3 Indicate if the following sentences are true or false Just

3 Indicate if the following sentences are true or false. Justify your choice. (a) (20 points) In Ricardo, there are gains of trade because, relative to autarky, in free trade there is an expansion in the production possibilities of the country. (b) (20 points) Ricardo can explain why Mexico exports agricultural products to USA and that USA exports more sophisticated products to Mexico. However, it cannot explain why Mexico has lower wages than the US. (c) (20 points) The Specific-Factors model predicts that some groups are going to be worse off under trade. This contradicts Ricardo\'s model which predicts that countries gain from trade.

Solution

3)

a) true; because according to Ricardo countries specialize in goods in which they have comparative advantage. This leads to increased production.

b) True, because the model is based on the assumption of comparative advantage that the countries produces good for which the opportunity cost is the least.

c) true