Question 1

Countries do not in fact export the goods the H.O. theory predicts. Discuss.

Accepted Answer

This statement is not true. Although one may find many cases where it seems to be true (e.g., the Leontief Paradox), all one needs to do in order to render the above statement not (generally) true is to find one counter example. In fact, one can find large subsets of agricultural and commodity products in which the H.O predictions are generally fulfilled. Labor-intensive countries such as Bangladesh do in fact export relatively labor-intensive goods. Capital-intensive countries such as Germany do in fact export capital-intensive products (at least to South countries). Countries such as Costa Rica ("sunshine abundant") tend to export bananas (sunshine-intensive products). The U.S. (a wheat-land-abundant country) does indeed export wheat (a wheat-land intensive product). In fact, since the early 1980s, the Leontief Paradox was not found to describe the U.S. trade data (hence ratifying the H.O. theory).

Question 2

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

Accepted Answer

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

Question 3

If Australia has more land per worker, and Belgium has more capital per worker,then if trade began between these two countries

Accepted Answer

A)  the real income of labor in Australia would decline. 
B)  the real income of labor in Belgium would decline. 
C)  the real income of landowners in Belgium would decline. 
D)  the real income of capital owners in Australia would increase. 
E)  the real income of labor in both countries would decline. 
A)  the real income of labor in Australia would decline. 
B)  the real income of labor in Belgium would decline. 
C)  the real income of landowners in Belgium would decline. 
D)  the real income of capital owners in Australia would increase. 
E)  the real income of labor in both countries would decline. C

Question 4

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

Accepted Answer

In a two-good, two-factor model, such as

Question 5

Why do you suppose that South-South trade does NOT conform in volume, but does conform in pattern with expectations generated by the Heckscher-Ohlin model?

Accepted Answer

The pattern of trade is generally observ

Question 6

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 7

The Leontief Paradox

Accepted Answer

A)  proved that the U.S. economy is different from all others. 
B)  failed to support the validity of the Ricardian theory. 
C)  supported the validity of the Ricardian theory of comparative advantage. 
D)  supported the validity of the Heckscher-Ohlin model. 
E)  failed to support the validity of the Heckscher-Ohlin model. 
A)  proved that the U.S. economy is different from all others. 
B)  failed to support the validity of the Ricardian theory. 
C)  supported the validity of the Ricardian theory of comparative advantage. 
D)  supported the validity of the Heckscher-Ohlin model. 
E)  failed to support the validity of the Heckscher-Ohlin model.

Question 8

If Japan is relatively capital rich and the United States is relatively land rich, and if food is relatively land intensive then trade between these two, formerly autarkic countries will result in

Accepted Answer

A)  a global increase in the relative price of food. 
B)  an increase in the relative price of food in the U.S. 
C)  a decrease in the relative price of food in both countries. 
D)  an increase in the relative price of food in Japan. 
E)  an increase in the relative price of food in both countries. 
A)  a global increase in the relative price of food. 
B)  an increase in the relative price of food in the U.S. 
C)  a decrease in the relative price of food in both countries. 
D)  an increase in the relative price of food in Japan. 
E)  an increase in the relative price of food in both countries.

Question 9

Factor-intensity reversals describe a situation in which the production of a product may be land intensive in one country, and relatively labor intensive in another (at given relative wage levels). For example, cotton may be land intensive in the U.S., and labor intensive in Egypt where land is relatively scarce and expensive. Suppose factor-intensity reversals were common. How would that affect the conclusion that a country in which land is relatively scarce will not be the country with a comparative advantage in the land-intensive product?

Accepted Answer

The answer here is straightforward (thou

Question 10

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

Accepted Answer

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

Question 11

The Heckscher-Ohlin model is famous for being elegant and mathematically sophisticated, yet failing to describe reality. One manifestation of this fact is Trefler's Case of Missing Trade. Explain what exactly is missing. In what sense is it missing?
 How would you explain why it is missing?
 How can a relaxation of the identical production functions explain the case of the missing trade?
 How did the results obtained by Davis and Weinstein strengthen support for the validity of the HO model?

Accepted Answer

Trefler demonstrated that the actual vol

Question 12

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 13

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

Accepted Answer

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

Question 14

Empirical observations on actual North-South trade patterns tend to

Accepted Answer

A)  support the validity of the Rybczynski Theorem. 
B)  support the validity of the wage equalization theorem. 
C)  support the validity of the neo-imperialism exploitation theory. 
D)  support the validity of the Leontief Paradox. 
E)  support the validity of the Heckscher-Ohlin model. 
A)  support the validity of the Rybczynski Theorem. 
B)  support the validity of the wage equalization theorem. 
C)  support the validity of the neo-imperialism exploitation theory. 
D)  support the validity of the Leontief Paradox. 
E)  support the validity of the Heckscher-Ohlin model.

Question 15

Which of the following empirical studies cast the most doubt on the Heckscher-Ohlin model?

