Deck 4: Factor Endowments and the Commodity Composition of Trade

Question 1

Constant returns to scale implies:

A) as the amount of labor and capital doubles the resulting output remains the same.
B) as the amount of labor and capital doubles the resulting output more than doubles.
C) as the amount of labor and capital doubles the resulting output doubles.
D) as the amount of labor and capital doubles the resulting output increases by a very small amount.
E) None of the above.

Answer 1

as the amount of labor and capital doubles the resulting output doubles.

Question 2

Which of the following is not an assumption of the factor-proportions theory?

A) the same technology in both countries
B) constant returns to scale
C) complete specialization
D) equal tastes and preferences in both countries
E) perfect competition.

Answer 2

complete specialization

Question 3

Which of the following is not an assumption of the factor-proportions theory?

A) perfect competition in the product and factor markets
B) homogeneous labor and capital in both countries
C) different tastes and preferences between countries
D) constant returns to scale
E) constant returns to scale.

Answer 3

different tastes and preferences between countries

Question 4

When we say that steel is capital intensive with respect to wheat, this means that:

A) more capital is used in the production of steel than for wheat.
B) less labor is used in the production of steel than for wheat.
C) a lower capital-to-labor ratio is used in the production of steel than wheat.
D) a higher capital-to-labor ratio is used in the production of steel than wheat.
E) the capital-to-labor ratio does not matter.

Question 5

When we say that wheat is labor intensive with respect to automobiles, this means that:

A) more capital is used in the production of automobiles than wheat.
B) less labor is used in the production of automobiles than wheat.
C) a lower capital-to-labor ratio is used in the production of automobiles than wheat.
D) a higher capital-to-labor ratio is used in the production of automobiles than wheat.
E) wheat can be produced more cheaply than automobiles.

Question 6

A country is said to be relatively abundant in capital if it has:

A) a greater absolute amount of capital.
B) a smaller absolute amount of labor.
C) a higher capital-to-labor ratio.
D) a lower capital-to-labor ratio.
E) a zero capital-to-labor ratio.

Question 7

Which of the following statements is false?

A) Poor countries tend to have a low K/L ratio.
B) Rich countries tend to have a high K/L ratio.
C) The K/L ratio is important in determining the productivity of labor.
D) The productivity of labor rises as the K/L falls.
E) The capital-to-labor ratio affects the composition of trade.

Question 8

The factor-proportions theory of international trade predicts:

A) who benefits and who loses from trade.
B) which factors are abundant.
C) the income distribution effects of trade.
D) which goods will be exported.
E) the size of transportation costs.

Question 9

The factor-proportions theory identifies the source of comparative advantage as:

A) differences in relative factor endowments between countries.
B) similarities in tastes.
C) identical production methods.
D) similar factor endowments.
E) differences in tastes.

Question 10

According to the factor-proportions theory, the source of comparative advantage is a country's:

A) physical size.
B) population.
C) advertising.
D) factor endowments.
E) geographical location.

Question 11

In the factor-proportions theory, international trade is caused by country differences in:

A) technology.
B) tastes and preferences.
C) factor endowments.
D) the degree of competition.
E) transportation costs.

Question 12

The factor-proportions theory is a simplification of international trade between countries because it is explained using:

A) two countries.
B) two goods.
C) two factors of production.
D) all of the above
E) None of the above

Question 13

In the factor-proportions theory:

A) the production possibilities frontier is bowed in toward the origin.
B) labor is the only factor of production.
C) the country with the largest amount of labor will have a comparative advantage in labor-intensive products.
D) the country's comparative advantage depends on its relative endowment of the various factors of production.
E) capital is the only factor of production.

