Exam 5: Who Gains and Who Loses From Trade

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 from $3 per unit to $4 per unit. The price of wheat remains unchanged at $3 per unit. The wage rate and the rental rate change to _____ and _____ respectively._____.

Which of the following is most likely to be predicted by the Heckscher-Ohlin theory?

Free trade can be expected to cause a decrease in the real incomes of the owners of the factor used intensively in the import-competing industry.

In the long-run, gainers and losers from trade are defined by the product sector they are employed in, rather than the factors of production they own.

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. Based on this information, which of the following statements is true? 1 pound of bread 1 gallon of wine Capital input 5 units 20 units Labor input 4 units 10 units

The Stolper-Samuelson theorem predicts that free trade between the United States, a capital-abundant country, and Mexico, a labor-abundant country, would ultimately result in:

According to the specialized-factor pattern, the more a factor is concentrated in the production of a product, the more it stands to gain from an increase in the price of this product.

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, Alpha has a comparative advantage in the production of:

In the short-run after a country engages in free trade, wages and land rents can be expected to rise in the expanding sector of the country.

The Leontief paradox suggests that in the United States, physical capital was an export-oriented input.

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. 1 pound of bread 1 gallon of wine Capital input 5 units 20 units Labor input 4 units 10 units Which of the following can most reasonably be inferred for the short run after this country opens to free trade?

According to the Stolper-Samuelson theorem, an increase in the price of a country's imports will:

Suppose country X is relatively labor abundant and relatively land scarce. Country Y, on the other hand, is relatively labor scarce and relatively land abundant. The production of corn is relatively land intensive while, the production of shoes is relatively labor intensive. Explain the short and long-run effects of opening to free trade between these countries on the incomes of: workers employed in the production of corn in each country; workers employed in the production of shoes in each country; land used in the production of corn in each country; and land used in the production of shoes in each country.

While China's exports are consistent with the predictions of the Heckscher-Ohlin theory, her imports are not.

The theory which predicts that trade occurs because of differences in the availability of inputs across countries and the differences in the proportions in which the inputs are used in producing different products is called:

Which of the following statements is true?

The following equations describe the prices and marginal costs of producing corn and toys in a country. The numbers in the equations indicate the amounts of labor and land needed to produce a unit of corn and a unit of toys. In the equations, the wage rate and the rental rate are denoted by 'w' and 'r' respectively. P_corn = 80w + 40r P_toys = 100w + 30r a.If the price per unit of corn and the price per unit of toys are initially $200, calculate the wage rate and the rental rate.Calculate the labor cost per unit of corn and per unit of toys.What is the rental cost per unit of corn and per unit of toys? b.Suppose post-trade the price of corn increases to $240.However, the price of toys remains unchanged.What are the new values for 'w' and 'r' after adjustment to the new long-run situation? c.What is the change in the real wage with respect to each good? What is the change in the real rental rate with respect to each good? d.Relate your conclusions in part c to the Stolper-Samuelson theorem.

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, the price of food will:

International trade patterns are broadly consistent with the Heckscher-Ohlin prediction that nations tend to export the products that use their abundant factors intensively.

Explain the weak and the strong forms of the factor-price equalization theorem, and discuss their real world relevance.