Question 1

"No country is abundant in everything." Discuss.

Accepted Answer

The concept of factor abundance is (like factor intensities) a relative concept. When we identify a country as being capital abundant, we mean that it has more capital per worker than does the other country. If one country has more capital worker than another, it is an arithmetic impossibility that it also has more workers per unit of capital.

Question 2

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. A

Question 3

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

Accepted Answer

A)  the real income of both countries will increase. 
B)  the real income of neither country will increase. 
C)  the real income of Australia but not of Belgium will increase. 
D)  the real income of Australia and of Belgium will increase. 
E)  the real income of both countries may increase. 
A)  the real income of both countries will increase. 
B)  the real income of neither country will increase. 
C)  the real income of Australia but not of Belgium will increase. 
D)  the real income of Australia and of Belgium will increase. 
E)  the real income of both countries may increase. E

Question 4

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 5

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

Accepted Answer

This statement is typically "true . . .

Question 6

Factors tend to be specific to certain uses and products

Accepted Answer

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

Question 7

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 8

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 9

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

Accepted Answer

A)  the Factor Price Equalization Theorem 
B)  the Heckscher-Ohlin Theorem 
C)  the Law of One Price 
D)  the Law of Demand 
E)  the Gravity Theorem 
A)  the Factor Price Equalization Theorem 
B)  the Heckscher-Ohlin Theorem 
C)  the Law of One Price 
D)  the Law of Demand 
E)  the Gravity Theorem

Question 10

-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 11

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

Accepted Answer

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

Question 12

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

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 13

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

Question 14

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 15

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

Accepted Answer

A)  the real income of labor in Australia would decline. 
B)  the real income of labor in Belgium would decline. 
C)  the real income of landowners in Belgium would decline. 
D)  the real income of capital owners in Australia would increase. 
E)  the real income of labor in both countries would decline. 
A)  the real income of labor in Australia would decline. 
B)  the real income of labor in Belgium would decline. 
C)  the real income of landowners in Belgium would decline. 
D)  the real income of capital owners in Australia would increase. 
E)  the real income of labor in both countries would decline.

Question 16

Trade benefits a country by

Accepted Answer

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

Question 17

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 18

The Heckscher-Ohlin model predicts all of the following EXCEPT

Accepted Answer

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

Question 19

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

Question 20

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

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.

"No country is abundant in everything." Discuss.

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

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

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

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

Factors tend to be specific to certain uses and products

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

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

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

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

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.

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

Trade benefits a country by

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?

The Heckscher-Ohlin model predicts all of the following EXCEPT

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

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

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

"No country is abundant in everything." Discuss.

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

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

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

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

Factors tend to be specific to certain uses and products

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

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

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

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

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.

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

Trade benefits a country by

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?

The Heckscher-Ohlin model predicts all of the following EXCEPT

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

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

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, the country with a relative abundance of will have a production possibility frontier that is biased toward production of the good.