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True or False. Explain why it is true or false. 1) A change in people’s preferences...

True or False. Explain why it is true or false.

1) A change in people’s preferences always leads to an increase in the Terms of Trade for a country.

2) With free trade, the industrialized countries gain at the expense of the agricultural countries.

3) In a 2X2X2 model, free trade leads to identical rental rate levels in both countries.

4) In the Neo-Classical model in autarky, a country can produce only one good at a time.

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Answer #1

1) It is false that a change in people’s preferences always leads to an increase in the Terms of Trade for a country. This is because it can't always be favourable for ToT.

2) It is true that with free trade, the industrialized countries gain at the expense of the agricultural countries. This is because the industrialized countries have more resources, machines and infrastructure in comparision of agricultural countries.

3) Yes it is true that in a 2X2X2 model, free trade leads to identical rental rate levels in both countries.

4) It is true that in the Neo-Classical model in autarky, a country can produce only one good at a time.

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