Exam 5: Resources and Trade: 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

Starting from an autarky (no-trade) situation with Heckscher-Ohlin model, if Country H is relatively labor abundant, then once trade begins

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.

International trade has strong effects on income distributions. Therefore, international trade

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

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,

If two countries are very different in relative factor abundance, then empirically support for which of the following would less likely?

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?

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

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

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.

Assume that only two countries, A and B, exist. -Refer to the table above. If you are told that Country B is very much richer than Country A, then the correct answer is

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.

"No country is abundant in everything." Discuss.

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

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

-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 P_C/P_F axis)? Would relative wages (w/r) in the two countries become equal? Is this consistent with the Heckscher-Ohlin model? Explain.

Why is the H.O. model called the factor-proportions theory?

Empirical observations on actual North-South trade patterns tend to

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?