Exam 5: Resources and Trade: the Heckscher-Ohlin Model

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

-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 1. 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.

-Refer to above figure. If trade were to open up between P and R, where would the 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.

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, trade will ________ the owners of a country's ________ factor and will ________ the good that uses that factor intensively.

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

The assumption of diminishing returns in the Heckscher-Ohlin model means that, unlike in the Ricardian model, it is likely that

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

The 1987 study by Bowen, Leamer and Sveikauskas

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? How did the results obtained by Davis and Weinstein strengthen support for the validity of the HO model?

Which of the following empirical studies cast the most doubt on the Heckscher-Ohlin model?

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

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

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

Empirical support for the Heckscher-Ohlin model was weakest when the study applied

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

Why do we observe the Leontief paradox?

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

According to the Heckscher-Ohlin model