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

Question 1

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

A)an increase in the relative price of food in the U.S.
B)an increase in the relative price of food in both countries.
C)a decrease in the relative price of food in both countries.
D)an increase in the relative price of food in Japan.
E)a global increase in the relative price of food.

Answer 1

A

Question 2

In the 2- factor,2- good Heckscher- Ohlin model,trade will _ the owners of a country's factor and will the good that uses that factor intensively.

A)harm; abundant; import
B)benefit; scarce; import
C)benefit; scarce; export
D)harm; scarce; export
E)harm; scarce; import

Answer 2

E

Question 3

In the 2- factor,2- good Heckscher- Ohlin model,the production possibility frontier is kinked when

A)there is no factor substitution in production.
B)transportation costs are very high.
C)the opportunity cost of production is constant.
D)there are unemployed factor resources.
E)a country does not engage in trade.

Answer 3

A

Question 4

In the Heckscher- Ohlin model,when two countries begin to trade with each other

A)all factors in both countries will gain from trade.
B)benefits from trade are evenly distributed between the two countries.
C)relative factor prices in the two countries diverge.
D)all factors in one country will gain,but there may be no gains in the other country.
E)the relative prices of traded goods in the two countries converge.

Question 5

In the 2- factor,2- good Heckscher- Ohlin model,the country with a relative abundance of will have a production possibility frontier that is biased toward production of the good.

A)land; capital intensive
B)labor; capital intensive
C)capital; land intensive
D)labor; labor intensive
E)land; labor intensive

Question 6

The assumption of diminishing returns in the Heckscher- Ohlin model means that,unlike in the Ricardian model,it is likely that

A)countries will not be fully specialized in one product.
B)global production will decrease under trade.
C)countries will benefit from free international trade.
D)countries will consume outside their production possibility frontier.
E)comparative advantage will not determine the direction of trade.

Question 7

In the 2- factor,2- good Heckscher- Ohlin model,the two countries differ in

A)labor productivities.
B)relative abundance of factors of production.
C)tastes and preferences.
D)military capabilities.
E)the size of their economies.

Question 8

In the 2- factor,2- good Heckscher- Ohlin model,the country with a relative abundance of will have a production possibility frontier that is biased toward production of the good.

A)labor; land intensive
B)land; labor intensive
C)labor; capital intensive
D)capital; capital intensive
E)land; capital intensive

Question 9

In the Heckscher- Ohlin model,countries are assumed to differ only in terms of their

A)factor productivities.
B)factor endowments.
C)tastes and preferences.
D)physical size.
E)available technologies.

Question 10

In the 2- factor,2- good Heckscher- Ohlin model,an influx of workers from across the border would

A)shift the production possibility curve outward and decrease the production of the capital- intensive product.
B)shift the production possibility curve outward and decrease the production of the labor- intensive product.
C)shift the production possibility curve outward,and increase the production of both goods.
D)move the point of production along the production possibility curve.
E)shift the possibility curve outward and displace preexisting labor.

Question 11

Trade benefits a country by

A)increasing the real income of all resource owners.
B)reducing the relative price of the exported good.
C)increasing the wage rate.
D)reducing the need for specialization in production.
E)increasing available consumption choices.

Question 12

If a country produces good Y (measured on the vertical axis)and good X (measured on the horizontal axis),then the absolute value of the slope of its production possibility frontier is equal to

A)the price of good X divided by the price of good Y.
B)the price of good Y divided by the price of good X.
C)the cost of capital (assuming that good Y is capital intensive)divided by the cost of labor.
D)the opportunity cost of good Y.
E)the opportunity cost of good X.

Question 13

In the 2- factor,2- good Heckscher- Ohlin model,trade will _ the owners of a country's factor and will the good that uses that factor intensively.

A)harm; abundant; import
B)benefit; abundant; export
C)benefit; scarce; import
D)benefit; scarce; export
E)harm; scarce; export

Question 14

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

A)both capital- and land- intensive goods.
B)both labor- and land- intensive goods.
C)labor- intensive goods.
D)land- intensive goods.
E)capital- intensive goods.

Question 15

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

A)the real income of capital owners in Australia would increase.
B)the real income of labor in both countries would decline.
C)the real income of labor in Belgium would decline.
D)the real income of labor in Australia would decline.
E)the real income of landowners in Belgium would decline.

Question 16

The Heckscher- Ohlin model predicts all of the following EXCEPT

A)which country will export which product.
B)that trade increases a country's overall welfare.
C)that relative wages will tend to become equal in both trading countries.
D)which factor of production within each country will gain from trade.
E)the volume of trade.

Question 17

According to the Heckscher- Ohlin model

A)the scarce factor gains from trade and the abundant factor loses.
B)only the country with the more advanced technology gains from trade.
C)the gainers from trade could compensate the losers and still retain gains.
D)a country gains from trade if its exports have a high value added.
E)everyone gains from trade.

Question 18

One way in which the Heckscher- Ohlin model differs from the Ricardo model of comparative advantage is by assuming that is (are)identical in all countries.

A)opportunity costs
B)scale of production
C)factor intensities
D)technology
E)factor endowments

Question 19

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

A)the relative price of the capital- intensive product would decrease in Belgium.
B)the relative price of the land- intensive product would increase in Belgium.
C)the relative price of the capital- intensive product would increase in Australia.
D)the relative price of the land- intensive product would increase in Australia.
E)relative product prices would diverge between Australia and Belgium.

Question 20

According to the Heckscher- Ohlin model,the source of comparative advantage is a country's

A)technology.
B)advertising.
C)human capital.
D)political system.
E)factor endowments.

Question 21

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

A)the real income of Australia but not of Belgium will increase.
B)the real income of both countries will increase.
C)the real income of Australia and of Belgium will increase.
D)the real income of neither country will increase.
E)the real income of both countries may increase.

