Question 1

In the 2-factor,2 good Heckscher-Ohlin model,an influx of workers from across the border would

Accepted Answer

A)  move the point of production along the production possibility curve. 
B)  shift the production possibility curve outward, and increase the production of both goods. 
C)  shift the production possibility curve outward and decrease the production of the labor-intensive product. 
D)  shift the production possibility curve outward and decrease the production of the capital-intensive product. 
E)  shift the possibility curve outward and displace preexisting labor. 
A)  move the point of production along the production possibility curve. 
B)  shift the production possibility curve outward, and increase the production of both goods. 
C)  shift the production possibility curve outward and decrease the production of the labor-intensive product. 
D)  shift the production possibility curve outward and decrease the production of the capital-intensive product. 
E)  shift the possibility curve outward and displace preexisting labor. D

Question 2

"A good cannot be both land- and labor-intensive." Discuss.

Accepted Answer

In a two good,two factor model,such as the original Heckscher-Ohlin framework,the factor intensities are relative intensities.Hence,the relevant statistic is either workers per acre (or acres per worker);or wage per rental unit (or rental per wage).In order to illustrate the logic of the statement above,let us assume that the production of a broom requires 4 workers and 1 acre.Also,let us assume that the production of one bushel of wheat requires 40 workers and 80 acres.In this case the acres per person required to produce a broom is one quarter,whereas to produce a bushel of wheat requires 2 acres per person.The wheat is therefore (relatively)land intensive,and the broom is (relatively)labor intensive.

Question 3

-Refer to above figure.In autarky,Country P was producing at point 5.With trade,would its production point be found above or below point 5? Explain why.What must happen in the K/L intensity ratio in the production of each of the products in this country when moving from autarky to free trade?

Accepted Answer

The point of production with trade will be above point 5.The country will be shifting its production composition to be more heavily weighted in labor intensive good,C.Within each industry,the production technique will be more capital intensive,since with the rising relative wage,the optimal point of production will involve sliding around the isoquants in the direction of saving on the now relatively more expensive labor.

Question 4

Empirical support for the Heckscher-Ohlin model was weakest when the study applied

Accepted Answer

A)  all of the assumptions of the model. 
B)  all of the assumptions of the model except that regarding technology. 
C)  all of the assumptions of the model except those regarding technology, goods and shipping costs. 
D)  all of the assumptions of the model except those regarding technology, shipping costs and gravity. 
E)  all of the assumptions of the model except those regarding shipping costs. 
A)  all of the assumptions of the model. 
B)  all of the assumptions of the model except that regarding technology. 
C)  all of the assumptions of the model except those regarding technology, goods and shipping costs. 
D)  all of the assumptions of the model except those regarding technology, shipping costs and gravity. 
E)  all of the assumptions of the model except those regarding shipping costs.

Question 5

In the Heckscher-Ohlin model,when there is international-trade equilibrium

Accepted Answer

A)  the relative price of the capital intensive good in the capital rich country will be the same as that in the capital poor country. 
B)  the capital rich country will charge less for the capital intensive good than the price paid by the capital poor country for the capital-intensive good. 
C)  the capital rich country will charge more for the capital intensive good than the price paid by the capital poor country for the capital-intensive good. 
D)  workers in the capital rich country will earn more than those in the poor country. 
E)  the workers in the capital rich country will earn less than those in the poor country. 
A)  the relative price of the capital intensive good in the capital rich country will be the same as that in the capital poor country. 
B)  the capital rich country will charge less for the capital intensive good than the price paid by the capital poor country for the capital-intensive good. 
C)  the capital rich country will charge more for the capital intensive good than the price paid by the capital poor country for the capital-intensive good. 
D)  workers in the capital rich country will earn more than those in the poor country. 
E)  the workers in the capital rich country will earn less than those in the poor country.