Question 14

The factor-proportions theory states that a country will have a comparative advantage in and produce the product whose production is relatively intensive in the:

A) tastes and preferences in which the country is relatively abundant.
B) technology in which the country is relatively abundant.
C) factor of production in which the country is relatively abundant.
D) advertising in which the country is relatively abundant.
E) All of the above

Question 15

The factor-proportions theory of international trade implies that countries would tend to:

A) export products that intensively utilize their scarce factor of production.
B) import products that intensively utilize their abundant factor of production.
C) export products that intensively utilize their abundant factor of production.
D) import products that intensively utilize their unknown factor of production.
E) None of the above

Question 16

The factor-proportions theory of international trade states that:

A) a country should export the good with the highest output per unit of labor.
B) a country will export the good that requires more intensive use of its abundant factor.
C) a country should import the good that uses capital most intensively.
D) a country should export the factor that receives a higher wage in the other country.
E) All of the above

Question 17

Assume that the U.S. is relatively capital abundant, and Mexico is relatively labor abundant. Further, assume that the production of wheat is capital intensive and the production of iron is labor intensive. Which of the following would be true?

A) Mexico would tend to export wheat.
B) Mexico would tend to import wheat.
C) The U.S. would tend to export iron.
D) The U.S. would tend to import wheat.
E) Mexico would import both iron and wheat.

Question 18

If a country is well endowed with labor relative to capital, the factor-proportions theory predicts that it will:

A) export labor-intensive goods and import capital-intensive goods.
B) import labor-intensive goods and export capital-intensive goods.
C) neither import nor export capital-intensive goods.
D) neither import nor export labor-intensive goods.
E) the K/L ratio is high.

Question 19

If a country is abundant in labor then it would tend to:

A) import labor-intensive products.
B) export labor-intensive products.
C) export capital-intensive products.
D) both export and import labor-intensive products.
E) not import either product.

Question 20

If the production of widgets is inherently capital intensive then:

A) widgets would tend to be exported from labor-abundant countries.
B) widgets would tend to be imported by labor-abundant countries.
C) widgets would tend to be exported from countries with a lot of bauxite.
D) widgets would tend to be imported by capital-abundant countries.
E) widgets would not be produced in a high K/L ratio country.

Question 21

The abundance of a particular factor of production in a country tends to make that factor:

A) more costly relative to the cost of the same factor in other countries.
B) more costly relative to other factors within the country.
C) less costly relative to the cost of the same factor in other countries.
D) very cheap in dollar terms.
E) All of the above

Question 22

A country will have a comparative disadvantage in goods whose production:

A) uses its relatively abundant resource.
B) has a higher wage rate than the other country.
C) is not in high demand relative to other countries products.
D) intensively uses its relatively scarce factor of production.
E) is in low demand in the global market.

Question 23

A country will have a comparative advantage in goods whose production:

A) uses its relatively most abundant resource.
B) has a higher wage rate than the other country.
C) is not in high demand relative to other countries products.
D) intensively uses its relatively scarce factor of production.
E) does not use either labor or capital.

Question 24

If the amount of capital and labor in Country A are $100 million and 100 million workers, and the amount of capital and labor in Country B are $50 million and 25 million workers, then:

A) Country A is capital abundant compared to Country B.
B) Country B is capital abundant compared to Country A.
C) Country B is labor abundant compared to Country A.
D) both a and c
E) both b and c

Question 25

Countries tend to have a comparative advantage in and export goods:

A) that employ the country's scarce resource.
B) that employ the country's relatively abundant resource.
C) that the other country has in abundance.
D) that the other country is counterfeiting.
E) None of the above

Question 26

Countries tend to have a comparative disadvantage in and import goods:

A) that employ the country's scarce resource.
B) that employ the country's relatively abundant resource.
C) that the other country has in abundance.
D) that the other country copies.
E) with a low K/L ratio.

Question 27

A country that is capital abundant relative to another country will have which one of the following advantages?

A) a larger capital stock
B) absolutely cheaper capital
C) relatively cheaper capital
D) faster access to capital
E) cheap labor

Question 28

A country that is labor abundant relative to another country will have which one of the following advantages?

A) a larger labor force
B) the price paid to labor will be absolutely cheaper.
C) relatively cheaper labor
D) faster access to labor
E) cheap capital

Question 29

If the U.K. is labor abundant (capital scarce) and Nigeria is capital abundant (labor scarce), which of the following statements is true?

A) The U.K. would tend to have a comparative advantage in capital-intensive products.
B) Nigeria would tend to have a comparative advantage in labor-intensive products.
C) The U.K. would tend to import capital-intensive products.
D) Nigeria would tend to import capital-intensive products.
E) All of the above

Question 30

Which of the following industries would be an example of comparative advantage based on the relative abundance of physical capital?

