Question 1

The Heckscher-Ohlin theory predicts that the opening of trade between a land-abundant country and a labor-abundant country should result in:

Accepted Answer

A) higher rents and wages in both countries. 
B) lower rents and wages in both countries. 
C) higher rents in the labor-abundant country and higher wages in the land-abundant country. 
D) higher wages in the labor-abundant country and higher rents in the land-abundant country. 
A) higher rents and wages in both countries. 
B) lower rents and wages in both countries. 
C) higher rents in the labor-abundant country and higher wages in the land-abundant country. 
D) higher wages in the labor-abundant country and higher rents in the land-abundant country. D

Question 2

Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. Which of the following is most likely to happen in the long run following the opening of free trade between the countries?

Accepted Answer

A) The workers in Alpha will be better off but the land owners will be worse off. 
B) The workers in Beta will be better off while the land owners will be worse off. 
C) The workers and land owners in the food industry in Beta will be better off while the workers and landowners in the drink industry will be worse off. 
D) The workers and land owners in the food industry in Alpha will be better off while the workers and landowners in the drink industry will be worse off. 
A) The workers in Alpha will be better off but the land owners will be worse off. 
B) The workers in Beta will be better off while the land owners will be worse off. 
C) The workers and land owners in the food industry in Beta will be better off while the workers and landowners in the drink industry will be worse off. 
D) The workers and land owners in the food industry in Alpha will be better off while the workers and landowners in the drink industry will be worse off. A

Question 3

The following input-requirements data are for country A, a capital-abundant country where they produce nothing but bread and wine using only capital and labor as inputs. $$\begin{array} { | c | c | c | } 
\hline & 1 \text { pound of bread } & \text { 1 gallon of wine } \
\hline \text { Capital input } & 5 \text { units } & 20 \text { units } \
\hline \text { Labor input } & 4 \text { units } & 10 \text { units } \
\hline
\end{array}$$ Which of the following is most likely to happen if country A engages in free trade with other countries?

Accepted Answer

A) The prices of both bread and wine will fall in the domestic market. 
B) The price of bread will fall but the price of wine will rise in the domestic market. 
C) The prices of both bread and wine will rise in the domestic market. 
D) The price of bread will rise but the price of wine will fall in the domestic market. 
A) The prices of both bread and wine will fall in the domestic market. 
B) The price of bread will fall but the price of wine will rise in the domestic market. 
C) The prices of both bread and wine will rise in the domestic market. 
D) The price of bread will rise but the price of wine will fall in the domestic market. B

Question 4

The following input-requirements data are for country A, a capital-abundant country where they produce nothing but bread and wine using only capital and labor as inputs. $$\begin{array} { | c | c | c | } 
\hline & 1 \text { pound of bread } & \text { 1 gallon of wine } \
\hline \text { Capital input } & 5 \text { units } & 20 \text { units } \
\hline \text { Labor input } & 4 \text { units } & 10 \text { units } \
\hline
\end{array}$$ Following the opening of trade, Country A would probably:

Accepted Answer

A) export both bread and wine. 
B) export wine and import bread. 
C) import both the goods. 
D) export bread and import wine. 
A) export both bread and wine. 
B) export wine and import bread. 
C) import both the goods. 
D) export bread and import wine.

Question 5

According to the Stolper-Samuelson theorem, workers gain from opening of free trade only in the long-run, and not in the short-run, because wages are sticky in the short run.

Accepted Answer

A) True 
 B)False

Question 6

Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. If the countries engage in free trade, Beta will:

Accepted Answer

A) import both food and drink. 
B) import drink and export food. 
C) export both food and drink. 
D) export drink and import food. 
A) import both food and drink. 
B) import drink and export food. 
C) export both food and drink. 
D) export drink and import food.

Question 7

In the short-run, following the opening of trade:

Accepted Answer

A) inputs move across sectors, but input returns remain constant. 
B) factor payments in the import-competing sectors will decline. 
C) the supply of resources to the export-oriented sectors will decline. 
D) workers in all the sectors will receive lower wages due to cheap imports. 
A) inputs move across sectors, but input returns remain constant. 
B) factor payments in the import-competing sectors will decline. 
C) the supply of resources to the export-oriented sectors will decline. 
D) workers in all the sectors will receive lower wages due to cheap imports.

Question 8

When Wassily Leontief tested the predictions of the Heckscher-Ohlin theory, he found that in 1947 the United States was exporting relatively labor-intensive goods and importing relatively capital-intensive goods. His findings:

Accepted Answer

A) contradicted the Heckscher-Ohlin theory, because the United States was relatively capital-abundant. 
B) contradicted the Heckscher-Ohlin theory, because the United States was relatively labor-abundant. 
C) were never supported by other studies and has thus been labeled a paradox. 
D) were consistent with the predictions of the Heckscher-Ohlin theory. 
A) contradicted the Heckscher-Ohlin theory, because the United States was relatively capital-abundant. 
B) contradicted the Heckscher-Ohlin theory, because the United States was relatively labor-abundant. 
C) were never supported by other studies and has thus been labeled a paradox. 
D) were consistent with the predictions of the Heckscher-Ohlin theory.

