Question 1

The Case of the Missing Trade refers to

Accepted Answer

A)  the fact that factor trade is less than predicted by the Heckscher-Ohlin theory. 
B)  the 9th volume of the Hardy Boys' Mystery series. 
C)  the fact that world exports does not equal world imports. 
D)  the fact that the Heckscher Ohlin theory predicts much less volume of trade than actually exists. 
E)  the fact that the Heckscher Ohlin theory never applies to China-U.S. trade practices. 
A)  the fact that factor trade is less than predicted by the Heckscher-Ohlin theory. 
B)  the 9th volume of the Hardy Boys' Mystery series. 
C)  the fact that world exports does not equal world imports. 
D)  the fact that the Heckscher Ohlin theory predicts much less volume of trade than actually exists. 
E)  the fact that the Heckscher Ohlin theory never applies to China-U.S. trade practices.

Question 2

The Heckscher-Ohlin model predicts all of the following except

Accepted Answer

A)  the volume of trade. 
B)  which country will export which product. 
C)  which factor of production within each country will gain from trade. 
D)  that relative wages will tend to become equal in both trading countries. 
E)  that trade increases a country's overall welfare. 
A)  the volume of trade. 
B)  which country will export which product. 
C)  which factor of production within each country will gain from trade. 
D)  that relative wages will tend to become equal in both trading countries. 
E)  that trade increases a country's overall welfare.

Question 3

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

Accepted Answer

In a two good, two factor model, such as

Question 4

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 5

Why is it that North-South trade in manufactures seems to be consistent with the results or expectations generated by the factor-proportions theory of international trade, whereas North-North trade is not?

Accepted Answer

There is a clear difference in relative

Question 6

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

Question 7

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?

Accepted Answer

Trefler demonstrated that the actual vol

Question 8

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

Accepted Answer

A)  The wage-rental ratio determines the capital-labor ratio in a country's industries. 
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 determines the capital-labor ratio in a country's industries. 
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 9

Assume that only two countries, A and B, exist.  
-Refer to the table above. You are told that Country B has no minimum wage or child labor laws. Now the correct answer is

Accepted Answer

A)  country B will export good S. 
B)  country A will export good S. 
C)  both countries will export good S. 
D)  trade will not occur between these two countries. 
E)  both countries will import good S. 
A)  country B will export good S. 
B)  country A will export good S. 
C)  both countries will export good S. 
D)  trade will not occur between these two countries. 
E)  both countries will import good S.

Question 10

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 11

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

Accepted Answer

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

Question 12

In the Heckscher-Ohlin model, when two countries begin to trade with each other

Accepted Answer

A)  the relative prices of traded goods in the two countries converge. 
B)  relative factor prices in the two countries diverge. 
C)  benefits from trade are evenly distributed between the two countries. 
D)  all factors in both countries will gain from trade. 
E)  all factors in one country will gain, but there may be no gains in the other country. 
A)  the relative prices of traded goods in the two countries converge. 
B)  relative factor prices in the two countries diverge. 
C)  benefits from trade are evenly distributed between the two countries. 
D)  all factors in both countries will gain from trade. 
E)  all factors in one country will gain, but there may be no gains in the other country.

Question 13

Assume that only two countries, A and B, exist.  
-Refer to the table above. If good S is capital intensive, then following the Heckscher-Ohlin Theory,

Accepted Answer

A)  country B will export good S. 
B)  country A will export good S. 
C)  both countries will export good S. 
D)  trade will not occur between these two countries. 
E)  both countries will import good S. 
A)  country B will export good S. 
B)  country A will export good S. 
C)  both countries will export good S. 
D)  trade will not occur between these two countries. 
E)  both countries will import good S.

Question 14

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

Accepted Answer

A)  using relatively more capital than goods that are not labor intensive. 
B)  using capital as the only input. 
C)  using more capital per unit of output than goods that are not capital intensive. 
D)  using capital such that the total cost of capital is greater than the total cost of labor. 
E)  using capital such that the cost of capital is more than 50% of total cost. 
A)  using relatively more capital than goods that are not labor intensive. 
B)  using capital as the only input. 
C)  using more capital per unit of output than goods that are not capital intensive. 
D)  using capital such that the total cost of capital is greater than the total cost of labor. 
E)  using capital such that the cost of capital is more than 50% of total cost.

Question 15

International trade leads to complete equalization of factor prices. Discuss.

Accepted Answer

This statement is typically "true . . .

Question 16

In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in

Accepted Answer

A)  tastes and preferences. 
B)  military capabilities. 
C)  the size of their economies. 
D)  relative abundance of factors of production. 
E)  labor productivities. 
A)  tastes and preferences. 
B)  military capabilities. 
C)  the size of their economies. 
D)  relative abundance of factors of production. 
E)  labor productivities.

Question 17

The 1987 study by Bowen, Leamer and Sveikauskas

Accepted Answer

A)  supported the validity of the Leontieff Paradox. 
B)  supported the validity of the Heckscher-Ohlin model. 
C)  used a two-country and two-product framework. 
D)  demonstrated that in fact countries tend to use different technologies. 
E)  proved that the U.S.'s comparative advantage relied on skilled labor. 
A)  supported the validity of the Leontieff Paradox. 
B)  supported the validity of the Heckscher-Ohlin model. 
C)  used a two-country and two-product framework. 
D)  demonstrated that in fact countries tend to use different technologies. 
E)  proved that the U.S.'s comparative advantage relied on skilled labor.

Question 18

-Refer to above figure. Two countries exist in this model, P and R. P is relatively labor (L) abundant, as is evident in the bottom right horizontal axis. If Country P were to be completely specialized in the labor-intensive product, C, it would be producing at point 4. In fact, it produces both C and P, at point 5. The (autarky) relative price of C (in terms of
F) of Country P is at point 3; and of Country R at point If trade were to open up between these two countries, which would export C and which would export F? Is this consistent with the Heckscher-Ohlin model? Explain.

Accepted Answer

Country R would export F. This

Question 19

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

Question 20

The Leontieff Paradox

Accepted Answer

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

The Case of the Missing Trade refers to

The Heckscher-Ohlin model predicts all of the following except

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

Why is it that North-South trade in manufactures seems to be consistent with the results or expectations generated by the factor-proportions theory of international trade, whereas North-North trade is not?

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.

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

Assume that only two countries, A and B, exist. -Refer to the table above. You are told that Country B has no minimum wage or child labor laws. Now the correct answer is

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

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

In the Heckscher-Ohlin model, when two countries begin to trade with each other

Assume that only two countries, A and B, exist. -Refer to the table above. If good S is capital intensive, then following the Heckscher-Ohlin Theory,

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

International trade leads to complete equalization of factor prices. Discuss.

In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in

The 1987 study by Bowen, Leamer and Sveikauskas

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

The Leontieff 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 Case of the Missing Trade refers to

The Heckscher-Ohlin model predicts all of the following except

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

Why is it that North-South trade in manufactures seems to be consistent with the results or expectations generated by the factor-proportions theory of international trade, whereas North-North trade is not?

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.

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

Assume that only two countries, A and B, exist. -Refer to the table above. You are told that Country B has no minimum wage or child labor laws. Now the correct answer is

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

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

In the Heckscher-Ohlin model, when two countries begin to trade with each other

Assume that only two countries, A and B, exist. -Refer to the table above. If good S is capital intensive, then following the Heckscher-Ohlin Theory,

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

International trade leads to complete equalization of factor prices. Discuss.

In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in

The 1987 study by Bowen, Leamer and Sveikauskas

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

The Leontieff 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

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.