Question 1

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

Accepted Answer

The H-O model states that countries will export goods that use their abundant factors of production and import goods that use their scarce factors of production. This means that countries with a comparative advantage in producing goods that use abundant factors of production will increase their exports and those that use scarce factors of production will increase their imports. This can lead to changes in the relative demand for factors of production, which can affect the distribution of income within countries. Therefore, international trade may increase or reduce international differences in per capita incomes depending on the specific circumstances of the countries involved.

Question 2

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

Accepted Answer

The H-O model considers production in both nations, consumption in both nations, and trade between the two nations, making it a general equilibrium model.

Question 3

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

Accepted Answer

The Heckscher-Ohlin (H-O) model assumes that countries have identical technologies. If Nation 1 has different technology from Nation 2, it violates this assumption.

Question 4

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

Accepted Answer

The Heckscher-Ohlin (H-O) model predicts that trade reduces international differences in both relative and absolute factor prices by equalizing the price of each factor across countries. This occurs as countries export goods that intensively use their abundant factors, increasing their demand and price, while importing goods that intensively use their scarce factors, reducing their demand and price domestically.

Question 5

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

Accepted Answer

The H-O (Heckscher-Ohlin) model is a simplification of a general equilibrium model as it assumes two nations, two commodities, and two factors of production, making it a 2x2x2 model.

Question 6

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

Accepted Answer

International trade typically leads to an increase in demand for a nation's abundant resources, which in turn increases their price. On the other hand, international trade reduces demand for a nation's scarce resources, as they may be available at a lower cost in other markets, which therefore decreases their price.

Question 7

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

Accepted Answer

A difference in the relative commodity prices between nations can be attributed to all of the factors mentioned - technology, factor endowments, and tastes. Differences in technology can result in differences in productivity and efficiency, leading to differences in the cost of producing goods and services between nations. Differences in factor endowments, such as labor, capital, and natural resources, can also lead to differences in the cost of production. Additionally, differences in tastes or preferences for certain goods can affect the demand for those goods and their relative prices between nations.

Question 8

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

Accepted Answer

The H-O model states that international trade occurs due to differences in factor endowments between countries, with each country specializing in and exporting the goods that make use of their abundant factors of production and importing the goods which make use of resources that are relatively scarce.

Question 9

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

Accepted Answer

Factor reversal occurs when a change in relative factor prices leads to a shift in the pattern of production such that a country switches from specializing in the production of one good to another. This switch can happen if the two goods have different elasticity of substitution of factors, meaning that one good is more responsive to changes in relative factor prices than the other. This can lead to a change in the relative profitability of each good and thus in the allocation of factors of production, leading to a factor reversal.

Question 10

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

Accepted Answer

The Heckscher-Ohlin (H-O) model does not assume complete specialization; rather, it suggests that countries will specialize in producing and exporting goods that utilize their abundant factors of production more intensively, but not to the point of complete specialization.

Question 11

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

Accepted Answer

Paul Samuelson is credited with rigorously proving the factor-price equalization theorem, which is a key result in international trade theory.

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 ______.

Accepted Answer

According to the factor price equalization theorem, a nation with a relative abundance of capital should specialize in capital-intensive goods, which increases the demand and price of capital.

Question 13

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

Accepted Answer

The answer of With equal technology nations will have equal...

Question 14

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

Accepted Answer

The answer of The Leontief paradox refers to the empirical...

Question 15

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

Accepted Answer

The L/K ratio is the amount of labor required per unit of capital. Thus, a lower L/K ratio means that less labor is used relative to capital in production. Therefore, if commodity Y is K-intensive with respect to X, then the production of Y requires a lower L/K ratio compared to X.

Question 16

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

Accepted Answer

The factor price equalization theorem posits that international trade will lead to equalization of both relative and absolute returns. This means that countries that specialize in producing goods that heavily rely on certain factors of production will tend to see higher returns on those factors, while countries specializing in different goods will see different returns. However, over time and through trade, these differences will tend to converge, leading to more equal returns across countries.

Question 17

One potential reasonable explanation for the Leontief paradox is that

Accepted Answer

The two factor model that was used in the original Leontief paradox analysis did not include factors such as technological differences and comparative advantage, which could have played a significant role in explaining the results. This suggests that the paradox may have been a result of using an incomplete model.

Question 18

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

Accepted Answer

The answer of A nation is said to have a...

Question 19

When w/r falls,L/K

Accepted Answer

The answer of When w/r falls,L/K
...

Question 20

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

Accepted Answer

Empirical studies have shown that the H-O theory cannot explain all international trade, but it can still be accepted while awaiting further testing to improve its accuracy. Therefore, choice C is the best option.

Quiz 5: Factor Endowments and the Heckscherohlin Theory