Question

In the model of trade based on production possibilities frontiers as presented in the Mankiw text, the gain from improved technology due to increased trade is not a fundamental source of the benefits to both countries.

True

False

Answer 1

Solution: TRUE

As presented in the Mankiw text, Production Possibility Frontier (PPF) is a graph that depicts the several combinations of output that an economy can possibly produce given the amount of available resources and the current production technology that firms use in production process for transforming those inputs into outputs. Any benefit from enhanced technology due to increased trade is not a fundamental source of the gain to both countries. Mankiw assume that the level of technology at any specified point in time depends on every nation's initial level of technology however the growth rate of technology is constant across all nations.