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

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 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

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?

-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 capital intensive it means that the good is produced

Empirical observations on actual North-South trade patterns tend to

"No country is abundant in everything." Discuss.

-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 ofF)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 the table above.If good S is capital intensive,then following the Heckscher-Ohlin Theory

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.

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

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

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

Why are prices of factors of production NOT equalized?

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

The Leontief Paradox

-Refer to above figure.Would you expect to find that the real wages become equalized in both countries? Explain the reason for any differences you note.

The 1987 study by Bowen,Leamer and Sveikauskas

According to the Heckscher-Ohlin model

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?