Question 1. Classical Trade Theories (5 points)
Each letter on the right belongs to one of the three theories on the left. Please type the letter below the correct choice.
| Theory of mercantilism
Theory of absolute advantage
Theory of comparative advantage
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a. The value of any good is a function of the amount of labor expended in its production, so the idea of the division of labor is a way of increasing production efficiency.
b. Government should intervene in international trade by protecting infant industries, promoting industrialization, and protecting jobs that are lower paid and require lower levels of skills.
c. The EU claims that the US subsidizes its wheat industry excessively, while the US argues that the European Common Agricultural Policy similarly favors European farmers.
d. In the area of shipbuilding, the UK was the world leader through the 19th and early 20th centuries. However, as the new economies built up their human and material production resources, they proceeded to undercut the production costs of UK shipbuilding, while maintaining the quality necessary to ship owners. Both Japan and South Korea contributed to the virtual demise of a UK industry that had dominated the world, and the riverfronts of major cities such as Belfast, Glasgow and Newcastle.
e. Government places a tax on foreign produce. As a result, the imported goods become more expensive compared to the domestically produced equivalent. Consumers are more likely to purchase goods delivered by home-country firms. At the same time, the government also benefits from duties paid on those goods.
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