Question 1

-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 
-Refer to above figure.Imagine that the relative...

Question 2

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

Accepted Answer

The answer of If trade opens up between the two...

Question 3

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

Accepted Answer

The Factor Price Equalization Theorem predicts that, in the absence of barriers to trade, the prices of factors of production (such as labor) will equalize across countries as trade occurs. However, if two countries are very different in relative factor abundance (such as one having an abundance of labor and the other an abundance of capital), then the prices of factors of production may not equalize even with trade. Therefore, empirical support for the Factor Price Equalization Theorem would be less likely in this scenario.

Question 4

The Case of the Missing Trade refers to

Accepted Answer

The Case of the Missing Trade refers to the fact that factor trade (trade in goods that use different factors of production, such as labor-intensive vs. capital-intensive goods) is less than predicted by the Heckscher-Ohlin theory.

Question 5

Why are prices of factors of production NOT equalized?

Accepted Answer

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

Question 6

The 1987 study by Bowen,Leamer and Sveikauskas

Accepted Answer

The answer of The 1987 study by Bowen,Leamer and Sveikauskas
...

Question 7

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

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The answer of Suppose that there are two factors,capital and...

Question 8

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 9

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 labor-abundant country like H will have a comparative advantage in producing labor-intensive goods. Once trade begins, H will export these goods and import capital-intensive goods. This will lead to an increase in the demand for labor in H, causing wages to rise. On the other hand, the demand for land (a factor of production in producing capital-intensive goods) will decrease, causing rents to fall. Therefore, option A, wages should rise and rents should fall in H, is the best choice.

Question 10

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

Accepted Answer

International trade can lead to a shift in the distribution of income within countries. While some groups may benefit from increased trade, others may be hurt. For example, industries that face increased competition from foreign imports may see job losses and wage reduction, while industries that export goods may see increased profits and employment. Therefore, overall international trade may lead to net benefits for the economy as a whole, but it may also result in winners and losers within each trading country.

Question 11

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

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

Question 12

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 13

The Leontief Paradox

Accepted Answer

The Leontief Paradox was a finding that contradicted the predictions of the Heckscher-Ohlin model, which suggests that a country with a capital-rich economy would export capital-intensive goods and import labor-intensive goods. However, Leontief found that the U.S., a capital-rich country, was actually exporting more labor-intensive goods and importing more capital-intensive goods. This failure to support the validity of the Heckscher-Ohlin model is known as the Leontief Paradox.

Question 14

Factors tend to be specific to certain uses and products

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The answer of Factors tend to be specific to certain...

Question 15

Why do we observe the Leontief paradox?

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

Question 16

The Leontief Paradox

Accepted Answer

The answer of The Leontief Paradox
...

Question 17

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, which predicts that countries will export goods that use their abundant factors of production and import goods that use their scarce factors of production. This is consistent with the observed pattern of developed countries (North) exporting capital-intensive goods and developing countries (South) exporting labor-intensive goods.

Question 18

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

Accepted Answer

If the price of the capital intensive product rises more than the price of the land intensive product, the relative price of the capital-intensive product will fall to some point between the pretrade relative prices. This is because the increase in price of the capital-intensive good will cause the country to produce more of it, shifting the supply curve to the right and decreasing the price. Similarly, the increase in price of the land-intensive good will cause the country to produce less of it, shifting the supply curve to the left and increasing the price. Eventually, the relative price will settle at a point between the pretrade relative prices. The other choices are incorrect because they assume demand will shift away from the capital-intensive product, which may not necessarily be the case.

Question 19

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 20

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...

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

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

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

The Case of the Missing Trade refers to

Why are prices of factors of production NOT equalized?

The 1987 study by Bowen,Leamer and Sveikauskas

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

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?

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

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

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 Leontief Paradox

Factors tend to be specific to certain uses and products

Why do we observe the Leontief paradox?

The Leontief Paradox

Empirical observations on actual North-South trade patterns tend to

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