Deck 4: Comparative Advantage and Factor Endowments

Question 1

Using the HO model,assume that the United States is capital abundant and Mexico is labor abundant.If soybeans are capital intensive and avocados are labor intensive,it would be reasonable to expect the United States to

A)specialize completely in soybean production.
B)specialize completely in avocado production.
C)increase soybean production, but still produce some avocados.
D)increase avocado production, but still produce some soybeans.

Answer 1

C

Question 2

A production possibilities curve that is a straight line represents the case of

A)constant costs.
B)increasing costs.
C)constant opportunity costs but increasing real costs.
D)constant opportunity costs but decreasing real costs.

Answer 2

A

Question 3

Suppose that Brazil is capital abundant and Chile is natural resource abundant.If timber is natural resource intensive and computers are capital intensive,then

A)Chile will produce more computers after trade begins with Brazil.
B)Brazil will produce more timber after trade begins with Chile.
C)Chile will produce more timber after trade begins with Brazil.
D)Brazil will completely specialize in computers once trade begins with Chile.

Answer 3

C

Question 4

The Heckscher-Ohlin Theorem predicts

A)who benefits and who loses from trade.
B)which factors are abundant.
C)the income distribution effects of trade.
D)which goods will be exported.

Question 5

The straight-line production possibilities curve

A)does not show increasing opportunity costs.
B)fails to reflect tradeoffs.
C)fails to benefit trading nations.
D)refutes the principles of comparative advantage.

Question 6

Use the table for the following question(s).
Suppose that all goods are made with two factors-labor and capital. The table below shows the total endowments of each factor in the United States and Canada. Table 4.1
Endowment of Labor and Capital

Based on Table 4.1,according to the Stolper-Samuelson Theorem,the income distribution effects of free trade in the United States are likely to favor

A)capital.
B)labor.
C)either capital or labor, depending on U.S. productivity.
D)neither capital nor labor.

Question 7

The graph above shows the PPC for a country that can produce oil or televisions.
The straight line is the trade line and CPC if production is at Point A.
Which of the following is a true statement?

A)This country should produce relatively more butter and relatively less coffee.
B)This country should produce relatively less butter and relatively more coffee.
C)This country should produce more of both goods.
D)This country is producing the optimal mix of butter and coffee to maximize its income.

Question 8

In the Heckscher-Ohlin model,what assumption is made about opportunity costs?

Question 9

A production possibilities curve that is bowed out represents the case of

A)constant costs.
B)increasing costs.
C)decreasing costs.
D)external costs.

Question 10

Suppose that a country is producing on its PPC at a point to the left of the tangency between the trade line and the PPC.At the production point,

A)the opportunity cost in production of the good on the horizontal axis is less than its trade price.
B)the opportunity cost in production of the good on the horizontal axis is more than its trade price.
C)the opportunity cost in production of the good on the vertical axis is less than its trade price.
D)the opportunity cost in production of the good on the horizontal axis may be either less than or more than its trade price.

Question 11

The graph above shows the PPC for a country that can produce oil or televisions.
The straight line is the trade line and CPC if production is at Point A.
Which of the following is a true statement?

A)This country should produce relatively more oil and relatively fewer televisions.
B)This country should produce relatively more televisions and relatively less oil.
C)This country should produce more of both goods.
D)This country is producing the optimal mix of oil and televisions to maximize its income.

Question 12

What is the source of comparative advantage in the Heckscher-Ohlin model?

Question 13

Suppose that Brazil is capital abundant and Chile is natural resource abundant.If timber is natural resource intensive and computers are capital intensive,then according to the Heckscher-Ohlin Theorem,Chile should export goods that

A)intensively use labor input.
B)intensively use capital input.
C)intensively use natural resources.
D)use capital and labor in about equal proportions.

Question 14

The graph above shows the PPC for a country that can produce oil or televisions.
The straight line is the trade line and CPC if production is at Point A.
Is this country producing the optimal mix of oil and televisions to maximize its income? Carefully explain how you know.

Question 15

Use the table for the following question(s).
Suppose that all goods are made with two factors-labor and capital. The table below shows the total endowments of each factor in the United States and Canada. Table 4.1
Endowment of Labor and Capital

Based on Table 4.1,according to the Heckscher-Ohlin Theorem,U.S.exports should be goods that

A)intensively use labor input.
B)intensively use capital input.
C)use capital and labor in about equal proportions.
D)use either labor or capital input, depending on the good.

Question 16

What is the Heckscher-Ohlin theorem? Using the case studies in the chapter on U.S.trade with China describe the theory and the resulting trade patterns that would support it.

Question 17

Using the HO model,assume that the United States is capital abundant and Mexico is labor abundant.If soybeans are capital intensive and avocados are labor intensive,

A)Mexico will produce more soybeans once trade is introduced.
B)the United States will produce more avocados once trade is introduced.
C)avocado prices in the United States will fall once trade begins.
D)soybean prices in Mexico will rise once trade begins.

