Question 1

Assume that only two countries, A and B, exist.
 
-Refer to the table above. If you are told that Country B is very much richer than Country A, then 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.

Accepted Answer

According to the theory of comparative advantage, a country tends to specialize in producing and exporting goods that it can produce more efficiently than its trading partner. In this case, if Country B is very much richer than Country A, it is likely that Country B has a comparative advantage in producing good S. Therefore, it is more likely that Country B will export good S, while Country A will specialize in producing and exporting other goods that it can produce more efficiently. Therefore, the correct answer is A) country B will export good S.

Question 2

According to the Heckscher-Ohlin model, the source of comparative advantage is a country's
A) factor endowments.
B) technology.
C) advertising.
D) human capital.
E) political system.

Accepted Answer

The Heckscher-Ohlin model states that a country will have a comparative advantage in producing goods that utilize factors of production that are abundant in that country. Therefore, a country's factor endowments (such as its natural resources, labor force, and capital stock) are the source of its comparative advantage.

Question 3

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.

Accepted Answer

In the 2-factor, 2-good Heckscher-Ohlin model, the production possibility frontier is kinked when there is no factor substitution in production, which means that the factors of production cannot be easily interchanged between the production of the two goods. This leads to a situation where the production possibility frontier has a kink, as the economy approaches the limit of its capacity to produce one good or the other. Therefore, the correct answer is A.

Question 4

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.

Accepted Answer

The Heckscher-Ohlin model assumes that countries differ only in terms of their factor endowments, meaning the amount of capital and labor they have relative to each other. This is the basis for trade patterns in the model, as countries will specialize in producing goods that use their abundant factor(s) of production and trade with countries that have different relative endowments. The model does not consider differences in tastes and preferences, available technologies, factor productivities, or physical size.

Question 5

In the 2-factor, 2-good Heckscher-Ohlin model, the country with a relative abundance of ________ will have a production possibility frontier that is biased toward production of the ________ good.
A) labor; labor intensive
B) labor; capital intensive
C) land; labor intensive
D) land; capital intensive
E) capital; land intensive

Accepted Answer

In the Heckscher-Ohlin model, a country with a relative abundance of a particular factor (e.g., labor) will have a comparative advantage in producing goods that intensively use that factor (e.g., labor-intensive goods). This is because the country can produce these goods more efficiently and at a lower cost than goods that require factors in which the country is relatively scarce.

Question 6

The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former
A) has only two countries.
B) has only two products.
C) has two factors of production.
D) has two production possibility frontiers (one for each country).
E) has varying wage rates.

Accepted Answer

The Heckscher-Ohlin model includes two factors of production (capital and labor), which the Ricardian model does not.

Question 7

The assumption of diminishing returns in the Heckscher-Ohlin model means that, unlike in the Ricardian model, it is likely that
A) countries will not be fully specialized in one product.
B) countries will benefit from free international trade.
C) countries will consume outside their production possibility frontier.
D) comparative advantage will not determine the direction of trade.
E) global production will decrease under trade.

Accepted Answer

The assumption of diminishing returns in the Heckscher-Ohlin model suggests that a country will not be fully specialized in producing one good, unlike in the Ricardian model where a country would specialize in producing the good in which it has a comparative advantage. Instead, a country will allocate its resources and produce a combination of goods that maximizes its output, given its resources and technology.

Question 8

In the 2-factor, 2-good Heckscher-Ohlin model, the country with a relative abundance of ________ will have a production possibility frontier that is biased toward production of the ________ good.
A) capital; capital intensive
B) labor; capital intensive
C) land; labor intensive
D) land; capital intensive
E) labor; land intensive

Accepted Answer

In the Heckscher-Ohlin model, a country with a relative abundance of a particular factor (e.g., capital) will have a comparative advantage in producing goods that are intensive in the use of that factor (e.g., capital-intensive goods). Therefore, its production possibility frontier will be biased towards the production of goods that intensively use its abundant factor.

Question 9

In the 2-factor, 2-good Heckscher-Ohlin model, an influx of workers from across the border would
A) move the point of production along the production possibility curve.
B) shift the production possibility curve outward, and increase the production of both goods.
C) shift the production possibility curve outward and decrease the production of the labor-intensive product.
D) shift the production possibility curve outward and decrease the production of the capital-intensive product.
E) shift the possibility curve outward and displace preexisting labor.

Accepted Answer

The answer of In the 2-factor, 2-good Heckscher-Ohlin model, an...

Question 10

"No country is abundant in everything." Discuss.

Accepted Answer

The answer of "No country is abundant in everything." Discuss....

Question 11

"A good cannot be both land- and labor-intensive." Discuss.

Accepted Answer

The answer of "A good cannot be both land- and...

Question 12

Assume that only two countries, A and B, exist.
 
-Refer to the table above. You are told that Country B is very much larger than country A. 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.

Accepted Answer

Since country B is larger than country A, it is likely that it has more resources and higher production capabilities. As a result, it is reasonable to assume that country B will export good S to country A, especially if country A does not produce good S efficiently. Therefore, the correct answer is A.

Question 13

In the 2-factor, 2-good Heckscher-Ohlin model, trade will ________ the owners of a country's ________ factor and will ________ the good that uses that factor intensively.
A) harm; scarce; import
B) harm; abundant; import
C) benefit; scarce; export
D) benefit; scarce; import
E) harm; scarce; export

Accepted Answer

The Heckscher-Ohlin model predicts that trade will harm the owners of a country's scarce factor because the country will tend to import goods that use its scarce factor intensively, thus reducing the demand for that factor domestically.

