Exam 3: Sources of Comparative Advantage

A production strategy in which one organization hires another organization to manufacture a good under the hiring firm-s name and to the hiring firm-s specifications is known as ________________.

Factor price equalization can occur even if factors of production are not mobile internationally.

In 1954, Wassily Leontief provided empirical evidence showing that the United States- pattern of trade was inconsistent with the Heckscher-Ohlin theorem.

Watches are relatively capital intensive in their production process, while handbags are relatively labor intensive. Switzerland is a relatively capital abundant nation. If Switzerland experiences an increase in its labor endowment then, according to the Rybczynski theorem, we would expect:

A strategy in which one organization hires another organization to complete a particular stage of the production process is known as ____________________.

The magnification principle holds that a change in the price of a good is greater than the change in the price of the factor of production which the good uses intensively in its production process.

According to the Stolper-Samuelson theorem, free trade raises the real return of the nation-s ___________________.

The good that uses more capital in its production process than the other good is referred to as the capital-intensive good.

The Heckscher-Ohlin theorem is consistently supported by empirical studies.

Economic growth spurred by either a technological advance or an increase in resources will equally favor both sectors in an economy.

Switzerland produces both watches and chocolate. Watches are relatively capital intensive in their production, while chocolate is relatively labor intensive. If Switzerland experiences an increase in its labor endowment, according to the Rybczynski theorem:

According to the Heckscher-Ohlin explanation of trade, the country that is relatively labor abundant will import relatively labor-intensive goods.

If nation A has more labor units than nation B, then nation A is referred to as the relatively labor-abundant nation.

Over the years, empirical studies show that the factor proportions approach:

Switzerland exports watches to Russia. Watches are relatively capital intensive in their production process. With trade, the price of watches rises by 10 percent in Switzerland. According to the magnification principle:

Computers are relatively capital intensive in their production, while wool is relatively labor intensive. Australia is relatively capital abundant and New Zealand is relatively labor abundant. According to the Heckscher-Ohlin theorem:

Economic growth always leads to an increase in international trade.

________________ is the revenue received by the firm less the costs of the intermediate goods it purchased.

Canada has 5,000 labor units and 2,500 capital units, while Mexico has 500 labor units and 200 capital units. The production of a car requires 200 labor units and 300 capital units. The production of a guitar requires 10 labor units and 12 capital units. According to the Heckscher-Ohlin Theorem:

Computers are relatively capital intensive in their production, while wool is relatively labor intensive. Australia is relatively capital abundant and New Zealand is relatively labor abundant. According to the Heckscher-Ohlin theorem and the factor price equalization theorem: