Question 1

Why is the H.O.model called the factor-proportions theory?

Accepted Answer

The H.O.model explores the nature and the limitations of assuming that the sole determinant of comparative advantage is inter-country differences in (relative)factor proportions.

Question 2

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. A

Question 3

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 the labor-intensive good and decrease production of the capital-intensive good. 
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) An increase in a country's labor supply will increase production of the labor-intensive good and decrease production of the capital-intensive good. 
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

Question 4

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 5

In the Heckscher-Ohlin model,countries are assumed to differ only in terms of their

Accepted Answer

A) factor endowments. 
B) tastes and preferences. 
C) available technologies. 
D) factor productivities. 
E) physical size. 
A) factor endowments. 
B) tastes and preferences. 
C) available technologies. 
D) factor productivities. 
E) physical size.

Question 6

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 7

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 8

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

Accepted Answer

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

Question 9

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 10

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?

Accepted Answer

Trefler demonstrated that the actual vol

Question 11

-Refer to above figure.If trade were to open up between P and R,where would the world terms of trade locate in the figure above (somewhere on the PC/PF axis)? Would relative wages (w/r)in the two countries become equal? Is this consistent with the Heckscher-Ohlin model? Explain.

Accepted Answer

The terms of trade would settle somewher

Question 12

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

Accepted Answer

A) The wage-rental ratio is determined by relative product prices. 
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 is determined by relative product prices. 
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 13

Factors tend to be specific to certain uses and products

Accepted Answer

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

Question 14

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 15

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 16

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 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

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

Accepted Answer

A) will tend to hurt some groups in each trading country. 
B) is beneficial to everyone in both trading countries. 
C) will tend to hurt one trading country. 
D) will tend to hurt everyone in both countries. 
E) will be beneficial to all those engaged in international trade. 
A) will tend to hurt some groups in each trading country. 
B) is beneficial to everyone in both trading countries. 
C) will tend to hurt one trading country. 
D) will tend to hurt everyone in both countries. 
E) will be beneficial to all those engaged in international trade.

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

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

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

Why is the H.O.model called the factor-proportions theory?

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

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

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

In the Heckscher-Ohlin model,countries are assumed to differ only in terms of their

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

The Heckscher-Ohlin model predicts all of the following EXCEPT

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

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

-Refer to above figure.If trade were to open up between P and R,where would the world terms of trade locate in the figure above (somewhere on the PC/PF axis)? Would relative wages (w/r)in the two countries become equal? Is this consistent with the Heckscher-Ohlin model? Explain.

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

Factors tend to be specific to certain uses and products

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

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

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

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?

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

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

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

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

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