases in any industry irrespective of whether or not the country has comparative advantage in this commodity, opportunity cost is bound to change and relative price will also change accordingly.