Question 14

In the 2-factor, 2-good Heckscher-Ohlin model, trade will ________ the owners of a country's ________ factor and will ________ the good that uses that factor intensively.
A) benefit; abundant; export
B) harm; abundant; import
C) benefit; scarce; export
D) benefit; scarce; import
E) harm; scarce; export

Accepted Answer

According to the Heckscher-Ohlin model, trade will benefit the owners of a country's abundant factor and will lead to the country exporting the good that uses that factor intensively. In this case, the model is simplified to only two factors (labor and capital) and two goods, so the answer would be A, benefitting the owners of the abundant factor (either capital or labor) and leading to the export of the good that uses that factor intensively.

Question 15

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.

Accepted Answer

The answer of Assume that only two countries, A and...

Question 16

According to the Heckscher-Ohlin model
A) the gainers from trade could compensate the losers and still retain gains.
B) everyone gains from trade.
C) the scarce factor gains from trade and the abundant factor loses.
D) a country gains from trade if its exports have a high value added.
E) only the country with the more advanced technology gains from trade.

Accepted Answer

The answer of According to the Heckscher-Ohlin model
A) the gainers...

Question 17

One way in which the Heckscher-Ohlin model differs from the Ricardo model of comparative advantage is by assuming that ________ is (are) identical in all countries.
A) factor endowments
B) scale of production
C) factor intensities
D) technology
E) opportunity costs

Accepted Answer

The Heckscher-Ohlin model assumes that technology is identical across countries, differing from the Ricardo model by focusing on differences in countries' factor endowments (like labor and capital) as the basis for trade, rather than differences in technology.

Question 18

If a country produces good Y (measured on the vertical axis) and good X (measured on the horizontal axis), then the absolute value of the slope of its production possibility frontier is equal to
A) the opportunity cost of good X.
B) the price of good X divided by the price of good Y.
C) the price of good Y divided by the price of good X.
D) the opportunity cost of good Y.
E) the cost of capital (assuming that good Y is capital intensive) divided by the cost of labor.

Accepted Answer

The absolute value of the slope of the production possibility frontier represents the opportunity cost of producing one good in terms of the other. Therefore, option A, which also represents the opportunity cost of good X, is the correct choice. Option B, C, D, and E do not directly relate to the slope of the production possibility frontier.

Question 19

In the 2-factor, 2-good Heckscher-Ohlin model, the two countries differ in
A) tastes and preferences.
B) military capabilities.
C) the size of their economies.
D) relative abundance of factors of production.
E) labor productivities.

Accepted Answer

The 2-factor, 2-good Heckscher-Ohlin model assumes that the two countries differ in the relative abundance of factors of production. This means that one country has a comparative advantage in producing one good due to its abundance of a specific factor (e.g. labor) and the other country has a comparative advantage in producing the other good due to its abundance of a different factor (e.g. capital). The model does not take into account differences in tastes and preferences, military capabilities, the size of their economies, or labor productivities.

Question 20

In the Heckscher-Ohlin model, when two countries begin to trade with each other
A) the relative prices of traded goods in the two countries converge.
B) relative factor prices in the two countries diverge.
C) benefits from trade are evenly distributed between the two countries.
D) all factors in both countries will gain from trade.
E) all factors in one country will gain, but there may be no gains in the other country.

Accepted Answer

According to the Heckscher-Ohlin model, when two countries begin to trade with each other, the relative prices of traded goods in the two countries will begin to converge. This is because countries will specialize in producing goods that use their abundant factor of production more efficiently, leading to a greater supply of those goods and a lower relative price. Likewise, countries will import goods that use their scarce factor of production more efficiently, leading to a greater demand for those goods and a higher relative price.

Quiz 5: Resources and Trade: the Heckscher-Ohlin Model

Assume that only two countries, A and B, exist. -Refer to the table above. If you are told that Country B is very much richer than Country A, then the correct answer is

According to the Heckscher-Ohlin model, the source of comparative advantage is a country's

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

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

In the 2-factor, 2-good Heckscher-Ohlin model, the country with a relative abundance of will have a production possibility frontier that is biased toward production of the good.

The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former

The assumption of diminishing returns in the Heckscher-Ohlin model means that, unlike in the Ricardian model, it is likely that

In the 2-factor, 2-good Heckscher-Ohlin model, the country with a relative abundance of will have a production possibility frontier that is biased toward production of the good.

In the 2-factor, 2-good Heckscher-Ohlin model, an influx of workers from across the border would

"No country is abundant in everything." Discuss.

"A good cannot be both land- and labor-intensive." Discuss.

Assume that only two countries, A and B, exist. -Refer to the table above. You are told that Country B is very much larger than country A. The correct answer is

In the 2-factor, 2-good Heckscher-Ohlin model, trade will the owners of a country's factor and will the good that uses that factor intensively.

In the 2-factor, 2-good Heckscher-Ohlin model, trade will the owners of a country's factor and will the good that uses that factor intensively.

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

According to the Heckscher-Ohlin model

One way in which the Heckscher-Ohlin model differs from the Ricardo model of comparative advantage is by assuming that ________ is (are) identical in all countries.

If a country produces good Y (measured on the vertical axis) and good X (measured on the horizontal axis) , then the absolute value of the slope of its production possibility frontier is equal to

In the 2-factor, 2-good Heckscher-Ohlin model, the two countries differ in

In the Heckscher-Ohlin model, when two countries begin to trade with each other