Question 18

The Stolper-Samuelson Theorem predicts

A)the level of productivity in export industries.
B)which factors are abundant.
C)the income distribution effects of trade.
D)which goods will be exported.

Question 19

Which of the following is NOT a proposition of the Heckscher-Ohlin model?

A)A country has a comparative advantage in the production of that commodity which uses more intensively the country's more abundant resource.
B)The effect of international trade is to tend to equalize factor prices between the trading nations.
C)If the United States is a skilled labor abundant country, then the United States has a comparative advantage in the production of goods that use skilled labor more intensively.
D)Countries will completely specialize in the product in which they have a comparative advantage if free trade is allowed to occur.

Question 20

If a country is currently producing at a production point such that the trade line has a slope that is flatter than the slope of the PPC at the same point,then

A)the country can get greater gains from trade if it moves production away from the good on the vertical axis.
B)the country can get greater gains from trade if it moves production toward the good on the vertical axis.
C)the country cannot improve on its gains from trade.
D)There are no gains from trade in this example.

Question 21

Which types of workers are most likely to favor lowering trade barriers in the United States?

Question 22

Empirical tests of the theory of comparative advantage have provided

A)strong support for both the Ricardian and Heckscher-Ohlin models.
B)mixed support for the Ricardian model and strong support for the Heckscher-Ohlin model.
C)strong support for the Ricardian model and mixed support for the Heckscher-Ohlin model.
D)mixed support for both Ricardian and Heckscher-Ohlin models.
E)no support for either the Ricardian or the Heckscher-Ohlin models.

Question 23

Which of the following would NOT be associated with the LATE PHASE of the product cycle?

A)Consumption in high income countries begins to exceed production.
B)Increasing share of output is moving to developing countries where abundant low skilled and semi-skilled labor keep production costs low.
C)Consumption continues to grow in low income countries.
D)There is experimentation and improvement in design and manufacturing.

Question 24

After trade opens,the short run impact on the income of the specific factor that is relatively scarce will be

A)a decrease in its income.
B)an increase in its income.
C)no change in its income.
D)indeterminate, income effects are not possible to know.

Question 25

Since empirical tests of the HO theory have given mixed results,the theory has little value.

Question 26

Empirical tests of the HO model have had mixed results.One explanation for this is that

A)the Ricardian model is more detailed.
B)it is difficult to measure factor endowments.
C)it does not explain the effects of trade on income.
D)it assumes that countries have different technologies.

Question 27

How would the opening of trade affect the incomes of workers in the U.S.and China? Use the case studies in the chapter on U.S.trade with China to support your answer.

Question 28

Tijuana,Mexico is across the border from San Diego,California.It has become a world-leading producer and exporter of television sets and computer monitors,which it assembles in modern factories owned by multinational consumer electronics firms such as Sony.Initially,these electronics were produced in the industrialized countries of their parent companies,and after several years,the production moved to Tijuana.This is an example of

A)the product cycle.
B)intraindustry trade.
C)the specific factors model.
D)the magnification effect.

Question 29

After trade opens,the short run impact on the income of the variable factor will be

A)a decrease.
B)an increase.
C)zero.
D)indeterminate, depending on the consumption pattern of the owners of the variable factor.

Question 30

Test of the HO theory have clearly been successful.

Question 31

If the price of a good rises,then the effect on the income of the factors that are used intensively in its production will be

A)to raise income by an absolute amount that is less than the rise in prices.
B)to raise income by an absolute amount that is more than the rise in prices.
C)to raise income by a smaller percentage than the rise in prices.
D)to raise income by a greater percentage than the rise in prices.

Question 32

Which of the following would be associated with the early phase of the product cycle?

A)Large amounts of production in low-income, developing countries
B)A standardized product with an assembly-line style production process
C)Sophisticated marketing and customer feedback mechanisms
D)More consumption in low-income, developing countries

Question 33

Using the specific factors model,assume that strawberry production requires the specific factor of land,tractor production requires the specific factor of capital,and labor is variable.If the United States is capital abundant compared to Mexico,and Mexico is land abundant compared to the United States,then in the short run with trade we would expect

A)the income of U.S. land owners to increase.
B)the income of U.S. workers to increase.
C)the income of Mexican workers to increase.
D)the income of Mexican land owners to increase.

Question 34

Nations that have only a single abundant resource face significant risks,even when that resource is highly valued.

Question 35

The demand for labor is said to be a derived demand because it comes from the demand for goods that labor produces. Suppose that strawberries are a labor-intensive good.An increase in the price of strawberries will ________ the demand for strawberries,which will ________ the demand for strawberry pickers.

A)increase, increase
B)increase, decrease
C)decrease, increase
D)decrease, decrease

Question 36

Using the specific factors model,assume that strawberry production requires the specific factor of land,tractor production requires the specific factor of capital,and labor is variable.If the United States is capital abundant compared to Mexico,and Mexico is land abundant compared to the United States,then in the short run with trade,which of the following is true?

