The Division of the Gains from Trade Between Two Trading

question 58

Multiple Choice

The division of the gains from trade between two trading countries depends on the

• A)difference between the terms of trade and the countries' autarkic relative prices.
• B)long-run costs.
• C)quantity of resources held by each country.
• D)level of unemployment in both countries.
• E)size of the absolute advantages possessed by each country.

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Definitions:

Residual Income

The net income an entity generates above its cost of capital, a measure of profitability that calculates the surplus after accounting for the cost of capital.

Operating Income

This is the profit realized from a business's operations, after deducting operating expenses such as wages and cost of goods sold but before interest and taxes.

Acceptable Operating Income

The level of earnings from core operations deemed satisfactory by management, often in line with industry benchmarks or internal targets.

DuPont Formula

A method for analyzing components of return on equity to understand what factors are driving or affecting it.