Question 1

The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former

Accepted Answer

A)  has only two countries. 
B)  has only two products. 
C)  has two factors of production. 
D)  has two production possibility frontiers (one for each country). 
E)  has varying wage rates. 
A)  has only two countries. 
B)  has only two products. 
C)  has two factors of production. 
D)  has two production possibility frontiers (one for each country). 
E)  has varying wage rates. C

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 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. A

Question 3

-Refer to above figure. Would you expect to find that the real wages become equalized in both countries? Explain the reason for any differences you note.

Accepted Answer

We would expect that one single relative wage will be established for both countries. This happens because the two countries do not differ in relative factor availability by much, and hence a zone of overlap exists which allows for this result.

Question 4

Why are prices of factors of production not equalized?

Accepted Answer

Again this statement may or may not be a

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

-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

Question 7

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

Accepted Answer

A)  the relative price of the land-intensive product would increase in Australia. 
B)  the relative price of the capital-intensive product would increase in Australia. 
C)  the relative price of the land-intensive product would increase in Belgium. 
D)  the relative price of the capital-intensive product would decrease in Belgium. 
E)  relative product prices would diverge between Australia and Belgium. 
A)  the relative price of the land-intensive product would increase in Australia. 
B)  the relative price of the capital-intensive product would increase in Australia. 
C)  the relative price of the land-intensive product would increase in Belgium. 
D)  the relative price of the capital-intensive product would decrease in Belgium. 
E)  relative product prices would diverge between Australia and Belgium.

Question 8

Trade benefits a country by

Accepted Answer

A)  increasing available consumption choices. 
B)  reducing the need for specialization in production. 
C)  reducing the relative price of the exported good. 
D)  increasing the real income of all resource owners. 
E)  increasing the wage rate. 
A)  increasing available consumption choices. 
B)  reducing the need for specialization in production. 
C)  reducing the relative price of the exported good. 
D)  increasing the real income of all resource owners. 
E)  increasing the wage rate.

Question 9

Factors tend to be specific to certain uses and products

Accepted Answer

A)  in the short run. 
B)  in countries lacking comparative advantage. 
C)  in capital-intensive industries. 
D)  in labor-intensive industries. 
E)  in countries lacking fair labor laws. 
A)  in the short run. 
B)  in countries lacking comparative advantage. 
C)  in capital-intensive industries. 
D)  in labor-intensive industries. 
E)  in countries lacking fair labor laws.

Question 10

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

Accepted Answer

A)  The wage-rental ratio is determined by relative product prices. 
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 is determined by relative product prices. 
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 11

If Gambinia has many workers but very little land and even less productive capital, then, following the Heckscher-Ohlin model, we predict that Gambinia will export

Accepted Answer

A)  labor-intensive goods. 
B)  capital-intensive goods. 
C)  both capital- and land-intensive goods. 
D)  land-intensive goods. 
E)  both labor- and land-intensive goods. 
A)  labor-intensive goods. 
B)  capital-intensive goods. 
C)  both capital- and land-intensive goods. 
D)  land-intensive goods. 
E)  both labor- and land-intensive goods.

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

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 14

If Gambinia has many workers but very little land and even less productive capital, then, following the Heckscher-Ohlin model, in order to improve the country's economic welfare, the Gambinian government should

Accepted Answer

A)  engage in free trade. 
B)  protect the capital-intensive product. 
C)  protect the land-intensive product. 
D)  protect the labor-intensive product. 
E)  discontinue all international trade. 
A)  engage in free trade. 
B)  protect the capital-intensive product. 
C)  protect the land-intensive product. 
D)  protect the labor-intensive product. 
E)  discontinue all international trade.

Question 15

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 16

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.  
-Using the figure above, demonstrate what happens to the composition of production (that is quantity of cloth per 1 unit of food) in Australia once trade is established between the two countries. Which country will export cloth? What happens to the relative income of workers in Australia as a result of trade? Does it increase or decrease? Would land owners in Australia lobby for or against free trade? Would land owners in Australia lobby for or against free admittance of immigrant workers?

Accepted Answer

The proportion of food to cloth will inc

Question 17

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 18

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

Accepted Answer

This statement is not true. Although one

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

Why do we observe the Leontief paradox?

Accepted Answer

There are many possible answers. They ma

The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former

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

-Refer to above figure. Would you expect to find that the real wages become equalized in both countries? Explain the reason for any differences you note.

Why are prices of factors of production not equalized?

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?

-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?

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

Trade benefits a country by

Factors tend to be specific to certain uses and products

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

If Gambinia has many workers but very little land and even less productive capital, then, following the Heckscher-Ohlin model, we predict that Gambinia will export

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

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

If Gambinia has many workers but very little land and even less productive capital, then, following the Heckscher-Ohlin model, in order to improve the country's economic welfare, the Gambinian government should

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

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

According to the Heckscher-Ohlin model,

Why do we observe the Leontief paradox?

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

Optimum Currency Areas and the European Experience

Financial Globalization: Opportunity and Crisis

Developing Countries: Growth, Crisis, and Reform

Filters

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

The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former

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

-Refer to above figure. Would you expect to find that the real wages become equalized in both countries? Explain the reason for any differences you note.

Why are prices of factors of production not equalized?

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?

-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?

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

Trade benefits a country by

Factors tend to be specific to certain uses and products

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

If Gambinia has many workers but very little land and even less productive capital, then, following the Heckscher-Ohlin model, we predict that Gambinia will export

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

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

If Gambinia has many workers but very little land and even less productive capital, then, following the Heckscher-Ohlin model, in order to improve the country's economic welfare, the Gambinian government should

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

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

According to the Heckscher-Ohlin model,

Why do we observe the Leontief paradox?

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

Optimum Currency Areas and the European Experience

Financial Globalization: Opportunity and Crisis

Developing Countries: Growth, Crisis, and Reform

Filters