Deck 4: The Heckscher-Ohlin and Other Trade Theories

Question 1

Which of the following states that a nation will export commodities intensive in its relatively abundant and cheap factor and that international trade brings about equalization in returns to homogeneous factors across countries?

A)Heckscher-Ohlin theory
B)Stolper-Samuelson theorem
C)Differentiated product theorem
D)None of the above

Answer 1

A

Question 2

The ______________ hypothesizes that a portion of international trade is based on the introduction of new products or processes.

A)specific-factors model
B)technological gap model
C)product cycle model
D)real business cycle model

Answer 2

B

Question 3

Which of the following would least likely apply to the product cycle theory?

A)Digital cameras
B)Coal
C)Televisions
D)Computers

Answer 3

B

Question 4

Which of the following states that free international trade reduces the real income of the nation's relatively scarce factor and increases the real income of the nation's relatively abundant factor?

A)Heckscher-Ohlin theory
B)Stolper-Samuelson theorem
C)Differentiated product theorem
D)None of the above

Question 5

Which theory states that a nation will tend to export commodities intensive in its relatively abundant and cheap factor?

A)Heckscher-Ohlin theory
B)Stolper-Samuelson theory
C)Product cycle theory
D)Intraindustry trade theory

Question 6

Which economist laid the foundation for the factor endowment theory with his article entitled "The Effect of Foreign Trade on the Distribution of Income"?

A)Eli Heckscher
B)Bertil Ohlin
C)Alfred Marshal
D)Raymond Vernon

Question 7

Which model states that a nation can shift from being a net exporter of a good to a net importer of the same good?

A)Specific-factors model
B)Technological gap model
C)Product cycle model
D)Real business cycle model

Question 8

Which of the following is considered to be a short-run version of the factor price equalization theory?

A)Economies of scale theory
B)Intraindustry trade theory
C)Specific factors theory
D)Product cycle theory

Question 9

According to the factor endowment theory,nations heavily endowed with labor will:

A)import more labor intensive goods.
B)export more labor intensive goods.
C)have an absolute advantage in labor intensive goods.
D)have a comparative advantage in capital intensive goods.

Question 10

Which of the following is a part of the Heckscher-Ohlin model that states international trade will bring about equalization in the returns to homogeneous factors across nations?

A)Factor-price equalization theorem
B)Factor-proportions theory
C)Factor-endowment theory
D)Product cycle theory

Question 11

Transportation costs include:

A)freight charges.
B)warehousing costs.
C)costs associated with loading and unloading shipments.
D)All of the above.

Question 12

Assume a nation where labor is mobile between industries but capital is not.The specific-factors model states that trade leads to which of the following?

A)An increase in the return to capital used to produce the nation's export commodity
B)An increase in the return to capital used in the nation's import-competing industry
C)A decrease in the return to capital used to produce the nation's export commodity
D)An increase in the return to labor used in the production of both imports and exports.

Question 13

Which of the following states that the difference in relative factor abundance and relative factor prices is the cause of the pretrade difference in relative commodity prices between two nations?

A)Stolper-Samuelson theorem
B)Differentiated product theorem
C)Heckscher-Ohlin theorem
D)None of the above

Question 14

______________ involves international trade in the differentiated products of the same industry or broad product group.

A)Inter-industry trade
B)Intra-national trade
C)Intra-industry trade
D)Intra-product trade

Question 15

In his empirical test of Heckscher and Ohlin's model,Leontief found that

A)the US imported more labor intensive goods and exported more capital intensive goods.
B)the US imported more capital intensive goods and exported more labor intensive goods.
C)the US imported and exported more labor intensive goods.
D)the US imported and exported more capital intensive goods.

Question 16

Which of the following is an example of a differentiated product?