Accepted Answer

A)  the study by Wassily Leontief 
B)  the study by Bowen, Leamer, and Sveikauskas 
C)  the study by David Ricardo 
D)  the study by Adam Smith 
E)  the study by Davis and Weinstein 
A)  the study by Wassily Leontief 
B)  the study by Bowen, Leamer, and Sveikauskas 
C)  the study by David Ricardo 
D)  the study by Adam Smith 
E)  the study by Davis and Weinstein

Question 16

Why are prices of factors of production NOT equalized?

Accepted Answer

Again this statement may or may not be a

Question 17

In the 2-factor, 2-good Heckscher-Ohlin model, the country with a relative abundance of ________ will have a production possibility frontier that is biased toward production of the ________ good.

Accepted Answer

A)  labor; labor intensive 
B)  labor; capital intensive 
C)  land; labor intensive 
D)  land; capital intensive 
E)  capital; land intensive 
A)  labor; labor intensive 
B)  labor; capital intensive 
C)  land; labor intensive 
D)  land; capital intensive 
E)  capital; land intensive

Question 18

One of the commonly used assumptions in deriving the Heckscher-Ohlin model is that tastes are homothetic, or that if the per capita incomes were the same in two countries, the proportions of their expenditures allocated to each product would be the same as it is in the other country. Imagine that this assumption is false, and that in fact, the tastes in each country are strongly biased in favor of the product in which it has a comparative advantage. How would this affect the relationship between relative factor abundance between the two countries, and the nature (factor-intensity) of the product each exports?
 What if the taste bias favored the imported good?

Accepted Answer

If in fact national tastes were strongly

Question 19

According to the Heckscher-Ohlin model

Accepted Answer

A)  the gainers from trade could compensate the losers and still retain gains. 
B)  everyone gains from trade. 
C)  the scarce factor gains from trade and the abundant factor loses. 
D)  a country gains from trade if its exports have a high value added. 
E)  only the country with the more advanced technology gains from trade. 
A)  the gainers from trade could compensate the losers and still retain gains. 
B)  everyone gains from trade. 
C)  the scarce factor gains from trade and the abundant factor loses. 
D)  a country gains from trade if its exports have a high value added. 
E)  only the country with the more advanced technology gains from trade.

Question 20

Suppose that there are two factors, capital and land, and that the United States is relatively land endowed while the European Union is relatively capital-endowed. According to the Heckscher-Ohlin model

Accepted Answer

A)  European landowners should support U.S.-European free trade. 
B)  the U.S. should compensate European countries once trade commences. 
C)  European capitalists should support U.S.-European free trade. 
D)  all landowners should support free trade. 
E)  all capitalists in both countries should support free trade. 
A)  European landowners should support U.S.-European free trade. 
B)  the U.S. should compensate European countries once trade commences. 
C)  European capitalists should support U.S.-European free trade. 
D)  all landowners should support free trade. 
E)  all capitalists in both countries should support free trade.

Countries do not in fact export the goods the H.O. theory predicts. Discuss.

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

If Australia has more land per worker, and Belgium has more capital per worker,then if trade began between these two countries

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

Why do you suppose that South-South trade does NOT conform in volume, but does conform in pattern with expectations generated by the Heckscher-Ohlin model?

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

The Leontief Paradox

If Japan is relatively capital rich and the United States is relatively land rich, and if food is relatively land intensive then trade between these two, formerly autarkic countries will result in

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

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

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

Empirical observations on actual North-South trade patterns tend to

Which of the following empirical studies cast the most doubt on the Heckscher-Ohlin model?

Why are prices of factors of production NOT equalized?

In the 2-factor, 2-good Heckscher-Ohlin model, the country with a relative abundance of will have a production possibility frontier that is biased toward production of the good.

According to the Heckscher-Ohlin model

Suppose that there are two factors, capital and land, and that the United States is relatively land endowed while the European Union is relatively capital-endowed. According to the Heckscher-Ohlin model

Introduction

World Trade: an Overview

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

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

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

Countries do not in fact export the goods the H.O. theory predicts. Discuss.

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

If Australia has more land per worker, and Belgium has more capital per worker,then if trade began between these two countries

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

Why do you suppose that South-South trade does NOT conform in volume, but does conform in pattern with expectations generated by the Heckscher-Ohlin model?

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

The Leontief Paradox

If Japan is relatively capital rich and the United States is relatively land rich, and if food is relatively land intensive then trade between these two, formerly autarkic countries will result in

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

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

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

Empirical observations on actual North-South trade patterns tend to

Which of the following empirical studies cast the most doubt on the Heckscher-Ohlin model?

Why are prices of factors of production NOT equalized?

In the 2-factor, 2-good Heckscher-Ohlin model, the country with a relative abundance of ________ will have a production possibility frontier that is biased toward production of the ________ good.

According to the Heckscher-Ohlin model

Suppose that there are two factors, capital and land, and that the United States is relatively land endowed while the European Union is relatively capital-endowed. According to the Heckscher-Ohlin model

Introduction

World Trade: an Overview

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

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

In the 2-factor, 2-good Heckscher-Ohlin model, the country with a relative abundance of will have a production possibility frontier that is biased toward production of the good.