Question 1

Both the Heckscher-Ohlin theory and comparative advantage based on technological differences assume that the techniques of production in various countries do not change over time.

Accepted Answer

Both the Heckscher-Ohlin theory and comparative advantage based on technological differences allow for changes in production techniques over time. These theories focus on the relative efficiency of different countries in producing certain goods, regardless of how those efficiencies are achieved. As countries innovate and develop new production techniques, their comparative advantages may shift.

Question 2

The impact of economic growth on a country's willingness to trade is determined solely by the extent of the shift of its production-possibility curve.

Accepted Answer

The impact of economic growth on a country's willingness to trade is not solely determined by the production-possibility curve. There are several other factors that can affect a country's willingness to trade, such as the level of infrastructure, political stability, access to technology and resources, and the presence of trade agreements or barriers.

Question 3

Any change in the volume of export or import by a small country will have no effect on its terms of trade.

Accepted Answer

Small countries, due to their limited share in global trade, typically cannot influence international prices with changes in their export or import volumes, thus their terms of trade remain unaffected by such changes.

Question 4

Discuss how openness to trade can influence economic growth in a country.

Accepted Answer

The answer of Discuss how openness to trade can influence...

Question 5

Assume that corn and cloth are each produced using both land and labor in a country. Corn is relatively land-intensive. If the country experiences an increase in its endowment of labor, product prices remaining unchanged, the Rybczynski theorem will predict that the production of corn will decline.

Accepted Answer

According to the Rybczynski theorem, if a country experiences an increase in the endowment of a factor, it will increase the production of the good that uses that factor intensively and decrease the production of the other good. Since corn is land-intensive and labor has increased, cloth production (labor-intensive) will increase, leading to a decline in corn production.

Question 6

In a two-commodity world, balanced growth in a country always decreases its willingness to trade because the country becomes self-sufficient in the production of both the goods.

Accepted Answer

Balanced growth in a country can increase its willingness to trade because it may have a comparative advantage in the production of one of the goods over other countries, leading to exports and imports of different goods. Additionally, even if the country is self-sufficient in the production of both goods, it may still benefit from trading with other countries to access a wider variety of products and to achieve economies of scale.

Question 7

In the presence of free trade, how are the effects of economic growth different for a large country than for a small country?

Accepted Answer

The answer of In the presence of free trade, how...

Question 8

Increases in a country's endowments of factors of production increase current output, but do not contribute to long-run economic growth.

Accepted Answer

Increases in a country's endowments of factors of production can contribute to long-run economic growth by increasing the potential for future output, as long as the country also invests in education, innovation, and infrastructure to fully utilize and improve the efficiency of these factors.

Question 9

New technology developed by a multinational corporation in one of its research facilities in a leading developed country can be transferred within the corporation to the affiliates in other developed countries, but not to the affiliates in developing countries.

Accepted Answer

Technology transfer within multinational corporations can occur between any of its affiliates, regardless of whether they are in developed or developing countries, subject to legal, economic, and strategic considerations.

Question 10

Countries that export a diversified selection of export products do not seem to be at much risk of experiencing immiserizing growth.

Accepted Answer

Immiserizing growth occurs when a country increases its exports so much that the world price of the exported products falls below the country's cost of production. This leads to a decrease in the country's welfare, as the revenue gained from exporting is lower than the cost of producing the goods. If a country has a diversified selection of export products, it is less likely to experience immiserizing growth, as a decline in the price of one product may be offset by an increase in the price of another. Therefore, countries that export a diverse range of products are less at risk of experiencing immiserizing growth.

Question 11

According to the Rybczynski theorem, in a two-good world, with constant product prices, growth in a country's endowment of any one input results in an increase in the production of the good which does not use this input intensively.

Accepted Answer

The Rybczynski theorem states that in a two-good world, with constant product prices, growth in a country's endowment of any one input (e.g., labor or capital) results in a greater increase in the production of the good that uses this input more intensively, not the other way around.

Question 12

For a country already engaged in trade, biased growth will essentially lead to an increased willingness to trade.

Accepted Answer

The answer of For a country already engaged in trade,...

Question 13

Economic growth with an increased willingness to engage in international trade will always improve the economic well-being of a large country.

Accepted Answer

Economic growth and increased international trade can improve a country's economic well-being, but it's not guaranteed for all sectors or individuals within the country. Some industries may suffer due to increased competition from imports, leading to job losses or lower wages in those sectors. Additionally, the benefits of trade and growth may not be evenly distributed, potentially exacerbating income inequality.

Question 14

Country X produces two goods, guns and roses, using labor and land. Assume that production of guns is relatively labor-intensive and production of roses is relatively land-intensive. Suppose a large number of workers from a neighboring country migrate to country X. Carefully explain all the predictions of the Rybczynski theorem' about the changes in output of both guns and roses in country X. Be certain to explain any shifts in resources from one industry to the other.

Accepted Answer

The answer of Country X produces two goods, guns and...

Question 15

Explain carefully, with a diagram, the crucial conditions for immiserizing growth to occur. In particular, discuss the effect of the size of the country, the volume of foreign trade, the type of growth the country experiences, and foreign demand for the exports of the country.

Accepted Answer

The answer of Explain carefully, with a diagram, the crucial...

Question 16

It is usually safer for a large country to subsidize its export-oriented industries rather than the import-replacing industries.

Accepted Answer

Subsidizing export-oriented industries can lead to trade disputes and retaliations from other countries, potentially harming the larger economic interests. On the other hand, subsidizing import-replacing industries can enhance domestic production capabilities and reduce dependency on foreign goods, which might be considered safer in terms of economic security and sustainability.

Question 17

Suppose that country A, a relatively capital-abundant country, experiences further expansion in its endowment of capital. Explain how this might affect its volume (amount) of trade and its terms of trade with the rest of the world. Under what conditions (if any) would the economic well-being of country A decline after the increase in its capital endowment?

Accepted Answer

The answer of Suppose that country A, a relatively capital-abundant...

Question 18

Suppose the United States exports capital-intensive goods like construction equipment to the rest of the world and imports clothing, a labor-intensive good. Both the goods use capital and labor as their only inputs. Recently the capital endowment of the U.S. has increased substantially, but the size of the labor force has remained unchanged.
A)What is the effect of the change in endowment on the shape and position of the production-possibility curve of the U.S.? Illustrate your answer with the help of a suitable diagram.
B)What is the effect of such changes in factor endowment on the actual production quantities of the two goods in the United States, assuming the product price ratio remains unchanged in the international market? Explain and illustrate graphically.
C)What is the effect of such changes in factor endowment on the United States' willingness to trade?

Accepted Answer

The answer of Suppose the United States exports capital-intensive goods...

Question 19

Immiserizing growth is the situation in which the expansion of a country's exporting industry results in an increase in the world price of the exported good and an increase in the economic welfare of the country.

Accepted Answer

Immiserizing growth occurs when the increase in the world price of the exported good is so large that it results in a decrease in the country's total economic welfare, despite an increase in the country's export revenue. Therefore, immiserizing growth results in a decrease in economic welfare, not an increase.

Question 20

The Dutch disease refers to a situation in which new production of a natural resource results in deindustrialization.

Accepted Answer

The Dutch disease refers to a situation in which the discovery, production, and export of natural resources result in an increase in the value of the country's currency, making other exports less competitive and leading to deindustrialization.

Quiz 7: Growth and Trade Part II: Trade Policy