Question 1

Why do you suppose that South-South trade does NOT conform in volume, but does conform in pattern with expectations generated by the Heckscher-Ohlin model?

Accepted Answer

The answer of Why do you suppose that South-South trade...

Question 2

Why are prices of factors of production NOT equalized?

Accepted Answer

The answer of Why are prices of factors of production...

Question 3

Countries do not in fact export the goods the H.O. theory predicts. Discuss.

Accepted Answer

The answer of Countries do not in fact export the...

Question 4

Starting from an autarky (no-trade) situation with Heckscher-Ohlin model, if Country H is relatively labor abundant, then once trade begins

Accepted Answer

According to the Heckscher-Ohlin model, a country that is relatively abundant in labor will see an increase in the relative price of its labor-intensive goods after trade. This will lead to an increase in the demand for labor in that country, causing wages to rise. At the same time, the demand for the relatively abundant factor of production (in this case, labor) will decrease. This will cause the return to that factor (in this case, rents) to fall. Therefore, wages should rise and rents should fall in Country H after trade.

Question 5

Factor-intensity reversals describe a situation in which the production of a product may be land intensive in one country, and relatively labor intensive in another (at given relative wage levels). For example, cotton may be land intensive in the U.S., and labor intensive in Egypt where land is relatively scarce and expensive. Suppose factor-intensity reversals were common. How would that affect the conclusion that a country in which land is relatively scarce will not be the country with a comparative advantage in the land-intensive product?

Accepted Answer

The answer of Factor-intensity reversals describe a situation in which...

Question 6

International trade has strong effects on income distributions. Therefore, international trade

Accepted Answer

International trade can bring benefits for both trading countries, but it can also lead to unequal distribution of benefits within each country. Some groups may experience job losses or a decline in wages due to competition with foreign producers, while others may benefit from increased export opportunities or cheaper imported goods. Therefore, it is not accurate to say that international trade is either universally beneficial or universally harmful.

Question 7

Suppose Australia, a land (K)-abundant country, and Sri Lanka, a labor(L)-abundant country, both produce labor and land intensive goods with the same technology.
 
-Refer to above figure. Imagine that the relative capital abundance of Australia was so much greater than that of Sri Lanka, that we would have to locate Australia far to the right on the K/L axis. If this were so far to the right that there was no area of overlap on the w/r axis, then what product would Australia export?
 Which product will each of the trade partners export?
 Will the relative wages as calculated now be the same or different in both Australia and Sri Lanka?

Accepted Answer

The answer of Suppose Australia, a land (K)-abundant country, and...

Question 8

If the price of the capital -intensive product rises more than does the price of the land- intensive product, then

Accepted Answer

The answer of If the price of the capital -intensive...

Question 9

Factors tend to be specific to certain uses and products

Accepted Answer

In the short run, factors of production are often fixed and specific to certain uses and products, as it takes time to adjust or reallocate resources.

Question 10

Why is it that North-South trade in manufactures seems to be consistent with the results or expectations generated by the factor-proportions theory of international trade, whereas North-North trade is not?

Accepted Answer

The answer of Why is it that North-South trade in...

Question 11

The 1987 study by Bowen, Leamer and Sveikauskas

Accepted Answer

The 1987 study by Bowen, Leamer, and Sveikauskas supported the validity of the Leontief Paradox, which is a finding that contradicts the expectations of the Heckscher-Ohlin model by showing that the U.S. (which was capital-abundant) exported labor-intensive commodities and imported capital-intensive commodities.

Question 12

The Heckscher-Ohlin model is famous for being elegant and mathematically sophisticated, yet failing to describe reality. One manifestation of this fact is Trefler's Case of Missing Trade. Explain what exactly is missing. In what sense is it missing?
 How would you explain why it is missing?
 How can a relaxation of the identical production functions explain the case of the missing trade?
 How did the results obtained by Davis and Weinstein strengthen support for the validity of the HO model?

Accepted Answer

The answer of The Heckscher-Ohlin model is famous for being...

Question 13

If trade opens up between the two formerly autarkic countries, Australia and Belgium, then

Accepted Answer

When trade opens up between two formerly autarkic countries, both countries can specialize in production of goods in which they have a comparative advantage and trade with each other. This can lead to an increase in consumption by both countries, leading to an increase in real income. However, the magnitude of this increase in real income will depend on factors such as the extent of specialization, trade barriers, and the elasticity of demand for goods. Therefore, it is possible that the real income of both countries may increase, making E the correct answer.

