Question 1

In the H-O model,international trade is based mostly on a difference in:&#10;A)technology&#10;B)factor endowments&#10;C)economies of scale&#10;D)tastes

Accepted Answer

The H-O model assumes that countries have different factor endowments, such as labor and capital, which leads to differences in their comparative advantage in producing certain goods. Therefore, international trade is based on these factor endowments rather than differences in technology, economies of scale, or tastes.

Question 2

According to the H-O model,trade reduces international differences in:&#10;A)relative but not absolute factor prices&#10;B)absolute but not relative factor prices&#10;C)both relative and absolute factor prices&#10;D)neither relative nor absolute factor prices

Accepted Answer

The Heckscher-Ohlin (H-O) model predicts that trade reduces international differences in both relative and absolute factor prices by equalizing the price of each factor across countries. This occurs as countries export goods that intensively use their abundant factors, increasing their demand and price, while importing goods that intensively use their scarce factors, reducing their demand and price domestically.

Question 3

When w/r falls,L/K&#10;A)falls in the production of both commodities&#10;B)rises in the production of both commodities&#10;C)can rise or fall&#10;D)is not affected

Accepted Answer

When the wage-rental ratio (w/r) falls, it becomes cheaper to use labor relative to capital, leading to an increase in the labor-capital ratio (L/K) in the production of both commodities.

Question 4

The Leontief paradox refers to the empirical finding that U.S.&#10;A)import substitutes are more K-intensive than exports&#10;B)imports are more K-intensive than exports&#10;C)exports are more L-intensive than imports&#10;D)exports are more K-intensive than import substitutes

Accepted Answer

The answer of The Leontief paradox refers to the empirical...

Question 5

The H-O model is a simplification of the a truly general equilibrium model because it deals with:&#10;A)two nations&#10;B)two commodities&#10;C)two factors of production&#10;D)all of the above

Accepted Answer

The H-O model only deals with two nations, two commodities, and two factors of production, which is a simplified version of a truly general equilibrium model that deals with multiple nations, commodities, and factors of production. Therefore, option D, "all of the above," is the best choice.

Question 6

For factor reversal to occur,two commodities must be produced with:&#10;A)sufficiently different elasticity of substitution of factors&#10;B)the same K/L ratio&#10;C)technologically-fixed factor proportions&#10;D)equal elasticity of substitution of factors

Accepted Answer

Factor reversal occurs when there is a shift in the relative factor prices causing production to shift from one commodity to another. This shift can only occur if the two commodities have sufficiently different elasticities of substitution of factors. If the two commodities have the same elasticity of substitution, then the shift in factor prices would not cause a change in production. Similarly, if the commodities have technologically-fixed factor proportions or the same K/L ratio, then factor reversal would not occur.

Question 7

From empirical studies,we conclude that the H-O theory:&#10;A)must be rejected&#10;B)must be accepted without reservations&#10;C)can be accepted while awaiting further testing&#10;D)explains all international trade

Accepted Answer

Empirical studies have shown that the H-O theory can explain some but not all aspects of international trade. Therefore, it can be accepted while awaiting further testing and refinement.

Question 8

With equal technology nations will have equal K/L in production if:&#10;A)factor prices are the same&#10;B)tastes are the same&#10;C)production functions are the same&#10;D)all of the above

Accepted Answer

The answer of With equal technology nations will have equal...

Question 9

Which is not an assumption of the H-O model&#10;A)the same technology in both nations&#10;B)constant returns to scale&#10;C)complete specialization&#10;D)equal tastes in both nations

Accepted Answer

The Heckscher-Ohlin (H-O) model does not assume complete specialization; rather, it suggests that countries will specialize in producing and exporting goods that utilize their abundant factors of production more intensively, but not to the point of complete specialization.

Question 10

A difference in relative commodity prices between nations can be based on a difference in:&#10;A)technology&#10;B)factor endowments&#10;C)tastes&#10;D)all of the above

Accepted Answer

The relative commodity prices between nations can be based on a difference in technology, factor endowments, and tastes. Technology determines the efficiency and productivity of the production process, while factor endowments refer to the availability and quality of resources such as labor, land, and capital. Tastes refer to the preferences and demands of consumers in different countries. All three factors can influence the comparative advantage and competitiveness of a country in producing certain goods, resulting in differences in relative commodity prices.

Question 11

A nation is said to have a relative abundance of K if it has a:&#10;A)greater absolute amount of K&#10;B)smaller absolute amount of L&#10;C)higher L/K ratio&#10;D)lower r/w

Accepted Answer

The answer of A nation is said to have a...

Question 12

The H-O model extends the classical trade model by:&#10;A)explaining the basis for comparative advantage&#10;B)examining the effect of trade on factor prices&#10;C)both a and b&#10;D)neither a nor b

Accepted Answer

The answer of The H-O model extends the classical trade...

Question 13

We say that commodity Y is K-intensive with respect to X when:&#10;A)more K is used in the production of Y than X&#10;B)less L is used in the production of Y than X&#10;C)a lower L/K ratio is used in the production of Y than X&#10;D)a higher K/L is used in the production of X than Y

Accepted Answer

The answer of We say that commodity Y is K-intensive...

Question 14

The H-O model is a general equilibrium model because it deals with:&#10;A)production in both nations&#10;B)consumption in both nations&#10;C)trade between the two nations&#10;D)all of the above

Accepted Answer

The answer of The H-O model is a general equilibrium...

Question 15

According to the H-O model,international trade will:&#10;A)reduce international differences in per capita incomes&#10;B)increases international differences in per capita incomes&#10;C)may increase or reduce international differences in per capita incomes&#10;D)lead to complete specialization

Accepted Answer

The answer of According to the H-O model,international trade will:&#10;A)reduce...

Deck 5: Factor Endowments and the Heckscherohlin Theory