Exam 4: Trade: Factor Availability and Factor Proportions Are Key

The figure given below shows the production-possibility curves of Canada (AB) and the Rest of the World (CD). The pre-trade price ratio in Canada and the Rest of the World are given by the lines P₁ and P₃ respectively. The international price ratio faced by the countries is represented by the line P₂. I?₁ and I₂ are the pre-trade and post-trade social indifference curves for both Canada and the Rest of the World respectively. In the absence of trade, Canada consumes _____ bales of cotton and _____ bushels of wheat.

Assume a two-country two-good two-input model. Let the countries in the model be the United States and the Rest of the World and the goods be steel and wheat. The two factors of production are capital and land. Further, the United States is capital-abundant and steel production is capital-intensive. Suppose, in the absence of trade, the United States operates at a point on its production-possibility curve where it produces and consumes 20 units of wheat and 20 units of steel. Once it engages in free trade, the international price of one unit of steel is two units of wheat. In response to the opening of trade, the United States moves along its production-possibility curve to a new point where it produces 30 units of steel and 10 units of wheat. Is the United States better-off following the opening of trade? Provide a logical proof of your answer.

In a two-country two-good model, the opening of trade will necessarily lead to complete specialization in the production of one good by one country and complete specialization in the production of the other good by the other country.

Assume a two-country two-good two-input model where the following relationships hold: (K/L)_U.S. > (K/L)_ROW (K/L)_automobiles > (K/L)_shoes Where (K/L)_U.S. is the capital-labor ratio in the United States, (K/L)_ROW is the capital-labor ratio in the Rest of the World, (K/L)_automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)_shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. The relationships shown here indicate that, with no trade, in the United States:

Assume a two-country two-good two-input model where the following relationships hold: (K/L)_U.S. > (K/L)_ROW (K/L)_automobiles > (K/L)_shoes Where (K/L)_U.S. is the capital-labor ratio in the United States, (K/L)_ROW is the capital-labor ratio in the Rest of the World, (K/L)_automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)_shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. Which of the following statements is true?

The figure given below shows the post-trade production and consumption points in country Y. AB is the production-possibility curve of country Y. I₁ is the community indifference curve of country Y. Country Y exports:

Assume a two-country two-good two-input model where the following relationships hold: (K/L)_U.S. > (K/L)_ROW (K/L)_automobiles > (K/L)_shoes Where (K/L)_U.S. is the capital-labor ratio in the United States, (K/L)_ROW is the capital-labor ratio in the Rest of the World, (K/L)_automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)_shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. According to the Heckscher-Ohlin model, free trade between the United States and the Rest of the World would result in:

As a country moves up along its "bowed-out" production possibility curve, the opportunity cost of producing more of the good measured on the y-axis decreases.

In the figure given below AB is the production-possibility curve of Canada. In the absence of trade, the price ratio is 1 bushel of wheat/bale of cotton as shown by the line PQ. The international price ratio is 0.25 bushels of wheat/bale of cotton as shown by the line RS. I₁ and I₂ are the pre-trade and the post trade community indifference curves of Canada respectively. Which of the following can be inferred from this figure?

The table given below shows the units of land and labor required to produce a unit of bread and cheese respectively in country X. Identify the correct statement. 1 urit of Bread 1 unit of Cheese Labor Input 5 units 20 units Land Input 4 units 10 units

Assume a two-country two-good two-input model where the following relationships hold: (K/L)_U.S. > (K/L)_ROW (K/L)_automobiles > (K/L)_shoes Where (K/L)_U.S. is the capital-labor ratio in the United States, (K/L)_ROW is the capital-labor ratio in the Rest of the World, (K/L)_automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)_shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. The relationships shown in here indicate that the United States has a comparative advantage in the production of _____ while the Rest of the World has a comparative advantage in the production of _____.

The production-possibility curve alone does not provide enough information to determine the amount of each good produced by the economy.

In the figure given below AB is the production-possibility curve of Canada. In the absence of trade, the price ratio is 1 bushel of wheat/bale of cotton as shown by the line PQ. The international price ratio is 0.25 bushels of wheat/bale of cotton as shown by the line RS. I₁ and I₂ are the pre-trade and the post trade community indifference curves of Canada respectively. After Canada engages in free trade, it will:

"In the two-good, two-country model with increasing costs, the output quantities are determined only by considering society's preferences as illustrated with indifference curves. However, in the same model, it is possible to determine the post-trade consumption point in each country without indifference curves." Is this statement true or false? Justify your answer.

Explain why the Heckscher-Ohlin model predicts only partial specialization in the production of two goods, while Ricardo's comparative advantage model predicts full specialization.

Consider a two-country two-good model where labor is the only factor of production. Each country faces an increasing-cost production-possibility curve. In this model the amounts of both goods that are produced in a country in no-trade situation are determined by:

Country Y has 15 thousand acres of land and 45 thousand laborers, whereas the Rest of the World has 100 thousand acres of land and 200 thousand laborers. These countries produce a labor-intensive good A, and a land-intensive good B. Based on the information given here, we can conclude that:

After the North American Free Trade Agreement (NAFTA) was signed, trade restrictions between Canada, the United States, and Mexico were eased and cross-border trade increased. What predictions would the Heckscher-Ohlin model make concerning the changes in labor-intensive industries such as textiles in both Mexico and the United States and in capital-intensive industries such as steel in both Mexico and the United States, as a result of NAFTA?

Assume a two-country two-good two-input model where the following relationships hold: (K/L)_U.S. > (K/L)_ROW (K/L)_automobiles > (K/L)_shoes Where (K/L)_U.S. is the capital-labor ratio in the United States, (K/L)_ROW is the capital-labor ratio in the Rest of the World, (K/L)_automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)_shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. If trade opens up between the United States and the Rest of the World, according to the Heckscher-Ohlin model, the Rest of the World will export _____ and import _____.

The community indifference curves illustrate the technological capabilities of a country.