Question 1

Why do we observe the Leontief paradox?

Accepted Answer

There are many possible answers. They ma

Question 2

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.
  
-Use the diagram above to identify the pre-trade situation for Australia and Sri Lanka. Where on the K/L axis will you find each of the two countries?
 Which of the two countries has a higher relative wage, w/r?
 Which product is the labor intensive, and which is the land intensive one?
 Show where the relative price of cloth to food will be found once trade opens between these two countries. Show where the relative wages of each will appear.

Accepted Answer

You will find Sri Lanka to the left of A

Question 3

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 both the capital-intensive and the labor-intensive good. 
B)  Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage. 
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)  The wage-rental ratio is determined by relative product prices. 
A)  An increase in a country's labor supply will increase production of both the capital-intensive and the labor-intensive good. 
B)  Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage. 
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)  The wage-rental ratio is determined by relative product prices.

Question 4

In the 2-factor, 2-good Heckscher-Ohlin model, trade will ________ the owners of a country's ________ factor and will ________ the good that uses that factor intensively.

Accepted Answer

A)  harm; scarce; import 
B)  harm; abundant; import 
C)  benefit; scarce; export 
D)  benefit; scarce; import 
E)  harm; scarce; export 
A)  harm; scarce; import 
B)  harm; abundant; import 
C)  benefit; scarce; export 
D)  benefit; scarce; import 
E)  harm; scarce; export

Question 5

In the 2-factor, 2-good Heckscher-Ohlin model, the production possibility frontier is kinked when

Accepted Answer

A)  there is no factor substitution in production. 
B)  the opportunity cost of production is constant. 
C)  there are unemployed factor resources. 
D)  a country does not engage in trade. 
E)  transportation costs are very high. 
A)  there is no factor substitution in production. 
B)  the opportunity cost of production is constant. 
C)  there are unemployed factor resources. 
D)  a country does not engage in trade. 
E)  transportation costs are very high.

Question 6

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

Why do we observe the Leontief paradox?

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

In the 2-factor, 2-good Heckscher-Ohlin model, trade will the owners of a country's factor and will the good that uses that factor intensively.

In the 2-factor, 2-good Heckscher-Ohlin model, the production possibility frontier is kinked when

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

Why do we observe the Leontief paradox?

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

In the 2-factor, 2-good Heckscher-Ohlin model, trade will ________ the owners of a country's ________ factor and will ________ the good that uses that factor intensively.

In the 2-factor, 2-good Heckscher-Ohlin model, the production possibility frontier is kinked when

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, trade will the owners of a country's factor and will the good that uses that factor intensively.