Deck 4: Trade and Resources: the Heckscher-Ohlin Model

Question 1

The Heckscher-Ohlin model assumes that there are two countries, each of which produces two goods (say manufactures and agriculture) using labor and capital. Which of the following is an additional assumption of the Heckscher-Ohlin model?

A) The ratio of the quantity of labor to the quantity of capital is different for each nation, resulting in different "endowments" of capital and labor.
B) One nation has larger quantities of both capital and labor than the other country.
C) Capital is a specific resource in producing manufactured goods, and labor is a specific resource in producing agricultural goods in each country.
D) Labor and capital can move between countries.

Answer 1

A

Question 2

The Heckscher-Ohlin model simplifies the analysis by assuming:

A) there is unemployment in the home country.
B) the labor force consists of workers with different skill levels.
C) land is an important factor of production.
D) there are only two nations producing two goods using two factors of production.

Answer 2

D

Question 3

Which of the following statements is correct?

A) The Heckscher-Ohlin model assumes that all resources can freely move between industries.
B) The specific-factors model assumes that all resources can freely move between industries.
C) Both the Heckscher-Ohlin and the specific-factor models assume that all resources can freely move between industries.
D) Neither the Heckscher-Ohlin nor the specific-factor model assumes that all resources can freely move between industries.

Answer 3

A

Question 4

The Heckscher-Ohlin theorem explains patterns of trade between countries using:

A) economies of scale.
B) monopoly power in the industry.
C) abundance or scarcity of resources.
D) tariffs and quota.

Question 5

A situation in which one nation produces good A using labor more intensively (relative to capital) than good B while a second nation produces good A, using capital more intensively (relative to labor) than good B is called:

A) a reversal of factor intensities.
B) a paradox of factor intensities.
C) backward technology.
D) micro intensity.

Question 6

According to the application in the text, why can Nike shoes be produced at a lower cost in some foreign countries?

A) Some foreign countries have superior technology.
B) Some foreign countries are strategic allies for the home country.
C) Labor costs in some foreign countries are lower than in the United States.
D) Nike has no competition in some foreign countries.

Question 7

Which of the following statements is true?

A) The Heckscher-Ohlin model offers a reasonable explanation of the pattern of trade and the gains from trade.
B) The Heckscher-Ohlin trade model does not offer an explanation of the pattern of trade.
C) The Heckscher-Ohlin trade model does not offer an explanation of the gains from trade.
D) The Ricardian trade model (with labor as the only input) offers a better explanation of the pattern of trade and the gains from trade than the Heckscher-Ohlin model.

Question 8

United States' agricultural production is ________ in comparison with Chinese agricultural production.

A) capital intensive
B) labor intensive
C) less subsidized
D) more restrictive

Question 9

The implication of resources being mobile domestically is that:

A) there is often unemployment.
B) capital and land are often not suited for use in other industries.
C) labor is paid the same wage and capital receives the same rental price in all domestic industries.
D) they lose the chance to become guest workers in other nations.

Question 10

The Heckscher-Ohlin Model assumes that:

A) consumer tastes are different in the two countries and invariant with respect to income.
B) consumer tastes are the same in the two countries and invariant with respect to income.
C) consumer tastes within each country have no effect on international trade.
D) consumer tastes are different in the two countries and have no effect on international trade.

Question 11

The Heckscher-Ohlin model assumes that the factors of production are mobile ______, but immobile _____.

A) in the short run; in the long run
B) in the long run; in the short run
C) domestically; internationally
D) internationally; domestically

Question 12

In the text, which of the following statements is NOT an assumption of the Heckscher-Ohlin model?

A) There are two countries, each of which produces two goods using labor and capital.
B) Labor and capital can move freely between the production of two goods.
C) There is free trade between the two countries.
D) Labor and capital can move freely between the two countries.

Question 13

A long-run model of trade basic to the determination of how mobile factors of production affect national welfare and the returns to the factors is known as:

A) the specific-factors model.
B) the Riparian model.
C) the Chicago model of trade.
D) the Heckscher-Ohlin model.

Question 14

The Heckscher-Ohlin model of international trade uses _____ and ______ to explain trade patterns.

A) comparative advantage; absolute advantage
B) factor abundance; factor intensity
C) factor availability; factor usability
D) tariffs; quotas

Question 15

The Heckscher-Ohlin model assumes that a nation's two industries use labor and capital:

A) at different intensities depending on changing technology.
B) at different intensities, with one being more capital-intensive than the other.
C) at the same intensity in each industry; that is, the capital-labor ratio is the same in each industry.
D) in no definite pattern.