Question 9

The factor-price equalization theorem implies that laborers will end up earning the same wage rate in all countries only if the laborers are allowed to migrate between countries.

Accepted Answer

A) True 
 B)False

Question 10

Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. If the countries engage in free trade, Alpha will:

Accepted Answer

A) export both food and drink. 
B) export drink and import food. 
C) import both goods. 
D) export food and import drink. 
A) export both food and drink. 
B) export drink and import food. 
C) import both goods. 
D) export food and import drink.

Question 11

Suppose country A, a labor-abundant country, produces only wheat and cloth. The following equations illustrate the prices and costs of wheat and cloth in the country, where the numbers indicate the amounts of labor and land needed to produce a unit of wheat and cloth. 'w' is the wage rate and 'r' is the rental rate of land. Price of wheat = 1w + 2r
Price of cloth = 2w + 1r
If the initial prices of wheat and cloth are $3 per unit, the labor cost per unit of cloth output is _____ and the rental cost per unit of cloth output is _____.

Accepted Answer

A) $3; $1 
B) $1; $2 
C) $2; $1 
D) $1; $3 
A) $3; $1 
B) $1; $2 
C) $2; $1 
D) $1; $3

Question 12

The Heckscher-Ohlin theory explains comparative advantage enjoyed by countries in the production of certain goods in terms of underlying differences in consumer tastes and preferences.

Accepted Answer

A) True 
 B)False

Question 13

Country A is relatively land-abundant and wheat is relatively land-intensive. Given the assumptions of the Heckscher-Ohlin model, the opening of trade in this country will cause the domestic price of wheat to:

Accepted Answer

A) fall. 
B) rise. 
C) remain unaffected. 
D) at first rise but then fall back to its original level. 
A) fall. 
B) rise. 
C) remain unaffected. 
D) at first rise but then fall back to its original level.

Question 14

Trade makes some people absolutely better off and others absolutely worse off in each of the trading countries. However, the gainers and losers in the short-run are somewhat different from those in the long-run, because more adjustment can occur in the long-run.

Accepted Answer

A) True 
 B)False

Question 15

According to the Stolper-Samuelson theorem, a price change that reduces a country's production of its exportable product would:

Accepted Answer

A) reduce the returns to all factors of production within the country. 
B) raise the returns to all factors of production within the country. 
C) reduce the returns to the factor of production used intensively in the export industry. 
D) raise the returns to the factor of production used intensively in the export industry. 
A) reduce the returns to all factors of production within the country. 
B) raise the returns to all factors of production within the country. 
C) reduce the returns to the factor of production used intensively in the export industry. 
D) raise the returns to the factor of production used intensively in the export industry.

Question 16

Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. According to the Heckscher-Ohlin theory, Beta has a comparative advantage in the production of:

Accepted Answer

A) drink. 
B) food. 
C) both goods. 
D) neither good. 
A) drink. 
B) food. 
C) both goods. 
D) neither good.

Question 17

The following input-requirements data are for country A, a capital-abundant country where they produce nothing but bread and wine using only capital and labor as inputs. $$\begin{array} { | c | c | c | } 
\hline & 1 \text { pound of bread } & \text { 1 gallon of wine } \
\hline \text { Capital input } & 5 \text { units } & 20 \text { units } \
\hline \text { Labor input } & 4 \text { units } & 10 \text { units } \
\hline
\end{array}$$ In the long run, which of the following can most reasonably be inferred after this country engages in free trade?

Accepted Answer

A) The wage rates will decline but the returns to capital will increase. 
B) The returns to capital will decline but the wage rates will increase. 
C) The wage rates will decline in the wine industry and will increase in the bread industry. 
D) The returns to capital will fall in the wine industry and will rise in the bread industry. 
A) The wage rates will decline but the returns to capital will increase. 
B) The returns to capital will decline but the wage rates will increase. 
C) The wage rates will decline in the wine industry and will increase in the bread industry. 
D) The returns to capital will fall in the wine industry and will rise in the bread industry.

