FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 8: The Basis for Trade: Factor Endowments and the Heckscher-Ohlin Model

Show Answer

Share

---

All types

Filters

Study Flashcards

Question 21

Multiple Choice

Review LaterAdd Note

Review Later

An implication of the Heckscher-Ohlin theorem is that

A) if two countries have identical tastes, then no trade will occur between them.
B) the relative price of a country's scarce factor of production will rise when the Country is opened to trade.
C) income distribution in a country does not change when a country is opened to trade.
D) two countries with identical tastes can still have a basis for trade if factor endowments Of the countries differ and if factor intensities of the commodities differ.

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

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

If country I is defined as "relatively capital-abundant" in relation to country II by the "price" (or "economic") definition of factor abundance, then the price of labor relative to the price of capital is __________ in country I than in country II, and the Heckscher-Ohlin theorem would suggest that country I would export relatively __________ goods to country II.

A) higher; capital-intensive
B) higher; labor-intensive
C) lower; capital-intensive
D) lower; labor-intensive

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

Correct Answer

verified

Show Answer

Question 23

Multiple Choice

Review LaterAdd Note

Which one of the following is NOT an assumption in the Heckscher-Ohlin analysis?

In the situation of "demand reversal" in a 2x2x2 context where all the assumptions of the Heckscher-Ohlin analysis hold except for the assumption of identical demands across Countries, and when the countries are trading with each other,

The Stolper-Samuelson theorem suggests that, when a country is opened to international Trade, the real income of the country's abundant factor of production will __________And the real income of the country's scarce factor of production __________.

(a) State the Heckscher-Ohlin theorem. Then, in the context of a 2x2x2 model and using the "price definition" of relative factor abundance, illustrate and explain how this theorem is obtained. (b) Continuing with the "price definition" of relative factor abundance in the 2x2x2 context, carefully explain what happens (and why) to the relative factor price difference between the two countries as the countries move from autarky to free trade.

If relatively capital-abundant country A opens trade with relatively labor-abundant Country B and the trade takes place in accordance with the Heckscher-Ohlin theorem,What would be the consequence for factor prices (w/r) in the two countries?

In the following diagram, At factor prices (w/r) _I, good X is the __________, and, at factor prices (w/r) _II, good Y is The __________.

(a) In a 2x2x2 context, state the Heckscher-Ohlin theorem. Then indicate how this theorem can be obtained, utilizing the physical definition of relative factor abundance. (b) When a country enters into trade in accordance with the Heckscher-Ohlin theorem, what happens to the real income of the country's relatively abundant factor of production and what happens to the real income of the country's relatively scarce factor of production? Carefully explain.

In the "specific-factors" model where capital in each sector is fixed but labor can move Freely between the two sectors, the opening of the country to trade will increase the real Return to capital in the __________ sector and will increase the real wage of a worker Who __________.

In a two-country world, if country A is the relatively labor-abundant and country B is the relatively capital-abundant country by the "price" definition of factor abundance (and where w is the wage rate and r is the return to capital) , then __________. When the countries move from autarky to Heckscher-Ohlin-type trade, the result will be that __________.