Exam 8: The Basis for Trade: Factor Endowments and the Heckscher-Ohlin Model

If relatively capital-abundant country A opens trade with relatively labor-abundant Country B and the trade takes place in accordance with the Heckscher-Ohlin theorem,What would be the consequence for factor prices (w/r) in the two countries?

Which one of the following is NOT an assumption in the Heckscher-Ohlin analysis?

The Stolper-Samuelson theorem suggests that, when a country is opened to international Trade, the real income of the country's abundant factor of production will __________And the real income of the country's scarce factor of production __________.

In the situation of "demand reversal" in a 2x2x2 context where all the assumptions of the Heckscher-Ohlin analysis hold except for the assumption of identical demands across Countries, and when the countries are trading with each other,

(a) In a 2x2x2 context, state the Heckscher-Ohlin theorem. Then indicate how this theorem can be obtained, utilizing the physical definition of relative factor abundance. (b) When a country enters into trade in accordance with the Heckscher-Ohlin theorem, what happens to the real income of the country's relatively abundant factor of production and what happens to the real income of the country's relatively scarce factor of production? Carefully explain.

(a) State the Heckscher-Ohlin theorem. Then, in the context of a 2x2x2 model and using the "price definition" of relative factor abundance, illustrate and explain how this theorem is obtained. (b) Continuing with the "price definition" of relative factor abundance in the 2x2x2 context, carefully explain what happens (and why) to the relative factor price difference between the two countries as the countries move from autarky to free trade.

In the "specific-factors" model where capital in each sector is fixed but labor can move Freely between the two sectors, the opening of the country to trade will increase the real Return to capital in the __________ sector and will increase the real wage of a worker Who __________.

If country I is defined as "relatively capital-abundant" in relation to country II by the "price" (or "economic") definition of factor abundance, then the price of labor relative to the price of capital is __________ in country I than in country II, and the Heckscher-Ohlin theorem would suggest that country I would export relatively __________ goods to country II.

In the following diagram, At factor prices (w/r)_I, good X is the __________, and, at factor prices (w/r)_II, good Y is The __________.

In a two-country world, if country A is the relatively labor-abundant and country B is the relatively capital-abundant country by the "price" definition of factor abundance (and where w is the wage rate and r is the return to capital), then __________. When the countries move from autarky to Heckscher-Ohlin-type trade, the result will be that __________.

An implication of the Heckscher-Ohlin theorem is that