A)Crude Oil
B)Automobiles
C)Steel
D)Wheat

Question 17

The product cycle model was introduced by:

A)Wassily Leontief
B)Alfred Marshall
C)Eli Heckscher
D)Raymond Vernon

Question 18

Assume a nation where labor is mobile between industries but capital is not.The specific-factors model states that trade leads to which of the following?

A)A reduction in the return to capital used to produce the nation's export commodity
B)A reduction in the return to capital used in the nation's import-competing industry
C)An increase in the return to labor used in the production of both imports and exports.
D)Ambiguous outcomes in the return to all capital.

Question 19

The Heckscher-Ohlin theory is often referred to as:

A)Factor-price equalization theorem
B)Factor-proportions theory
C)Factor-endowment theory
D)Both b and c

Question 20

According to the specific factors trade theory:

A)Owners of factors specific to export industries lose when trade takes place,but owners of factors specific to import-competing industries gain
B)Both owners of factors specific to export industries and owners of factors specific to import-competing industries gain from trade
C)Both owners of factors specific to export industries and owners of factors specific to import-competing industries lose from trade
D)Owners of factors specific to export industries gain when trade takes place,but owners of factors specific to import-competing industries lose

Question 21

Why should not be there a strong uniform international environmental standard?

A)No country will follow it
B)as countries grow richer,they will voluntarily adopt more "environmentally friendly" approaches
C)poorer nations do not lower their environmental standard to attract polluting firms from abroad
D)poorer nations do not use environmental policies to seek to offset the cost advantage that other countries might enjoy over them

Question 22

Assume the cost of transporting computers from US to Japan is greater than the pre-trade price difference for computers between US and Japan.Trade in computers between US and Japan will:

A)be very profitable for both parties.
B)be a breakeven proposition for both parties.
C)occur.
D)not occur.

Question 23

Assume that Country A is relatively abundant in capital and relatively scarce in land.According to the factor endowment theory,with free trade,the internal distribution of income in Country A will change in favor of:

A)capital.
B)land.
C)both capital and land.
D)neither capital nor land.

Question 24

Increasing returns to scale generally exist because of:

A)greater division of labor and labor specialization
B)increased cost of hiring skilled labor
C)less and less expensive factors of production
D)incompatibility of labor and capital

Question 25

With ______________,inputs increase proportionately less than the increase in output.

A)increasing returns to scale
B)decreasing returns to scale
C)constant returns to scale
D)international returns to scale

Question 26

Which of the following economists did not participate in a 1967 study that found a strong correlation between expenditures on research and development and export performance?

A)Gruber
B)Mehta
C)Vernon
D)Heckscher

Question 27

Assume both labor and capital are completely mobile,and a nation is capital rich/labor scarce.In order to increase welfare,what kind of trade policy should the government adapt?

A)Restrict all trade,because the standard of living will decline and people will be worse off
B)Only restrict trade that will make the real wage fall,and allow trade that will not affect wages
C)Not restrict trade,because the real wage will eventually cycle back to the pre-trade value,eliminating any losses in the standard of living
D)Not restrict trade,because any decline in real wages will be matched with an even larger gain by those who own capital

Question 28

Which of the following is not an example of a capital rich nation?

A)Canada
B)Germany
C)Bangladesh
D)Finland

Question 29

Mexico is relatively abundant in labor,while Canada is relatively abundant in capital.In both nations,the production of televisions is relatively more capital intensive than the production of corn.According to the factor endowment theory,Mexico will have a(n):

A)absolute advantage in the production of corn and computers
B)absolute advantage in the production of corn
C)comparative advantage in the production of corn
D)comparative advantage in the production of computers

Question 30

Which of the following factors were not considered within the framework of the Leontief paradox?

A)Human capital
B)Physical capital
C)Natural resources
D)Both A & C

Question 31

For the difference in factor endowment to be the basis of trade the Heckscher-Ohlin theorem requires that:

A)the two nations in questions have different tastes.
B)trading partners are different in terms of the level of technology.
C)Both nations only have broadly similar tastes because the level of technology is not relevant.
D)both nations have similar tastes and technology.