A) pharmaceuticals
B) brooms
C) canned peas
D) steel
E) cloth

Question 31

Suppose that Bolivia is labor abundant, and the production of trinkets is labor intensive. Which of the following statements would be false?

A) The relative price of labor would tend to be low in Bolivia.
B) Bolivia would tend to export trinkets.
C) Bolivia does not have a comparative advantage in trinkets.
D) Bolivia has a comparative advantage in trinkets.
E) Bolivia will not trade with Chile.

Question 32

The effect of international trade on the price of the goods traded:

A) are long-run changes.
B) are short-run changes.
C) are nonexistent and should not be considered.
D) are secondary effects and only partially beneficial to both countries.
E) None of the above

Question 33

Assume that there are two factors, capital and land, and that the U.S. is relatively capital abundant while Chile is relatively land abundant. According to the factor-proportions model:

A) Chilean landowners should support U.S.-Chile free trade.
B) Chilean capitalists should support U.S.-Chile free trade.
C) U.S. capitalists should oppose U.S.-Chile free trade.
D) U.S. capitalists and Chilean capitalists both oppose free trade.
E) There is no support for free trade in either country.

Question 34

In the factor-proportions theory, international trade tends to reduce country differences in:

A) relative but not absolute factor prices.
B) absolute but not relative factor prices.
C) relative and absolute factor prices.
D) neither relative nor absolute factor prices.
E) transportation costs.

Question 35

If a capital-abundant country freely trades with a labor-abundant country, there will be a tendency for:

A) wages to rise relative to the price paid to capital in the capital-abundant country.
B) wages to fall relative to the price paid to capital in the capital-abundant country.
C) wages to rise relative to the price paid to capital in both countries.
D) wages to fall relative to the price paid to capital in both countries.
E) the price of labor and capital to stay the same.

Question 36

International trade tends to:

A) have no effect on factor prices.
B) cause all factor prices to fall.
C) cause the price of the scarce factor to rise and the price of the abundant factor to fall.
D) cause the price of the scarce factor to fall and the price of the abundant factor to rise.
E) not influence factor prices.

Question 37

Which theory explains how international trade affects factor prices?

A) the Leontief paradox
B) the factor-proportions theory
C) the Stopler-Samuelson theory
D) the factor-price equalization theory
E) the trade normalization theory.

Question 38

Factor-price equalization means that:

A) trade will have a tendency to equalize the prices of factors of production among countries that trade.
B) international trade theory has nothing to do with reality.
C) international trade will tend to only equalize the price of labor among countries.
D) international trade has no influence on the prices of factors of production in countries that trade.
E) trade does not influence factor prices.

Question 39

Industrial structure refers to:

A) the percentage of output that is accounted for by each industry within a country.
B) the output that is accounted for by each industry within a country.
C) the types of industries in a country.
D) the percentage of industries that account for a country's exports.
E) the prices of the factors of production.

Question 40

Changes in industrial structure:

A) cause changes in the returns to the factor of production.
B) cause changes in the price of the traded goods.
C) do not cause changes in the distribution of a country's income.
D) cause changes in a country's comparative advantage.
E) do not influence factor prices.

Question 41

Suppose that Ecuador is a labor-abundant country and Chile is a capital-abundant country. If Ecuador and Chile trade with one another then:

A) labor would tend to get more expensive in Ecuador.
B) capital would tend to get more expensive in Ecuador.
C) labor would tend to get more expensive in Chile.
D) capital would tend to get cheaper in Chile.
E) both labor and capital would get cheaper in Chile.

Question 42

Assume that Mexico is labor abundant and the U.S. is capital abundant. Trade between Mexico and the U.S. would tend to:

A) lower the price of capital in Mexico.
B) raise the price of capital in Mexico.
C) raise the price of labor in the U.S.
D) lower the price of capital in the U.S.
E) lower the prices of both factors in Mexico.

Question 43

Assume that Mexico is a labor-abundant country and capital is scarce. The result of international trade would be that:

A) both labor and capital would get more expensive.
B) labor would get more expensive.
C) capital would get more expensive.
D) both labor and capital would get cheaper.
E) factor prices would only change outside Mexico.