Question 6

If the price of the capital intensive product rises more than does the price of the land intensive product,then

Accepted Answer

A)  the relative price of the capital intensive product will fall to some point between the pretrade relative prices. 
B)  demand will shift away from the capital-intensive product, and its production will decrease. 
C)  demand will shift away from the capital-intensive product, and its production will decrease relative to that of the land intensive product. 
D)  the production of the capital-intensive product will decrease, but by less than production of the land-intensive product. 
E)  the country that exports the capital-intensive good will lose its comparative advantage. 
A)  the relative price of the capital intensive product will fall to some point between the pretrade relative prices. 
B)  demand will shift away from the capital-intensive product, and its production will decrease. 
C)  demand will shift away from the capital-intensive product, and its production will decrease relative to that of the land intensive product. 
D)  the production of the capital-intensive product will decrease, but by less than production of the land-intensive product. 
E)  the country that exports the capital-intensive good will lose its comparative advantage.

Question 7

If a good is labor intensive it means that the good is produced

Accepted Answer

A)  using relatively more labor than goods that are not labor intensive. 
B)  using labor as the only input. 
C)  using more labor per unit of output than goods that are not labor intensive. 
D)  using labor such that the total cost of labor is greater than the total cost of capital. 
E)  using labor such that the cost of labor is more than 50% of total cost. 
A)  using relatively more labor than goods that are not labor intensive. 
B)  using labor as the only input. 
C)  using more labor per unit of output than goods that are not labor intensive. 
D)  using labor such that the total cost of labor is greater than the total cost of capital. 
E)  using labor such that the cost of labor is more than 50% of total cost.

Question 8

The Case of the Missing Trade refers to

Accepted Answer

A)  the fact that factor trade is less than predicted by the Heckscher-Ohlin theory. 
B)  the 9th volume of the Hardy Boys' Mystery series. 
C)  the fact that world exports does not equal world imports. 
D)  the fact that the Heckscher Ohlin theory predicts much less volume of trade than actually exists. 
E)  the fact that the Heckscher Ohlin theory never applies to China-U.S. trade practices. 
A)  the fact that factor trade is less than predicted by the Heckscher-Ohlin theory. 
B)  the 9th volume of the Hardy Boys' Mystery series. 
C)  the fact that world exports does not equal world imports. 
D)  the fact that the Heckscher Ohlin theory predicts much less volume of trade than actually exists. 
E)  the fact that the Heckscher Ohlin theory never applies to China-U.S. trade practices.

Question 9

Which of the following is an assertion of the Heckscher-Ohlin model?

Accepted Answer

A)  The wage-rental ratio determines the capital-labor ratio in a country's industries. 
B)  An increase in a country's labor supply will increase production of both the capital-intensive and the labor-intensive good. 
C)  In the long-run, labor is mobile and capital is not. 
D)  Factor price equalization will occur only if there is costless mobility of all factors across borders. 
E)  Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage. 
A)  The wage-rental ratio determines the capital-labor ratio in a country's industries. 
B)  An increase in a country's labor supply will increase production of both the capital-intensive and the labor-intensive good. 
C)  In the long-run, labor is mobile and capital is not. 
D)  Factor price equalization will occur only if there is costless mobility of all factors across borders. 
E)  Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage.

Question 10

Assume that only two countries, A and B, exist.
  
-Refer to the table above.You are told that Country B is very much larger than country A.The correct answer is

Accepted Answer

A)  country B will export good S. 
B)  country A will export good S. 
C)  both countries will export good S. 
D)  trade will not occur between these two countries. 
E)  both countries will import good S. 
A)  country B will export good S. 
B)  country A will export good S. 
C)  both countries will export good S. 
D)  trade will not occur between these two countries. 
E)  both countries will import good S.

Question 11

Why do we observe the Leontief paradox?

Accepted Answer

There are many possible answers.They may

Question 12

Which of the following is an assertion of the Heckscher-Ohlin model?

Accepted Answer

A)  An increase in a country's labor supply will increase production of the labor-intensive good and decrease production of the capital-intensive good. 
B)  An increase in a country's labor supply will increase production of both the capital-intensive and the labor-intensive good. 
C)  In the long-run, labor is mobile and capital is not. 
D)  Factor price equalization will occur only if there is costless mobility of all factors across borders. 
E)  Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage. 
A)  An increase in a country's labor supply will increase production of the labor-intensive good and decrease production of the capital-intensive good. 
B)  An increase in a country's labor supply will increase production of both the capital-intensive and the labor-intensive good. 
C)  In the long-run, labor is mobile and capital is not. 
D)  Factor price equalization will occur only if there is costless mobility of all factors across borders. 
E)  Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage.

