Deck 5: Factor Endowments and the Heckscherohlin Theory

Question 1

According to the H-O model,international trade will:

A) reduce international differences in per capita incomes
B) increases international differences in per capita incomes
C) may increase or reduce international differences in per capita incomes
D) lead to complete specialization

Answer 1

C

Question 2

The H-O model is a general equilibrium model because it deals with:

A) production in both nations
B) consumption in both nations
C) trade between the two nations
D) all of the above

Answer 2

D

Question 3

Which of the following situations would violate the assumptions of the H-O model?

A) Doubling all inputs doubled the production of all outputs.
B) Nation 1 has technology that is different from Nation 2.
C) Nation 1's trade is balanced.
D) Nation 2 does not completely specialize in either good.

Answer 3

B

Question 4

According to the H-O model,trade reduces international differences in:

A) relative but not absolute factor prices
B) absolute but not relative factor prices
C) both relative and absolute factor prices
D) neither relative nor absolute factor prices

Question 5

The H-O model is a simplification of a truly general equilibrium model because it deals with:

A) two nations
B) two commodities
C) two factors of production
D) all of the above

Question 6

International trade will ______ the price of a nation's abundant resources and _____ the price of a nation's scarce resources

A) increase; increase
B) decrease; decrease
C) decrease; increase
D) increase; decrease

Question 7

A difference in relative commodity prices between nations can be based on a difference in:

A) technology
B) factor endowments
C) tastes
D) all of the above

Question 8

In the H-O model,international trade is based mostly on a difference in:

A) technology
B) factor endowments
C) economies of scale
D) tastes

Question 9

For factor reversal to occur,two commodities must be produced with:

A) sufficiently different elasticity of substitution of factors
B) the same K/L ratio
C) technologically-fixed factor proportions
D) equal elasticity of substitution of factors

Question 10

Which is not an assumption of the H-O model?

A) the same technology in both nations
B) constant returns to scale
C) complete specialization
D) equal tastes in both nations

Question 11

The economist who rigorously proved the factor-price equalization theorem was

A) David Ricardo
B) Adam Smith
C) Paul Samuelson
D) Wassily Leontief

Question 12

According to the factor price equalization theorem,a nation that has a relative capital abundance should specialize in goods that are ______ intensive resulting in an increase in the price of ______.

A) capital; capital
B) capital; labor
C) labor; capital
D) labor; labor

Question 13

With equal technology nations will have equal K/L in production if:

A) factor prices are the same
B) tastes are the same
C) production functions are the same
D) all of the above

Question 14

The Leontief paradox refers to the empirical finding that U.S.

A) import substitutes are more K-intensive than exports
B) imports are more K-intensive than exports
C) exports are more L-intensive than imports
D) exports are more K-intensive than import substitutes

Question 15

We say that commodity Y is K-intensive with respect to X when:

A) more K is used in the production of Y than X
B) less L is used in the production of Y than X
C) a lower L/K ratio is used in the production of Y than X
D) a higher K/L is used in the production of X than Y

Question 16

The factor price equalization theorem states that international trade will bring about equalization in

A) relative returns only
B) absolute returns only
C) both relative and absolute returns
D) neither absolute nor relative returns

Question 17

One potential reasonable explanation for the Leontief paradox is that

A) The U.S. exports capital intensive goods
B) U.S. labor is more productive than its foreign counterpart
C) U.S. tastes were biased strongly in favor of capital intensive goods
D) The two factor model that was used was incomplete

Question 18

A nation is said to have a relative abundance of K if it has a:

A) greater absolute amount of K
B) smaller absolute amount of L
C) higher L/K ratio
D) lower r/w

Question 19

When w/r falls,L/K

A) falls in the production of both commodities
B) rises in the production of both commodities
C) can rise or fall
D) is not affected

Question 20

From empirical studies,we conclude that the H-O theory:

A) must be rejected
B) must be accepted without reservations
C) can be accepted while awaiting further testing
D) explains all international trade

Question 21

The United States can be characterized as relatively capital abundant and labor scarce.Thus,according to the H-O model,

A) social welfare in the United States will be reduced by trade.
B) wages in the United States will be reduced by trade.
C) the return on capital in the United States will be reduced by trade.
D) capital-labor ratios in will be changed by trade.

Question 22

a)Identify the conditions that may give rise to trade between two nations.
b)What are some of the assumptions on which the Heckscher-Ohlin theory is based?
c)What does this theory say about the pattern of trade and effect of trade on factor prices?

Question 23

The H-O model assumes a world in which factors of production cannot move but goods can.In terms of output prices and factor prices,explain what (if anything)would be different about a world in which there was complete factor mobility but no trade versus a world in which there was absolutely free trade but no factor mobility.

Question 24

Consumers demand more of commodity X (the L-intensive commodity)and less of commodity Y (the K-intensive commodity).Suppose that Nation 1 is India,commodity X is textiles,and commodity Y is food.Starting from the no-trade equilibrium position and using the Heckscher-Ohlin model,trace the effect of this change in tastes on India's
a)relative commodity prices and demand for food and textiles,
b)production of both commodities and factor prices,
c)comparative advantage and volume of trade.
d)Do you expect international trade to lead to the complete equalization of relative commodity and factor prices between India and the United States? Why?

Question 25

If the assumptions of the H-O hold,a country that is relatively capital abundant will have a production possibilities frontier that is

A) relatively flat, with a constant slope.
B) relatively steep, with a constant slope.
C) relatively flat, with an increasing slope (in absolute value).
D) relatively steep, with an increasing slope (in absolute value).

Question 26

Define and explain factor intensity reversal

Question 27

In the United States,labor unions consistently oppose international trade and support trade barriers.Use the H-O model to explain why.

Question 28

List three possible explanations for the Leontief paradox

Question 29

Over the last five decades,relative to the United States,real wages among industrialized countries have

A) become equal.
B) moved farther away.
C) moved closer together.
D) increased, then decreased.

Question 30

List at least four of the assumptions of the Heckscher-Ohlin theory