Question 16

The Heckscher-Ohlin Model assumes that:

A) factor endowments are the same in the two countries.
B) consumer tastes are different across countries.
C) the technologies used to produce the two goods are different in the two countries.
D) consumer tastes and technologies are the same in the two countries.

Question 17

In a capital-intensive industry, the labor-capital ratio will:

A) rise as the wage-rental ratio falls.
B) fall as the wage-rental ratio falls.
C) rise as the country's capital stock rises.
D) fall as the country's capital stock falls.

Question 18

Suppose that country 1 is capital abundant relative to country 2. Both produce two goods (X and Y). Factor-intensity reversal occurs whenever:

A) X is capital intensive in country 1 and labor intensive in country 2.
B) X is capital intensive in both countries.
C) Y is capital intensive in both countries.
D) X is capital intensive in country 1, and Y is labor intensive in country 2.

Question 19

The Heckscher-Ohlin model assumes that technology in each industry:

A) is the same in each nation-each firm has access to the most profitable technology.
B) has increasing returns so that one nation will be able to gain a comparative advantage by developing new technology.
C) is very different across the world-some nations have access to technology, whereas others do not.
D) is hard to access because R&D is very expensive especially for low-income nations.

Question 20

The Heckscher-Ohlin model assumes that factors of production can move freely _______, but cannot move _______.

A) domestically; internationally
B) after they are fully trained; before the training period is over
C) internationally; domestically
D) within unskilled occupations; into high-skill jobs

Question 21

If agriculture is a capital-intensive industry in the United States and a labor-intensive industry in India, then:

A) India should export agricultural goods to the United States.
B) neither country will have an advantage in agricultural production.
C) there is factor-intensity reversal in agricultural production between the two countries.
D) it is difficult to determine which country is labor abundant.

Question 22

(Figure: Home and Foreign Autarky Equilibria) Which line in the graph represents the home relative price of computers in terms of shoes?

A) A
B) B
C) U
D) U^*

Question 23

(Figure: Home and Foreign Autarky Equilibria) According to the graph, which nation has a higher no-trade equilibrium relative price for computers (in terms of shoes)?

A) Home
B) Foreign
C) Home and Foreign have the same no-trade equilibrium relative price.
D) neither Home nor Foreign

Question 24

Consider two products: automobiles and shoes. If shoes are labor intensive and automobiles are capital intensive, what can we expect in free-trade conditions?

A) The relative price of automobiles in the auto-exporting country will decrease.
B) The relative price of shoes in the shoe-exporting country will increase.
C) The capital-abundant country will produce more shoes.
D) The labor-abundant country will produce more automobiles.

Question 25

The PPF of a country will be skewed toward the good that:

A) uses its scarce factor intensively.
B) uses its abundant factor intensively.
C) uses its intensive factor abundantly.
D) does not use its intensive factor abundantly.

Question 26

Why is the PPF bowed out in the Heckscher-Ohlin model?

A) Capital is specific to the production of one good.
B) Labor is specific to the production of the other good.
C) There are increasing opportunity costs of producing more of each good.
D) Labor is not perfectly mobile between the production of the two goods.

Question 27

Suppose that the United States and China each produce steel and cloth. In the Heckscher-Ohlin model, if the United States enjoys a comparative advantage in steel production, then:

A) China must have an absolute advantage in cloth production.
B) the United States will also have a comparative advantage in cloth production.
C) China must have a comparative advantage in cloth production.
D) the United States must have an absolute advantage in steel production.

Question 28

The international equilibrium price (or world price) and quantity for a traded item is determined by:

A) the WTO.
B) the U.S. Department of Commerce.
C) the intersection of the export supply schedule and the import demand schedule.
D) trade negotiations conducted by representatives in the two nations.

Question 29

(Figure: Home and Foreign Autarky Equilibria) If shoes are a labor-intensive industry, which nation is labor abundant?

A) Home
B) Foreign
C) neither Home nor Foreign
D) both Home and Foreign

Question 30

(Table: Capital Intensity Across Industries) Suppose that the United States is labor abundant relative to Canada. According to the table, which U.S. industry is most likely to export products to Canada?

A) furniture
B) electronic and electrical equipment
C) primary metal industries
D) paper and allied products

Question 31

According to the text, identical technologies are a more reasonable assumption for:

A) the shoe industry.
B) the call center industry.
C) neither the shoe nor call center industry.
D) both the shoe and call center industries.

Question 32

(Figure: Home and Foreign Autarky Equilibria) Which line in the graph represents Foreign's relative price of computers in terms of shoes?