Question 14

The Leontief Paradox

Accepted Answer

The Leontief Paradox refers to the finding that U.S. exports were more labor intensive than its imports, which contradicted the Heckscher-Ohlin model's prediction that a capital-abundant country like the U.S. would export capital-intensive goods and import labor-intensive ones. Although this finding was first observed in the 1950s, subsequent studies have provided mixed evidence on its persistence.

Question 15

The Case of the Missing Trade refers to

Accepted Answer

The Case of the Missing Trade refers to the fact that factor trade (the exchange of factors of production, such as labor or capital) is less than predicted by the Heckscher-Ohlin theory, which suggests that countries should specialize in and export goods that use their abundant factors of production and import goods that use their scarce factors of production.

Question 16

Suppose that there are two factors, capital and land, and that the United States is relatively land endowed while the European Union is relatively capital-endowed. According to the Heckscher-Ohlin model

Accepted Answer

According to the Heckscher-Ohlin model, countries tend to export goods that make intensive use of their abundant factor(s) of production and import goods that make intensive use of the scarce factor(s) of production. In this case, since the U.S. is relatively land endowed and the European Union is relatively capital-endowed, the U.S. is likely to export land-intensive goods and import capital-intensive goods from the European Union, and vice versa. Therefore, European capitalists should support U.S.-European free trade as it would allow them to export their capital-intensive goods to the U.S. market, which is relatively abundant in land.

Question 17

The Leontief Paradox

Accepted Answer

The Leontief Paradox refers to a study that found that the United States, which was assumed to have an abundance of capital and a scarcity of labor, actually had a higher capital to labor ratio for its exports than for its imports. This contradicted the predictions of the Heckscher-Ohlin model, which suggests that countries will export goods that use their abundant factors of production and import goods that use their scarce factors. Therefore, the Leontief Paradox failed to support the validity of the Heckscher-Ohlin model.

Question 18

If two countries are very different in relative factor abundance, then empirical support for which of the following would be less likely?

Accepted Answer

The Factor Price Equalization Theorem predicts that trade will cause factor prices to converge across countries. However, if two countries have very different factor endowments, such as one country having abundant labor and the other country having abundant capital, then it is less likely that factor prices will equalize due to trade. Therefore, the empirical support for this theorem would be less likely.

Question 19

Why do we observe the Leontief paradox?

Accepted Answer

The answer of Why do we observe the Leontief paradox?...

Question 20

Empirical observations on actual North-South trade patterns tend to

Accepted Answer

Empirical observations on actual North-South trade patterns tend to support the validity of the Heckscher-Ohlin model. This model suggests that countries should specialize in the production and export of goods that use their abundant factor of production and import goods that use their scarce factors of production. This pattern of trade is observed in the North-South trade, where North countries specialize in skill-intensive goods and exports, while South countries specialize in labor-intensive goods and exports. This supports the Heckscher-Ohlin model's prediction that trade patterns are determined by differences in factor endowments between countries.

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

Why do you suppose that South-South trade does NOT conform in volume, but does conform in pattern with expectations generated by the Heckscher-Ohlin model?

Why are prices of factors of production NOT equalized?

Countries do not in fact export the goods the H.O. theory predicts. Discuss.

Starting from an autarky (no-trade) situation with Heckscher-Ohlin model, if Country H is relatively labor abundant, then once trade begins

International trade has strong effects on income distributions. Therefore, international trade

If the price of the capital -intensive product rises more than does the price of the land- intensive product, then

Factors tend to be specific to certain uses and products

Why is it that North-South trade in manufactures seems to be consistent with the results or expectations generated by the factor-proportions theory of international trade, whereas North-North trade is not?

The 1987 study by Bowen, Leamer and Sveikauskas

If trade opens up between the two formerly autarkic countries, Australia and Belgium, then

The Leontief Paradox

The Case of the Missing Trade refers to

Suppose that there are two factors, capital and land, and that the United States is relatively land endowed while the European Union is relatively capital-endowed. According to the Heckscher-Ohlin model

The Leontief Paradox

If two countries are very different in relative factor abundance, then empirical support for which of the following would be less likely?

Why do we observe the Leontief paradox?

Empirical observations on actual North-South trade patterns tend to