Question 44

If country A is labor abundant and country B is capital abundant, then with trade wages will tend to _____ in country A and _____ in country B.

A) fall; fall
B) rise; rise
C) fall; rise
D) rise; fall
E) Factor prices would not change.

Question 45

The effect of international trade on the prices paid to the factors of production:

A) are long-run changes.
B) are short-run changes.
C) are non-existent and should not be considered.
D) are secondary effects and only partially beneficial to both countries.
E) None of the above

Question 46

According to factor price equalization, if Country B is labor abundant as international trade occurs then:

A) labor should be opposed to international trade.
B) the owners of capital should be opposed to international trade.
C) both labor and the owners of capital should be opposed to international trade.
D) both labor and the owners of capital should be in favor of international trade.
E) None of the above

Question 47

Which of the following statements is true?

A) GDP per capita in India is higher than it is in South Korea.
B) The capital/labor ratio is higher in India than it is in South Korea.
C) The openness index is higher for India than it is for South Korea.
D) GDP per capita in South Korea now is higher than it is in India.
E) GDP per capita is the same in both countries.

Question 48

The Stopler-Samuelson theorem states that with international trade the:

A) scarce factor receives a larger piece of the economic pie and the abundant factor tends to receive a smaller piece.
B) larger factor receives a larger piece of the economic pie and the smaller factor tends to receive a smaller piece.
C) smaller factor receives a larger piece of the economic pie and the larger factor tends to receive a smaller piece.
D) abundant factor receives a larger piece of the economic pie and the scarce factor tends to receive a smaller piece.
E) factor prices do not change.

Question 49

Which theory explains how international trade affects the distribution of income?

A) the Leontief paradox
B) the factor-proportions theory
C) the Stopler-Samuelson theory
D) the factor-price equalization theory
E) Mercantilism

Question 50

Which factor stands to gain most from free trade?

A) the factor that is used intensively to produce an import competing good
B) the factor that is used intensively to produce a non-traded good
C) the factor that is used intensively to produce an exported good
D) the relatively scarce factor
E) All of the above

Question 51

The U.S. government program designed to assist workers who have lost their jobs due to competition from imports is known as:

A) the Stopler-Samuelson Act.
B) the Factor-Price Relief Act.
C) Trade Adjustment Assistance.
D) the Extended Unemployment Compensation and Education Act.
E) the Davis-Bacon Act.

Question 52

Income inequality:

A) has been rising for decades.
B) has fallen since 2000.
C) was only a problem in the 1980s.
D) is totally caused by changes in trade flows.
E) none of the above

Question 53

Which of the following is true?

A) Trade harms the poor more than the rich.
B) Trade harms the rich more than the poor.
C) Trade causes lower prices which tends to help the poor more than the rich.
D) Trade causes higher prices which tends to help the rich more than the poor.
E) none of the above

Question 54

If a factor of production cannot easily move from one sector of the economy to another then it is referred to as:

A) a capital-intensive factor.
B) a labor-intensive factor.
C) a stuck factor.
D) a specific factor.
E) an unknown factor.

Question 55

In the specific-factors model:

A) owners of the specific factor should be in favor of international trade in all cases.
B) owners of the specific factor should be opposed to international trade in all cases.
C) owners of the specific factor in the comparative disadvantage industry should be in favor of international trade.
D) owners of the specific factor in the comparative advantage industry should be in favor of international trade.
E) factors of production never move.

Question 56

After trade opens, the short-run impact on the income of the specific factor used to produce exports will be:

A) a decrease.
B) an increase.
C) indeterminate, income effects are not known.
D) zero.
E) only relevant to labor.

Question 57

As a test of the _____ theory, Leontief found (in the 1950s) that American exports embodied a _____ K/L ratio than American imports.