A) A
B) B
C) U
D) U^*

Question 33

(Figure: Home and Foreign Autarky Equilibria) According to the shapes of the two PPFs, which nation has a comparative advantage in the production of computers?

A) Home
B) Foreign
C) neither Home nor Foreign
D) both Home and Foreign

Question 34

Malaysia is relatively abundant in labor, whereas Canada is relatively abundant in capital. In both countries, shirt production is relatively more labor intensive than computer production. According to the Heckscher-Ohlin model, Malaysia will have a(n) ________ advantage in the production of __________.

A) absolute; shirts and computers
B) absolute; computers
C) comparative; shirts
D) comparative; computers

Question 35

Most trading nations do not completely specialize. Incomplete specialization is mainly due to:

A) decreasing opportunity costs.
B) increasing opportunity costs.
C) constant opportunity costs.
D) perfectly substitutable resources.

Question 36

There are many real-life examples of factor-intensity (the ratio of capital to labor) differences in the same industries in different nations. How does the Heckscher-Ohlin model handle this?

A) The Heckscher-Ohlin model makes no assumptions about different factor intensities.
B) The Heckscher-Ohlin model assumes that all firms require equal amounts of capital and labor just to be on the safe side.
C) The Heckscher-Ohlin model ignores the possibility of different factor intensities and instead assumes that each industry has the same factor intensity in every nation.
D) Factor-intensity differences do not change the predictive value of the model.

Question 37

LCD TVs are capital intensive, and tennis racquets are labor intensive. Suppose Canada has $100 billion of capital and 2 million workers and Mexico has $10 billion of capital and 20 million workers. According to the Heckscher-Ohlin model:

A) Canada will specialize in and export LCD TVs.
B) Mexico will specialize in and export LCD TVs.
C) Canada will specialize in and export tennis racquets.
D) Mexico will import tennis racquets.

Question 38

(Figure: Home and Foreign Autarky Equilibria) At which point will Home find its no-trade equilibrium consumption and production point?

A) A
B) B
C) C
D) U

Question 39

(Table: Capital Intensity Across Industries) According to the table, which industry is the most labor intensive?

A) apparel and other textile products
B) lumber and wood products
C) primary metal industries
D) chemicals and allied products

Question 40

In autarky, wages generally:

A) are higher in the labor-abundant country than in the capital-abundant country.
B) are lower in the labor-abundant country than in the capital-abundant country.
C) are the same in the labor-abundant and the capital-abundant countries.
D) have no relationship to labor abundance.

Question 41

Suppose Portugal has 700 workers and 26,000 units of capital, and France has 18,000 workers and 700 units of capital. Technology is identical in both countries. Assume that wine is the capital-intensive good and cloth is the labor-intensive good. Which one of the following statements is correct?

A) Portugal will export wine and import cloth.
B) France will export wine and import cloth.
C) There is no basis for trade between France and Portugal.
D) Portugal will export cloth and import wine.

Question 42

(Figure: A Country's Before and After Trade Equilibria) If the new international relative price of computers increases from its pre-trade position, how will the slope of the price line change in the graph?

A) The slope will increase.
B) The slope will decrease.
C) The slope will not change but the price line will shift to the right.
D) The slope will not change but the price line will shift to the left.

Question 43

(Figure: A Country's Before and After Trade Equilibria) What happened to the relative price of shoes in this nation after trade?

A) Shoes became relatively more expensive in terms of computers.
B) Shoes became relatively cheaper in terms of computers.
C) Shoes were not as desirable after trade.
D) The price of shoes did not change-only the quantity.

Question 44

(Figure: A Country's Before and After Trade Equilibria) How many shoes will this nation export?

A) 0
B) 125
C) 350
D) 500

Question 45

(Figure: A Country's Before and After Trade Equilibria) What are the pre-trade quantities of shoes and computers produced by this nation?

A) 300 shoes; 300 computers
B) 225 shoes; 175 computers
C) 225 shoes; 200 computers
D) 150 shoes; 300 computers

Question 46

Suppose that Home is a capital-abundant country. When Home trades with Foreign, a labor-abundant country, the Heckscher-Ohlin model predicts that the price of:

A) the labor-intensive good will rise in Home.
B) the labor-intensive good will rise in Foreign.
C) the capital-intensive good will rise in Foreign.
D) the capital-intensive good will fall in Home.

Question 47

(Figure: A Country's Before and After Trade Equilibria) Suppose that the new international relative price of computers increases from the pre-trade price. If we then subtract the number of computers purchased domestically at the new international price from the number of computers produced, we will get one point on ____________ for computers.