Question 13

-Refer to above figure.If trade were to open up between P and R,where would the world terms of trade locate in the figure above (somewhere on the PC/PF axis)? Would relative wages (w/r)in the two countries become equal? Is this consistent with the Heckscher-Ohlin model? Explain.

Accepted Answer

The terms of trade would settle somewher

Question 14

Suppose Australia, a land (K)-abundant country, and Sri-Lanka, a labor(L)-abundant country, both produce labor and land intensive goods with the same technology.
  
-Refer to above figure.Imagine that the relative capital abundance of Australia was so much greater than that of Sri-Lanka,that we would have to locate Australia far to the right on the K/L axis.If this were so far to the right that there was no area of overlap on the w/r axis,then what product would Australia export? Which product will each of the trade partners export? Will the relative wages as calculated now be the same or different in both Australia and Sri Lanka?

Accepted Answer

Australia would still export food.As a r

Question 15

If trade opens up between the two formerly autarkic countries,Australia and Belgium,then

Accepted Answer

A)  the real income of both countries may increase. 
B)  the real income of Australia and of Belgium will increase. 
C)  the real income of Australia but not of Belgium will increase. 
D)  the real income of neither country will increase. 
E)  the real income of both countries will increase. 
A)  the real income of both countries may increase. 
B)  the real income of Australia and of Belgium will increase. 
C)  the real income of Australia but not of Belgium will increase. 
D)  the real income of neither country will increase. 
E)  the real income of both countries will increase.

Question 16

The assumption of diminishing returns in the Heckscher-Ohlin model means that,unlike in the Ricardian model,it is likely that

Accepted Answer

A)  countries will not be fully specialized in one product. 
B)  countries will benefit from free international trade. 
C)  countries will consume outside their production possibility frontier. 
D)  comparative advantage will not determine the direction of trade. 
E)  global production will decrease under trade. 
A)  countries will not be fully specialized in one product. 
B)  countries will benefit from free international trade. 
C)  countries will consume outside their production possibility frontier. 
D)  comparative advantage will not determine the direction of trade. 
E)  global production will decrease under trade.

Question 17

"No country is abundant in everything." Discuss.

Accepted Answer

The concept of factor abundance is (like

Question 18

The Leontief Paradox

Accepted Answer

A)  refers to the finding that U.S. exports were more labor intensive than its imports. 
B)  refers to the finding that U.S. Exports were more capital intensive than its exports. 
C)  refers to the finding that the U.S. produces outside its Edgeworth Box. 
D)  still accurately applies to today's pattern of U.S. international trade. 
E)  refers to the fact that Leontief-an American economist-had a Russian name. 
A)  refers to the finding that U.S. exports were more labor intensive than its imports. 
B)  refers to the finding that U.S. Exports were more capital intensive than its exports. 
C)  refers to the finding that the U.S. produces outside its Edgeworth Box. 
D)  still accurately applies to today's pattern of U.S. international trade. 
E)  refers to the fact that Leontief-an American economist-had a Russian name.

Question 19

According to the Heckscher-Ohlin model,the source of comparative advantage is a country's

Accepted Answer

A)  factor endowments. 
B)  technology. 
C)  advertising. 
D)  human capital. 
E)  political system. 
A)  factor endowments. 
B)  technology. 
C)  advertising. 
D)  human capital. 
E)  political system.

Question 20

If a country produces good Y (measured on the vertical axis)and good X (measured on the horizontal axis),then the absolute value of the slope of its production possibility frontier is equal to

Accepted Answer

A)  the opportunity cost of good X. 
B)  the price of good X divided by the price of good Y. 
C)  the price of good Y divided by the price of good X. 
D)  the opportunity cost of good Y. 
E)  the cost of capital (assuming that good Y is capital intensive) divided by the cost of labor. 
A)  the opportunity cost of good X. 
B)  the price of good X divided by the price of good Y. 
C)  the price of good Y divided by the price of good X. 
D)  the opportunity cost of good Y. 
E)  the cost of capital (assuming that good Y is capital intensive) divided by the cost of labor.