Question 22

Empirical observations on actual North- South trade patterns tend to

A)support the validity of the Leontief Paradox.
B)support the validity of the neo- imperialism exploitation theory.
C)support the validity of the Rybczynski Theorem.
D)support the validity of the Heckscher- Ohlin model.
E)support the validity of the wage equalization theorem.

Question 23

Which of the following empirical studies provided the most support for the heckscher- Ohlin model?

A)the study by Bowen,Leamer,and Sveikauskas
B)the study by Wassily Leontief
C)the study by Davis and Weinstein
D)the study by David Ricardo
E)the study by Adam Smith

Question 24

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

A)wages should rise and rents should fall in H.
B)rent will be unchanged but wages will rise in H.
C)wages and rents should rise in H.
D)wages should fall and rents should rise in H.
E)wages and rents should fall in H.

Question 25

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

A)the Gravity Theorem
B)the Law of One Price
C)the Law of Demand
D)the Factor Price Equalization Theorem
E)the Heckscher- Ohlin Theorem

Question 26

Which of the following is an assertion of the Heckscher- Ohlin model?

A)The wage- rental ratio determines the capital- labor ratio in a country's industries.
B)In the long run,labor is mobile and capital is not.
C)Factor price equalization will occur only if there is costless mobility of all factors across borders.
D)Factor endowments determine the technology that is available to a country,which determines the good in which the country will have a comparative advantage.
E)An increase in a country's labor supply will increase production of both the capital- intensive and the labor- intensive good.

Question 27

Factors tend to be specific to certain uses and products

A)in countries lacking fair labor laws.
B)in countries lacking comparative advantage.
C)in capital- intensive industries.
D)in the short run.
E)in labor- intensive industries.

Question 28

The 1987 study by Bowen,Leamer and Sveikauskas

A)used a two- country and two- product framework.
B)demonstrated that in fact countries tend to use different technologies.
C)proved that the U.S.'s comparative advantage relied on skilled labor.
D)supported the validity of the Leontief Paradox.
E)supported the validity of the Heckscher- Ohlin model.

Question 29

Which of the following is an assertion of the Heckscher- Ohlin model?

A)The wage- rental ratio is determined by relative product prices.
B)Factor price equalization will occur only if there is costless mobility of all factors across borders.
C)Factor endowments determine the technology that is available to a country,which determines the good in which the country will have a comparative advantage.
D)In the long run,labor is mobile and capital is not.
E)An increase in a country's labor supply will increase production of both the capital- intensive and the labor- intensive good.

Question 30

The Leontief Paradox

A)proved that the U.S.economy is different from all others.
B)supported the validity of the Ricardian theory of comparative advantage.
C)failed to support the validity of the Heckscher- Ohlin model.
D)supported the validity of the Heckscher- Ohlin model.
E)failed to support the validity of the Ricardian theory.

Question 31

Empirical support for the Heckscher- Ohlin model was weakest when the study applied

A)all of the assumptions of the model except those regarding shipping costs.
B)all of the assumptions of the model except those regarding technology,shipping costs and gravity.
C)all of the assumptions of the model except those regarding technology,goods and shipping costs.
D)all of the assumptions of the model except that regarding technology.
E)all of the assumptions of the model.

Question 32

The Case of the Missing Trade refers to

A)the 9th volume of the Hardy Boys' Mystery series.
B)the fact that the Heckscher Ohlin theory predicts much less volume of trade than actually exists.
C)the fact that world exports does not equal world imports.
D)the fact that the Heckscher Ohlin theory never applies to China- U.S.trade practices.
E)the fact that factor trade is less than predicted by the Heckscher- Ohlin theory.

Question 33

Which of the following empirical studies cast the most doubt on the Heckscher- Ohlin model?

A)the study by David Ricardo
B)the study by Adam Smith
C)the study by Wassily Leontief
D)the study by Davis and Weinstein
E)the study by Bowen,Leamer,and Sveikauskas

Question 34

Which of the following is an assertion of the Heckscher- Ohlin model?

A)An increase in a country's labor supply will increase production of the labor- intensive good and decrease production of the capital- intensive good.
B)In the long run,labor is mobile and capital is not.
C)Factor endowments determine the technology that is available to a country,which determines the good in which the country will have a comparative advantage.
D)Factor price equalization will occur only if there is costless mobility of all factors across borders.
E)An increase in a country's labor supply will increase production of both the capital- intensive and the labor- intensive good.

Question 35

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

A)will tend to hurt some groups in each trading country.
B)will tend to hurt everyone in both countries.
C)will tend to hurt one trading country.
D)is beneficial to everyone in both trading countries.
E)will be beneficial to all those engaged in international trade.

Question 36

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

A)the country that exports the capital- intensive good will lose its comparative advantage.
B)demand will shift away from the capital- intensive product,and its production will decrease relative to that of the land- intensive product.
C)demand will shift away from the capital- intensive product,and its production will decrease.
D)the relative price of the capital- intensive product will fall to some point between the pretrade relative prices.
E)the production of the capital- intensive product will decrease,but by less than production of the land- intensive product.

Question 37

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

A)the U.S.should compensate European countries once trade commences.
B)all capitalists in both countries should support free trade.
C)all landowners should support free trade.
D)European landowners should support U.S.- European free trade.
E)European capitalists should support U.S.- European free trade.

Question 38

The Leontief Paradox

A)refers to the fact that Leontief-an American economist-had a Russian name.
B)still accurately applies to today's pattern of U.S.international trade.
C)refers to the finding that U.S.Exports were more capital intensive than its exports.
D)refers to the finding that the U.S.produces outside its Edgeworth Box.
E)refers to the finding that U.S.exports were more labor intensive than its imports.