A) the import demand schedule
B) the export supply schedule
C) the production possibilities frontier
D) the indifference curve

Question 48

Consider two products: automobiles and shoes. If shoes are labor intensive and automobiles are capital intensive, what will happen under the Heckscher-Ohlin model?

A) The labor-abundant country will export automobiles.
B) The capital-abundant country will export shoes.
C) The labor-abundant country will import shoes.
D) The capital-abundant country will import shoes.

Question 49

(Figure: A Country's Before and After Trade Equilibria) At what point will this nation be in a no-trade equilibrium?

A) A
B) B
C) C
D) D

Question 50

(Figure: A Country's Before and After Trade Equilibria) What is the equilibrium post-trade point of production of this nation?

A) A
B) B
C) C
D) D

Question 51

(Figure: A Country's Before and After Trade Equilibria) Suppose that the new international relative price of computers increases from the pre-trade price. If we then subtract the number of shoes produced domestically at the new international price from the number of shoes consumed at this price, we will get one point on ____________ for shoes.

A) the import demand schedule
B) the export supply schedule
C) the production possibilities frontier
D) the indifference curve

Question 52

Assume there are two nations each producing two goods, X and Y, and they only trade with each other. Which of the following is identical for both nations if they engage in free trade?

A) the equilibrium relative price of X
B) the opportunity cost of X
C) the opportunity cost of producing X and the opportunity cost of producing Y
D) both the equilibrium relative price of X and the opportunity cost of X

Question 53

The conclusion that a labor-abundant country exports the good using labor intensively in production and a capital-abundant country exports the good using capital intensively in production is known as:

A) factor-intensity reversal.
B) the Heckscher-Ohlin theorem.
C) Ricardian comparative advantage.
D) the Stolper-Samuelson theorem.

Question 54

(Figure: A Country's Before and After Trade Equilibria) How many shoes will this nation import?

A) 0
B) 125
C) 350
D) 500

Question 55

(Figure: A Country's Before and After Trade Equilibria) How many computers will this nation import?

A) 0
B) 125
C) 350
D) 500

Question 56

(Figure: A Country's Before and After Trade Equilibria) How many computers will this nation export?

A) 0
B) 125
C) 350
D) 500

Question 57

(Figure: A Country's Before and After Trade Equilibria) The trade triangle shows the exports that were exchanged for imports. What are the three points of the trade triangle?

A) A, B, C
B) A, B, D
C) A, D, C
D) B, C, D

Question 58

Which statement about the Heckscher-Ohlin model is correct?

A) It does not offer an explanation of the gains from trade.
B) It does not offer an explanation of the patterns of trade.
C) It offers an explanation of the effects of trade on the returns to capital and labor.
D) It offers an explanation of the effects of trade on factor abundance.

Question 59

Which of the following is one conclusion of the Heckscher-Ohlin model?

A) In the real world, with unlimited goods, nations will buy products that satisfy their demands and sell products they have no use for.
B) If there are limited resources, such as capital and land, production varies directly with the amount of labor used.
C) Some factors of production are fixed and some are variable. We need only consider the variable factors when we analyze international trade.
D) With two goods and two factors, each country will export the good that uses intensively the factor of production it has in abundance and will import the other good.

Question 60

(Figure: A Country's Before and After Trade Equilibria) What are the post-trade quantities of shoes and computers produced by this nation?

A) 300 shoes; 300 computers
B) 225 shoes; 175 computers
C) 225 shoes; 200 computers
D) 150 shoes; 300 computers

Question 61

Suppose Portugal has 700 workers and 26,000 units of capital, and France has 18,000 workers and 700 units of capital. Technology is identical in both countries. Assume that wine is the capital-intensive good and cloth is the labor-intensive good. Which of the following statements is correct if the nations start trading with each other?

A) Wages will increase in Portugal.
B) Rental rates in France will increase.
C) Wages in France will decrease.
D) Rental rates in Portugal will increase.

Question 62

Which of the following is NOT an explanation of Leontief's paradox?

A) Leontief did not distinguish between high-skilled and low-skilled labor.
B) The United States was not engaged in completely free trade in 1947 as the Heckscher-Ohlin model assumes.
C) The data from 1947 might be unusual because the war had recently ended.
D) United States' trading partners gave preferential treatment to U.S. exports.

Question 63

Leontief suggested that his results were not a paradox once we account for differences in:

A) resource endowments.
B) capital stocks.
C) labor forces.
D) resource productivities.

Question 64

Leontief discovered a "paradox" in his test of the Heckscher-Ohlin model for the United States. He expected the United States to export _____-intensive goods and import _____-intensive goods; but his study indicated the reverse was true.