In the 2-factor,2 good Heckscher-Ohlin model,an influx of workers from across the border would

"A good cannot be both land- and labor-intensive." Discuss.

-Refer to above figure.In autarky,Country P was producing at point 5.With trade,would its production point be found above or below point 5? Explain why.What must happen in the K/L intensity ratio in the production of each of the products in this country when moving from autarky to free trade?

Empirical support for the Heckscher-Ohlin model was weakest when the study applied

In the Heckscher-Ohlin model,when there is international-trade equilibrium

If the price of the capital intensive product rises more than does the price of the land intensive product,then

If a good is labor intensive it means that the good is produced

The Case of the Missing Trade refers to

Which of the following is an assertion of the Heckscher-Ohlin model?

Assume that only two countries, A and B, exist. -Refer to the table above.You are told that Country B is very much larger than country A.The correct answer is

Why do we observe the Leontief paradox?

Which of the following is an assertion of the Heckscher-Ohlin model?

-Refer to above figure.If trade were to open up between P and R,where would the world terms of trade locate in the figure above (somewhere on the PC/PF axis)? Would relative wages (w/r)in the two countries become equal? Is this consistent with the Heckscher-Ohlin model? Explain.

If trade opens up between the two formerly autarkic countries,Australia and Belgium,then

The assumption of diminishing returns in the Heckscher-Ohlin model means that,unlike in the Ricardian model,it is likely that

"No country is abundant in everything." Discuss.

The Leontief Paradox

According to the Heckscher-Ohlin model,the source of comparative advantage is a country's

If a country produces good Y (measured on the vertical axis)and good X (measured on the horizontal axis),then the absolute value of the slope of its production possibility frontier is equal to

Introduction

National Income Accounting and the Balance of Payments

Labor Productivity and Comparative Advantage: The Ricardian Model

Specific Factors and Income Distribution

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions,Outsourcing,and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

Filters

Exam 5: Resources and Trade: The Heckscher-Ohlin Model

In the 2-factor,2 good Heckscher-Ohlin model,an influx of workers from across the border would

"A good cannot be both land- and labor-intensive." Discuss.

-Refer to above figure.In autarky,Country P was producing at point 5.With trade,would its production point be found above or below point 5? Explain why.What must happen in the K/L intensity ratio in the production of each of the products in this country when moving from autarky to free trade?

Empirical support for the Heckscher-Ohlin model was weakest when the study applied

In the Heckscher-Ohlin model,when there is international-trade equilibrium

If the price of the capital intensive product rises more than does the price of the land intensive product,then

If a good is labor intensive it means that the good is produced

The Case of the Missing Trade refers to

Which of the following is an assertion of the Heckscher-Ohlin model?

Assume that only two countries, A and B, exist. -Refer to the table above.You are told that Country B is very much larger than country A.The correct answer is

Why do we observe the Leontief paradox?

Which of the following is an assertion of the Heckscher-Ohlin model?

-Refer to above figure.If trade were to open up between P and R,where would the world terms of trade locate in the figure above (somewhere on the PC/PF axis)? Would relative wages (w/r)in the two countries become equal? Is this consistent with the Heckscher-Ohlin model? Explain.

If trade opens up between the two formerly autarkic countries,Australia and Belgium,then

The assumption of diminishing returns in the Heckscher-Ohlin model means that,unlike in the Ricardian model,it is likely that

"No country is abundant in everything." Discuss.

The Leontief Paradox

According to the Heckscher-Ohlin model,the source of comparative advantage is a country's

If a country produces good Y (measured on the vertical axis)and good X (measured on the horizontal axis),then the absolute value of the slope of its production possibility frontier is equal to

Introduction

National Income Accounting and the Balance of Payments

Labor Productivity and Comparative Advantage: The Ricardian Model

Specific Factors and Income Distribution

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions,Outsourcing,and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

Filters