Question 1

The Leontief Paradox

Accepted Answer

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

Question 2

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?

Accepted Answer

Australia would still export food. As a

Question 3

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

Accepted Answer

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

Question 4

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

Accepted Answer

A)  demand will shift away from the capital-intensive product, and its production will decrease. 
B)  the relative price of the capital-intensive product will fall to some point between the pretrade relative prices. 
C)  the country that exports the capital-intensive good will lose its comparative advantage. 
D)  demand will shift away from the capital-intensive product, and its production will decrease relative to that of the land-intensive product. 
E)  the production of the capital-intensive product will decrease, but by less than production of the land-intensive product. 
A)  demand will shift away from the capital-intensive product, and its production will decrease. 
B)  the relative price of the capital-intensive product will fall to some point between the pretrade relative prices. 
C)  the country that exports the capital-intensive good will lose its comparative advantage. 
D)  demand will shift away from the capital-intensive product, and its production will decrease relative to that of the land-intensive product. 
E)  the production of the capital-intensive product will decrease, but by less than production of the land-intensive product.

Question 5

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.

Question 6

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

Accepted Answer

A)  move the point of production along the production possibility curve. 
B)  shift the production possibility curve outward, and increase the production of both goods. 
C)  shift the production possibility curve outward and decrease the production of the labor-intensive product. 
D)  shift the production possibility curve outward and decrease the production of the capital-intensive product. 
E)  shift the possibility curve outward and displace preexisting labor. 
A)  move the point of production along the production possibility curve. 
B)  shift the production possibility curve outward, and increase the production of both goods. 
C)  shift the production possibility curve outward and decrease the production of the labor-intensive product. 
D)  shift the production possibility curve outward and decrease the production of the capital-intensive product. 
E)  shift the possibility curve outward and displace preexisting labor.

Question 7

Which of the following empirical studies provided the most support for the heckscher-Ohlin model?

Accepted Answer

A)  the study by Wassily Leontief 
B)  the study by Bowen, Leamer, and Sveikauskas 
C)  the study by David Ricardo 
D)  the study by Adam Smith 
E)  the study by Davis and Weinstein 
A)  the study by Wassily Leontief 
B)  the study by Bowen, Leamer, and Sveikauskas 
C)  the study by David Ricardo 
D)  the study by Adam Smith 
E)  the study by Davis and Weinstein

Question 8

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 9

Why are prices of factors of production NOT equalized?

Accepted Answer

Again this statement may or may not be a

Question 10

The Case of the Missing Trade refers to

Accepted Answer

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

Question 11

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 12

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?

Accepted Answer

The answer here is straightforward (thou

Question 13

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 14

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 15

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.

Accepted Answer

A)  harm; scarce; import 
B)  harm; abundant; import 
C)  benefit; scarce; export 
D)  benefit; scarce; import 
E)  harm; scarce; export 
A)  harm; scarce; import 
B)  harm; abundant; import 
C)  benefit; scarce; export 
D)  benefit; scarce; import 
E)  harm; scarce; export

Question 16

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

Accepted Answer

This statement is not true. Although one

Question 17

Empirical observations on actual North-South trade patterns tend to

Accepted Answer

A)  support the validity of the Rybczynski Theorem. 
B)  support the validity of the wage equalization theorem. 
C)  support the validity of the neo-imperialism exploitation theory. 
D)  support the validity of the Leontief Paradox. 
E)  support the validity of the Heckscher-Ohlin model. 
A)  support the validity of the Rybczynski Theorem. 
B)  support the validity of the wage equalization theorem. 
C)  support the validity of the neo-imperialism exploitation theory. 
D)  support the validity of the Leontief Paradox. 
E)  support the validity of the Heckscher-Ohlin model.

Question 18

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

Question 19

One way in which the Heckscher-Ohlin model differs from the Ricardo model of comparative advantage is by assuming that ________ is (are) identical in all countries.

Accepted Answer

A)  factor endowments 
B)  scale of production 
C)  factor intensities 
D)  technology 
E)  opportunity costs 
A)  factor endowments 
B)  scale of production 
C)  factor intensities 
D)  technology 
E)  opportunity costs

Question 20

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

Accepted Answer

In a two-good, two-factor model, such as

The Leontief Paradox

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

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

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

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

Which of the following empirical studies provided the most support for 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

Why are prices of factors of production NOT equalized?

The Case of the Missing Trade refers to

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

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.

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.

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

Empirical observations on actual North-South trade patterns tend to

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

One way in which the Heckscher-Ohlin model differs from the Ricardo model of comparative advantage is by assuming that ________ is (are) identical in all countries.

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

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

The Leontief Paradox

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

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

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

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

Which of the following empirical studies provided the most support for 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

Why are prices of factors of production NOT equalized?

The Case of the Missing Trade refers to

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

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.

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.

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

Empirical observations on actual North-South trade patterns tend to

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

One way in which the Heckscher-Ohlin model differs from the Ricardo model of comparative advantage is by assuming that ________ is (are) identical in all countries.

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

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.

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.