A) Stopler-Samuelson; higher
B) factor-proportions; lower
C) Ricardo; higher
D) Schumpeter; lower
E) Krugman; lower

Question 58

The empirical result that U.S. exports seem to be labor-intensive if only capital and labor are used as factors of production is known as the:

A) Leontief Paradox.
B) Smith's riddle.
C) Ricardo's advantage.
D) Krugman's puzzle.
E) None of the above

Question 59

Initial empirical tests of the factor-proportions theory of international trade showed that U.S. exports tended to be labor intensive. This perverse empirical result is known as:

A) Krugman's puzzle.
B) Ricardo's problem.
C) Adam Smith's dilemma.
D) the Leontief Paradox.
E) None of the above

Question 60

Leontief's factor-proportions study found that U.S.:

A) imports were more labor intensive than exports.
B) imports were more capital intensive than exports.
C) imports were primarily agricultural products.
D) exports were not internationally competitive.
E) was not a competitive nation.

Question 61

The Leontief paradox refers to the empirical result that:

A) U.S. exports were more capital intensive than U.S. imports, even though the U.S. is regarded as a capital abundant country.
B) U.S. exports were more labor intensive than U.S. imports, even through the U.S. is regarded as a capital abundant country.
C) U.S. exports were more capital intensive than U.S. imports, even though the U.S. is regarded as a labor abundant country.
D) U.S. exports were more labor intensive than U.S. imports, even though the U.S. is regarded as a labor abundant country.
E) the U.S. only trade with other developed countries

Question 62

Leontief found that:

A) U.S. exports are neither labor nor capital intensive.
B) U.S. exports are capital intensive relative to U.S. imports.
C) U.S. imports are capital intensive relative to U.S. exports.
D) U.S. trade conforms perfectly to the predictions of the factor-proportions model.
E) capital was scarce in the U.S.

Question 63

In the 1950s, Leontief found that U.S. imports utilize _____ K/L ratio than America's exports.

A) a higher
B) a lower
C) the same
D) a smaller
E) an indeterminate

Question 64

The Leontief paradox provided:

A) support for the specific-factors model.
B) support for the factor-proportions theory.
C) evidence against the factor-proportions theory.
D) evidence against the Stopler-Samuelson theorem.
E) evidence favorable to Mercantilism.

Question 65

Which of the following is not a potential explanation for the Leontief paradox?

A) The U.S. imposed high tariffs on labor-intensive products.
B) U.S. exports are intensive in the use of skilled labor.
C) The U.S. exports products that intensively use high technology.
D) The U.S. is a relatively labor-abundant country.
E) U.S. tariffs are too low.

Question 66

Investment in the labor force that increases the productivity of labor is known as:

A) physical capital.
B) the Leontief Paradox.
C) human capital.
D) K/L capital.
E) R&D.

Question 67

If comparative advantage in an industry is based mostly on the amount of education and training embodied in the work force, then we would say that the industry is:

A) unskilled-labor intensive.
B) physical-capital intensive.
C) human-capital intensive.
D) None of the above
E) all of the above

Question 68

Which of the following industries would be an example of comparative advantage based primarily on R&D?

A) bourbon
B) leather footwear
C) apparel
D) pharmaceuticals
E) cloth

Question 69

if labor moves from India to the U.S.:

A) labor in India will benefit.
B) the owners of capital in India will lose.
C) labor in the U.S. will lose.
D) all of the above
E) none of the above

Question 70

A trade deficit occurs when:

A) production in an economy is less than consumption.
B) consumption in an economy is less than production.
C) spending on housing is too low.
D) interest rates are very low.
E) immigration is restricted.

Question 71

If Canada is relatively capital abundant and Mexico is relatively labor abundant, this means that the capital-to-labor ratio in Canada is greater than the capital-to- labor ratio in Mexico.

Question 72

If capital per worker in a country is relatively high, then it is probably true that GDP per capita is relatively high as well.

Question 73

GDP per capita is positively correlated with the K/L ratio.

Question 74

A capital-intensive good is one with a low K/L ratio.

Question 75

A country will tend to have a comparative advantage in goods that intensively use their scarce factor of production.

Question 76

The factor-proportions theory predicts that the pattern of trade is determined mostly by country differences in factor endowments.

Question 77

The factor-proportions theory predicts that the pattern of trade is determined mostly by country differences in tastes and preferences.

Question 78

If country A is labor abundant relative to another country, then country A must have a larger labor force than the other country.

Question 79

A country will have relatively lower costs of production in goods where production calls for smaller quantities of the abundant factor of production and greater quantities of the scarce factor of production.

Question 80

The capital-to-labor ratio is only important in the context of international trade.