Question 32

Which of the following is not a possible source of bias for the Leontief paradox?

A)Leontief only used a two-factor model
B)Leontief did not consider factors such as natural resources
C)Leontief only used physical capital in the measure of capital
D)Leontief used Human Capital as an alternative to Physical capital

Question 33

With ______________,inputs increase proportionately more than the increase in output.

A)Increasing returns to scale
B)Decreasing returns to scale
C)Constant returns to scale
D)International returns to scale

Question 34

The Heckscher-Ohlin theory is often referred to as the factor-proportion theory.

Question 35

With ______________,inputs increase in direct proportion to the increase in output.

A)increasing returns to scale
B)decreasing returns to scale
C)constant returns to scale
D)international returns to scale

Question 36

A product will be internationally tradable as long as the pre-trade price differential between the trading partners is:

A)equal to the transportation cost of the good
B)greater than the transportation cost of the good
C)less than the transportation cost of the good
D)different than the transportation cost of the good

Question 37

Which of the following is not an element of the product cycle model?

A)The implementation of measures to prevent price differences across markets
B)Expansion of production for export
C)The introduction of the product into the domestic market
D)Standardization and beginning of production abroad through imitation

Question 38

In the real world,why doesn't factor-price completely equalize

A)because in real world,there are no trade restrictions
B)technology takes time to defuse and factor productivity remains different across countries.
C)although labor is completely mobile it assumes the value in the country to which it moved and thus has no effect on the overall factor price of that country.
D)due to differences in exchange rates

Question 39

Which of the following does not help in explaining the inadequacies of the Heckscher-Ohlin model in explaining basis for international trade ?

A)Economies of scale
B)Product differentiation
C)Technological differences and the existence of product cycles
D)Leontief's Paradox

Question 40

Which of the following is not an explanation for why high-income and labor-saving products are most likely to be introduced in rich nations?

A)The opportunities for doing so are the greatest in rich nations
B)Poor countries actually prefer products and services associated with being low-income
C)The development of new products requires proximity to markets so as to benefit from consumer feedback in modifying the product
D)There is a need to provide service

Question 41

Free international trade will continue to expand until the real wages for the same type of labor in the two nations and the real rate of interest for the same type of capital in the two nations are completely equalized.

Question 42

Discuss the major points of the Heckscher-Ohlin theory,the objection to this theory posed by the Leontief paradox,and the counterargument to this objection.

Question 43

Leontief's empirical findings agreed with the Heckscher-Ohlin trade model which predicts that,as the most capital abundant nation,the U.S.should import labor-intensive products.

Question 44

Increasing returns to scale refer to the production situation where inputs or factors of production grow proportionately more than output.

Question 45

International trade acts as a substitute for the international mobility of factors of production in its effect on factor prices.

Question 46

Show with a diagram how two countries with identical tastes but different factor endowments can benefit from trade.

Question 47

As a result of environmentalist efforts,for the past three decades polluting and dirty industry exports have expanded slower relative to clean industries and their exports.

Question 48

The Heckscher-Ohlin theory is often referred to as the factor-endowment theory.

Question 49

According to the Heckscher-Ohlin model,if country A has a comparative advantage in producing good X,and country B has a comparative advantage in producing good Y,if those countries have similar tastes it is possible for those two countries to reach a higher indifference curve with the introduction of trade.

Question 50

Non-traded goods and services are those that are not traded because of international barriers to entry,such as exorbitant import tariffs.

Question 51

Transportation cost the extent of trade.Can transportation cost have the potential to completely eliminate any possibility of trade?

Question 52

Low-skilled US labor was in favor of NAFTA because it will inevitably increase the standard of living for the country as a whole.

Question 53

Labor unions in developed nations are usually against trade restrictions because it impedes their ability to acquire skilled workers that can assist in acquiring additional benefits and wage increases.