A)Mexican wages will rise more than the increase in the price of tractors in Mexico.
B)U)S. wages will rise less than the fall in the price of tractors in the United States.
C)The owners of capital in the United States will see a larger increase in their incomes in percentage terms than the increase in the price of tractors.
D)The owners of land in Mexico will see a smaller increase in their incomes in percentage terms than the increase in the price of strawberries.

Question 37

Suppose that Brazil is capital abundant and Chile is natural resource abundant.If timber is natural resource intensive and computers are capital intensive,then according to the Stolper-Samuelson Theorem,the incomes of the owners of ________ are likely to rise in Brazil after trade with Chile begins.

A)capital
B)labor
C)natural resources
D)It is impossible to determine which will be favored.

Question 38

Explain some of the reasons why the HO model is difficult to test empirically.Does this mean that it is not a useful model of trade?

Question 39

The graph above shows the PPC for a country that can produce oil,which is labor intensive,or televisions,which are capital intensive.
The country is currently producing at point A and not trading with the rest of the world.With trade,the world price can be represented by slope of the straight line through Point A.
Which of the following is a true statement?

A)When this country produces the optimal amount with trade, workers in this country will be better off.
B)When this country produces the optimal amount with trade, capital in this country will be better off.
C)When this country produces the optimal amount with trade, both factors of production will be better off.
D)When this country produces the optimal amount with trade, the income of factors of production will not change.

Question 40

Which of the following is true according to the case study on U.S./ China trade presented in the chapter?

A)China has relative abundance in capital.
B)China has relative abundance in skilled labor.
C)The United States has relative scarcity in unskilled labor.
D)The United States has relative scarcity in capital.

Question 41

The L in OLI theory stands for loyalty,and this factor makes it more difficult for firms to substitute foreign operations for domestic as they fear a loss of sales due to negative publicity.

Question 42

The bulk of offshoring is vertical,relating to producing a component piece in an overall supply chain production.

Question 43

Chinese exports of toys and footwear can be explained by factor endowments,while Chinese exports of telecommunications equipment and computers and accessories can be explained by product-cycle analysis.

Question 44

Forces inside a nation that cause people to think about leaving that nation are called what in migration theory?

Question 45

The relocation of service industry functions to another country is called what?

Question 46

Offshoring required which types of advances?

Question 47

The O in OLI theory stands for ownership,and the asset owned can be tangible or intangible.

Question 48

Offshoring became a concern in the 1980s when modern communication and transport technology made it possible for firms to relocate production abroad.

Question 49

According to OLI theory,a firm might be unwilling to license its production to a foreign firm for fear that its technology may be stolen or its brand name harmed,which leads the firm to internalize control over its asset and set up its own foreign subsidiary.

Question 50

Offshoring by domestic firms causes job losses rather than job expansion in the home market.

Question 51

OLI theory is a direct contradiction of trade theory,especially trade theory based on comparative advantage.

Question 52

If General Motors imports parts from its plants in Canada and Mexico for finished trucks that it will sell across the NAFTA region,what type of trade does this represent?

Question 53

The United States has the largest percentage of foreigners in its overall population of any nation.

Question 54

How is offshoring of services different from past trade patterns?

Question 55

What does research thus far suggest about job loss and offshoring?

Question 56

Most migrants move from developing to developed nations.

Question 57

The opportunity cost of producing in low-income,developing countries rises over the product cycle,according to theory.

Question 58

If the case study on U.S./ China trade is correct in its analysis of factor abundance,

A)Chinese capital owners should see their income rise as trade increases.
B)U)S. skilled labor inputs should see their incomes fall as trade increases.
C)U)S. capital owners should see their income fall as trade increases.
D)Chinese unskilled labor should see their income rise as trade increases.

Question 59

The primary interest of firms engaging in offshoring is to find lower wages and to decrease production costs.

Question 60

Describe the product cycle,including addressing the various inputs that are required over time and the resulting production location decisions.

Question 61

International trade is the major cause of rising income inequality in the United States.

Question 62

Most economists attribute the growing income inequality in the United States to

A)trade.
B)macroeconomic policies.
C)technological change.
D)changing values.
E)taxes.

Question 63

What are the factors that have been identified that affect a migration decision? Give examples of each.

Question 64

Wage inequality has been on the rise in virtually all high-income industrial economies since the 1970s.The causes are probably numerous,but the leading explanation for the greatest share of the increase in inequality is

A)the growth of trade with developing countries.
B)the growth of trade with other high income industrial countries.
C)technological change which increased the relative demand for skilled workers.
D)technological change which increased the relative demand for unskilled workers.

Question 65

In the long run,the number of jobs in country is primarily determined by macroeconomic factors,not international trade.

Question 66

Carefully explain the relationship between the number of jobs in a country and international trade.

Question 67

Which of the following is NOT a primary determinant of the number of jobs in a nation in the long run?

A)Age and size of the population
B)Labor market policies
C)Macroeconomics policies
D)International trade