Question 1

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

Question 2

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

Question 3

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 of Factor-intensity reversals describe a situation in which...

Question 4

-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 answer of 
-Refer to above figure.In autarky,Country P was...

Question 5

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

Accepted Answer

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

Question 6

Empirical observations on actual North-South trade patterns tend to

Accepted Answer

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

Question 7

"No country is abundant in everything." Discuss.

Accepted Answer

The answer of "No country is abundant in everything." Discuss....

Question 8

-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.

Accepted Answer

The answer of 
-Refer to above figure.Two countries exist in...

Question 9

-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.

Question 10

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

Question 11

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

Accepted Answer

A) all of the assumptions of the model. 
B) all of the assumptions of the model except that regarding technology. 
C) all of the assumptions of the model except those regarding technology,goods and shipping costs. 
D) all of the assumptions of the model except those regarding technology,shipping costs and gravity. 
E) all of the assumptions of the model except those regarding shipping costs.

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.

Question 13

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

Accepted Answer

A) European capitalists should support U.S.-European free trade. 
B) European landowners should support U.S.-European free trade. 
C) all capitalists in both countries should support free trade. 
D) all landowners should support free trade. 
E) the U.S.should compensate European countries once trade commences.

Question 14

Why are prices of factors of production NOT equalized?

Accepted Answer

The answer of Why are prices of factors of production...

Question 15

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.

Question 16

The Leontief Paradox

Accepted Answer

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

Question 17

-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.

Accepted Answer

The answer of 
-Refer to above figure.Would you expect to...

Question 18

The 1987 study by Bowen,Leamer and Sveikauskas

Accepted Answer

A) supported the validity of the Leontief Paradox. 
B) supported the validity of the Heckscher-Ohlin model. 
C) used a two-country and two-product framework. 
D) demonstrated that in fact countries tend to use different technologies. 
E) proved that the U.S.'s comparative advantage relied on skilled labor.

Question 19

According to the Heckscher-Ohlin model

Accepted Answer

A) the gainers from trade could compensate the losers and still retain gains. 
B) everyone gains from trade. 
C) the scarce factor gains from trade and the abundant factor loses. 
D) a country gains from trade if its exports have a high value added. 
E) only the country with the more advanced technology gains from trade.

Question 20

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 answer of Suppose Australia,a land (K)-abundant country,and Sri-Lanka,a labor(L)-abundant...

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.