Question 1

If Australia has more land per worker, and Belgium has more capital per worker,then if trade began between these two countries

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Question 2

One of the commonly used assumptions in deriving the Heckscher-Ohlin model is that tastes are homothetic, or that if the per capita incomes were the same in two countries, the proportions of their expenditures allocated to each product would be the same as it is in the other country. Imagine that this assumption is false, and that in fact, the tastes in each country are strongly biased in favor of the product in which it has a comparative advantage. How would this affect the relationship between relative factor abundance between the two countries, and the nature (factor-intensity) of the product each exports? What if the taste bias favored the imported good?

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Question 3

If Japan is relatively capital rich and the United States is relatively land rich, and if food is relatively land intensive then trade between these two, formerly autarkic countries will result in

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Question 4

If Gambinia has many workers but very little land and even less productive capital, then, following the Heckscher-Ohlin model, we predict that Gambinia will export

Accepted Answer

According to the Heckscher-Ohlin model, a country should specialize in and export goods that use its abundant factor of production intensively. In this case, Gambinia has many workers but little land and capital, so it is abundant in labor but scarce in both land and capital. Therefore, Gambinia should specialize in and export labor-intensive goods.

Question 5

-Refer to above figure. Would you expect to find that the real wages become equalized in both countries? Explain the reason for any differences you note.

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-Refer to above figure. Would you expect...

Question 6

-Refer to above figure. In autarky, Country P was producing at point 5. With trade, would its production point be found above or below point 5? Explain why. What must happen in the K/L intensity ratio in the production of each of the products in this country when moving from autarky to free trade?

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-Refer to above figure. In autarky, Country...

Question 7

Why is the H.O. model called the factor-proportions theory?

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Question 8

-Refer to above figure. Two countries exist in this model, P and R. P is relatively labor (L) abundant, as is evident in the bottom right horizontal axis. If Country P were to be completely specialized in the labor-intensive product, C, it would be producing at point 4. In fact, it produces both C and P, at point 5. The (autarky) relative price of C (in terms of
F) of Country P is at point 3; and of Country R at point 1. If trade were to open up between these two countries, which would export C and which would export F? Is this consistent with the Heckscher-Ohlin model? Explain.

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-Refer to above figure. Two countries exist...

Question 9

The Heckscher-Ohlin model predicts all of the following EXCEPT

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Question 10

If a good is capital intensive it means that the good is produced

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Question 11

If a good is labor intensive it means that the good is produced

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A labor-intensive good is one that requires a relatively large amount of labor as compared to other types of goods. It does not necessarily mean that labor is the only input or that the cost of labor is the greatest. It simply means that labor is a significant input in the production process.

Question 12

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.
 
-Using the figure above, demonstrate what happens to the composition of production (that is quantity of cloth per 1 unit of food) in Australia once trade is established between the two countries. Which country will export cloth? What happens to the relative income of workers in Australia as a result of trade? Does it increase or decrease? Would land owners in Australia lobby for or against free trade? Would land owners in Australia lobby for or against free admittance of immigrant workers?

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Question 13

Assume that only two countries, A and B, exist.
 
-Refer to the table above. You are told that Country B has no minimum wage or child labor laws. Now the correct answer is

Accepted Answer

Since Country B has no minimum wage or child labor laws, it can produce and export Good S at a lower cost than Country A. Therefore, Country B will specialize in producing and exporting Good S, while Country A will specialize in producing something else that it can produce at a comparative advantage. This will lead to trade between the two countries, with Country B exporting Good S to Country A.

Question 14

International trade leads to complete equalization of factor prices. Discuss.

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Question 15

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.
 
-Use the diagram above to identify the pre-trade situation for Australia and Sri-Lanka. Where on the K/L axis will you find each of the two countries? Which of the two countries has a higher relative wage, w/r? Which product is the labor intensive, and which is the land intensive one? Show where the relative price of cloth to food will be found once trade opens between these two countries. Show where the relative wages of each will appear.

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Question 16

If Gambinia has many workers but very little land and even less productive capital, then, following the Heckscher-Ohlin model, in order to improve the country's economic welfare, the Gambinian government should

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Question 17

Trade benefits a country by

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...

Question 18

If Australia has relatively more land per worker, and Belgium has relatively more capital per worker, then if trade began between these two countries

Accepted Answer

When trade begins, Australia will specialize in producing the land-intensive product, while Belgium will specialize in producing the capital-intensive product. As a result, the supply of the land-intensive product in Australia will decrease (as resources are being allocated to produce the capital-intensive product), while the supply of the capital-intensive product in Belgium will decrease (as resources are being allocated to produce the land-intensive product). This will cause the relative price of the land-intensive product to increase in Australia (due to decreased supply) and the relative price of the capital-intensive product to increase in Belgium (due to decreased supply).

Question 19

In the Heckscher-Ohlin model, when there is international-trade equilibrium

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Question 20

-Refer to above figure. If trade were to open up between P and R, where would the world terms of trade locate in the figure above (somewhere on the PC/PF axis)? Would relative wages (w/r) in the two countries become equal? Is this consistent with the Heckscher-Ohlin model? Explain.

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-Refer to above figure. If trade were...

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