A) land; technology
B) labor; land
C) capital; labor
D) labor; capital

Question 65

(Table: Data on Suburbia) Use this table, which represents autarkic and free-trade production and consumption and resource use for Suburbia, to answer the following question. Which of the following statement is correct?

A) Surburbia is a labor-intensive country.
B) Suburbia is a labor-abundant country.
C) Suburbia is a capital-intensive country.
D) Suburbia is a capital-abundant country.

Question 66

What was "paradoxical" about the results of Leontief's test of the Heckscher-Ohlin model on U.S. trade?

A) Leontief concluded that U.S. imports were more labor intensive than U.S. exports.
B) Leontief concluded that U.S. imports were more capital intensive than U.S. exports.
C) Leontief concluded that U.S. imports were primarily agricultural products.
D) Leontief concluded that U.S. exports were not internationally competitive.

Question 67

(Table: Factor Use in Trade) In the hypothetical economy provided in the table, what is the capital-labor ratio for exports?

A) $1,849
B) $35,500
C) $18,490
D) $1,920

Question 68

Which of the following countries had the most physical capital in 2013?

A) the United States
B) China
C) Japan
D) India

Question 69

Economist Wassily Leontief tested the Heckscher-Ohlin model to determine whether it correctly predicted the capital and labor content of imports and exports of:

A) Russia.
B) China.
C) the United States.
D) Belgium.

Question 70

(Table: Data on Suburbia) Use this table, which represents autarkic and free-trade production and consumption and resource use for Suburbia, to answer the following question. How many units of which product will Suburbia import?

A) 2,000 units of X
B) 1,000 units of X
C) 2,000 units of Y
D) 1,500 units of Y

Question 71

In his test of the Heckscher-Ohlin model for the United States, Leontief found that:

A) the United States was importing labor-intensive commodities.
B) the U.S. capital-labor ratio for imported goods was larger than that for the exported goods.
C) the U.S. capital-labor ratio for imported goods was smaller than that for the exported goods.
D) there was a trade imbalance in the United States.

Question 72

Leontief found that:

A) U.S. trade increased after World War II.
B) U.S. exports were capital intensive compared with its import-competing production.
C) U.S. exports were labor intensive compared with its import-competing production.
D) U.S. exports were neither capital nor labor intensive.

Question 73

The Leontief paradox found that:

A) exports should always be capital intensive.
B) imports should always be labor intensive.
C) U.S. exports were labor intensive.
D) U.S. exports were capital intensive.

Question 74

(Table: Factor Use in Trade) In the hypothetical economy provided in the table, what is the capital-labor ratio for imports?

A) $31,250
B) $21,500
C) $1,600
D) $3,125

Question 75

(Table: Data on Suburbia) Use this table, which represents autarkic and free-trade production and consumption and resource use for Suburbia, to answer the following question. Did the capital-labor ratio used in the production of good X rise, fall, or remain unchanged as Suburbia moved from autarky to free trade?

A) It rose.
B) It fell.
C) It remained the same.
D) It rose, then it fell.

Question 76

Leontief's study of U.S. post-World War II trade concluded that the:

A) United States did not gain from trade.
B) United States exports were labor intensive.
C) The Heckscher-Ohlin model did not explain trade between Europe and the United States.
D) United States exports were capital intensive.

Question 77

(Table: Data on Suburbia) Use this table, which represents autarkic and free-trade production and consumption and resource use for Suburbia, to answer the following question. Which of the following statements is true regarding the change in the marginal product of labor as Suburbia moved from autarky to a free-trade situation?

A) The MPL in good X production rose.
B) The MPL in good Y production fell.
C) The MPL in good X and good Y production both rose.
D) The MPL in good X and good Y production both fell.

Question 78

Which of the following offers an explanation for the Leontief paradox?

A) Leontief assumed that U.S. and foreign technologies were not the same.
B) Leontief incorporated land and other resources.
C) Leontief did not distinguish between skilled and unskilled labor.
D) Leontief assumed that the United States was capital intensive.

Question 79

(Table: Data on Suburbia) Use this table, which represents autarkic and free-trade production and consumption and resource use for Suburbia, to answer the following question. What is the ratio of total capital to total labor in Suburbia?

A) 1 unit/day
B) 1.5 units/day
C) 1.67 units/day
D) 3 units/day

Question 80

Which of the following statements is NOT an explanation of Leontief's paradox?

A) Leontief ignored the fact that the United States imports a variety of products rather than just one.
B) He ignored the fact that U.S. labor is highly skilled.
C) He ignored the importance of land as a factor in many U.S. exports.
D) Trade patterns in 1947 might have been affected by the fact that World War II had ended only two years earlier.