Question 18

Suppose country A, a labor-abundant country, produces only wheat and cloth. The following equations illustrate the prices and costs of wheat and cloth in the country, where the numbers indicate the amounts of labor and land needed to produce a unit of wheat and cloth. 'w' is the wage rate and 'r' is the rental rate of land. Price of wheat = 1w + 2r
Price of cloth = 2w + 1r
Suppose country A engages in free trade and the price of cloth increases to $4 per unit. However, the price of wheat remains unchanged. As a result of the change in the price of cloth, the landowners are most likely to be able to:

Accepted Answer

A) purchase more of both cloth and wheat than in the absence of trade. 
B) purchase more wheat but less cloth than in the absence of trade. 
C) purchase less of both cloth and wheat than in the absence of trade. 
D) purchase more cloth but less wheat than in the absence of trade. 
A) purchase more of both cloth and wheat than in the absence of trade. 
B) purchase more wheat but less cloth than in the absence of trade. 
C) purchase less of both cloth and wheat than in the absence of trade. 
D) purchase more cloth but less wheat than in the absence of trade.

Question 19

The factor-price-equalization theorem tells us that free trade between two countries should result in:

Accepted Answer

A) all workers in the two countries earning the same wage rate. 
B) all workers in the two countries having the same skill level. 
C) all workers of the same skill level earning the same wage rate in the two countries. 
D) all input prices being equal within each country. 
A) all workers in the two countries earning the same wage rate. 
B) all workers in the two countries having the same skill level. 
C) all workers of the same skill level earning the same wage rate in the two countries. 
D) all input prices being equal within each country.

Question 20

In the short-run, following the opening of trade:

Accepted Answer

A) workers in the country can change jobs but will receive the same wage. 
B) workers will suffer from lower wages but land owners will benefit from higher rents. 
C) all groups tied to declining sectors of the economy will suffer from lower returns. 
D) gross output remains constant. 
A) workers in the country can change jobs but will receive the same wage. 
B) workers will suffer from lower wages but land owners will benefit from higher rents. 
C) all groups tied to declining sectors of the economy will suffer from lower returns. 
D) gross output remains constant.

The Heckscher-Ohlin theory predicts that the opening of trade between a land-abundant country and a labor-abundant country should result in:

According to the Stolper-Samuelson theorem, workers gain from opening of free trade only in the long-run, and not in the short-run, because wages are sticky in the short run.

Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. If the countries engage in free trade, Beta will:

In the short-run, following the opening of trade:

When Wassily Leontief tested the predictions of the Heckscher-Ohlin theory, he found that in 1947 the United States was exporting relatively labor-intensive goods and importing relatively capital-intensive goods. His findings:

The factor-price equalization theorem implies that laborers will end up earning the same wage rate in all countries only if the laborers are allowed to migrate between countries.

Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. If the countries engage in free trade, Alpha will:

The Heckscher-Ohlin theory explains comparative advantage enjoyed by countries in the production of certain goods in terms of underlying differences in consumer tastes and preferences.

Country A is relatively land-abundant and wheat is relatively land-intensive. Given the assumptions of the Heckscher-Ohlin model, the opening of trade in this country will cause the domestic price of wheat to:

Trade makes some people absolutely better off and others absolutely worse off in each of the trading countries. However, the gainers and losers in the short-run are somewhat different from those in the long-run, because more adjustment can occur in the long-run.

According to the Stolper-Samuelson theorem, a price change that reduces a country's production of its exportable product would:

The factor-price-equalization theorem tells us that free trade between two countries should result in:

In the short-run, following the opening of trade:

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

Filters

Exam 5: Who Gains and Who Loses From Trade

The Heckscher-Ohlin theory predicts that the opening of trade between a land-abundant country and a labor-abundant country should result in:

According to the Stolper-Samuelson theorem, workers gain from opening of free trade only in the long-run, and not in the short-run, because wages are sticky in the short run.

Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. If the countries engage in free trade, Beta will:

In the short-run, following the opening of trade:

When Wassily Leontief tested the predictions of the Heckscher-Ohlin theory, he found that in 1947 the United States was exporting relatively labor-intensive goods and importing relatively capital-intensive goods. His findings:

The factor-price equalization theorem implies that laborers will end up earning the same wage rate in all countries only if the laborers are allowed to migrate between countries.

Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. If the countries engage in free trade, Alpha will:

The Heckscher-Ohlin theory explains comparative advantage enjoyed by countries in the production of certain goods in terms of underlying differences in consumer tastes and preferences.

Country A is relatively land-abundant and wheat is relatively land-intensive. Given the assumptions of the Heckscher-Ohlin model, the opening of trade in this country will cause the domestic price of wheat to:

Trade makes some people absolutely better off and others absolutely worse off in each of the trading countries. However, the gainers and losers in the short-run are somewhat different from those in the long-run, because more adjustment can occur in the long-run.

According to the Stolper-Samuelson theorem, a price change that reduces a country's production of its exportable product would:

The factor-price-equalization theorem tells us that free trade between two countries should result in:

In the short-run, following the opening of trade:

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

Filters