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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?

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The answer here is straightforward (thou...

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The Leontief Paradox


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.

F) C) and D)
G) None of the above

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


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

F) A) and E)
G) A) and B)

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Assume that only two countries, A and B, exist. 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 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. -Refer to the table above.If good S is capital intensive,then following the Heckscher-Ohlin Theory


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.

F) C) and D)
G) B) and E)

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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


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.

F) D) and E)
G) B) and C)

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


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

F) A) and D)
G) C) and E)

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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?

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If in fact national tastes were strongly...

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Why is it that North-South trade in manufactures seems to be consistent with the results or expectations generated by the factor-proportions theory of international trade,whereas North-North trade is not?

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There is a clear difference in relative ...

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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?

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The pattern of trade is generally observ...

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International trade leads to complete equalization of factor prices.Discuss.

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This statement is typically "true ...but

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If two countries are very different in relative factor abundance,then empirical support for which of the following would less likely?


A) the Factor Price Equalization Theorem
B) the Heckscher-Ohlin Theorem
C) the Law of One Price
D) the Law of Demand
E) the Gravity Theorem

F) C) and D)
G) B) and E)

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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?

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Trefler demonstrated that the actual vol...

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Assume that only two countries, A and B, exist. 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 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. -Refer to the table above.You are told that Country B has no minimum wage or child labor laws.Now the correct answer is


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.

F) A) and C)
G) All of the above

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If Gambinia has many workers but very little land and even less productive capital,then,following the Heckscher-Ohlin model,we predict that Gambinia will export


A) labor-intensive goods.
B) capital-intensive goods.
C) both capital- and land-intensive goods.
D) land-intensive goods.
E) both labor- and land-intensive goods.

F) B) and E)
G) C) and D)

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


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.

F) D) and E)
G) B) and E)

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


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.

F) A) and C)
G) D) and E)

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


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.

F) C) and D)
G) A) and B)

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Trade benefits a country by


A) increasing available consumption choices.
B) reducing the need for specialization in production.
C) reducing the relative price of the exported good.
D) increasing the real income of all resource owners.
E) increasing the wage rate.

F) B) and C)
G) None of the above

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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. 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. -Use the diagram above to identify the pre-trade situation for Australia and Sri-Lanka.Where on the K/L axis will you find each of the two countries? Which of the two countries has a higher relative wage,w/r? Which product is the labor intensive,and which is the land intensive one? Show where the relative price of cloth to food will be found once trade opens between these two countries.Show where the relative wages of each will appear. -Use the diagram above to identify the pre-trade situation for Australia and Sri-Lanka.Where on the K/L axis will you find each of the two countries? Which of the two countries has a higher relative wage,w/r? Which product is the labor intensive,and which is the land intensive one? Show where the relative price of cloth to food will be found once trade opens between these two countries.Show where the relative wages of each will appear.

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You will find Sri-Lanka to the left of A...

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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


A) an increase in the relative price of food in the U.S.
B) an increase in the relative price of food in Japan.
C) a global increase in the relative price of food.
D) a decrease in the relative price of food in both countries.
E) an increase in the relative price of food in both countries.

F) D) and E)
G) C) and E)

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