Question 1

-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.

Accepted Answer

The answer of 
-Refer to above figure.If trade were to...

Question 2

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

Accepted Answer

The answer of International trade leads to complete equalization of...

Question 3

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 4

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

Accepted Answer

Labor intensive goods require relatively more labor than goods that are not labor intensive. This means that the production process involves a higher proportion of labor to other inputs, such as capital, land, or technology. The use of labor in this manner can be a strategic advantage for producers, as it may allow them to keep costs low and maintain competitiveness in certain markets where labor costs are relatively low.

Question 5

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 that possesses abundant labor will specialize in producing and exporting labor-intensive goods. Since Gambinia has many workers but very little land and productive capital, it is likely that the country will specialize in producing goods that require labor rather than capital or land. Therefore, the best choice is A) labor-intensive goods.

Question 6

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

Accepted Answer

Capital intensive means that the good is produced using relatively more capital than goods that are not labor intensive.

Question 7

-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.

Accepted Answer

The answer of 
-Refer to above figure.Two countries exist in...

Question 8

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

Accepted Answer

According to the Heckscher-Ohlin model, a country will export goods that use its abundant factors intensively. Australia, with more land, will export land-intensive goods, and Belgium, with more capital, will export capital-intensive goods. This trade will increase the demand for land in Australia and capital in Belgium, benefiting landowners in Australia and capital owners in Belgium, while potentially harming landowners in Belgium.

Question 9

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

Accepted Answer

In the Heckscher-Ohlin model, international trade leads to factor price equalization, meaning that the relative prices of goods become equal across countries due to trade.

Question 10

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

Accepted Answer

According to the Heckscher-Ohlin model, a country should specialize in and export goods that use its abundant factors intensively. Since Gambinia has an abundance of labor, it should engage in free trade to export labor-intensive goods, improving economic welfare.

Question 11

-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.

Accepted Answer

The answer of 
-Refer to above figure.Would you expect to...

Question 12

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

Accepted Answer

Japan is capital rich and the United States is land rich. Food is land intensive. So, Japan will export capital-intensive goods to the United States, and the United States will export land-intensive goods to Japan. This will lead to an increase in the relative price of food in the United States.

Question 13

The Heckscher-Ohlin model predicts all of the following EXCEPT

Accepted Answer

The Heckscher-Ohlin model does not predict the volume of trade; it focuses on the patterns of trade based on factor endowments and the effects on income distribution within countries.

Question 14

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.

Accepted Answer

The answer of Suppose Australia, a land (K)-abundant country, and...

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.
 
-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?

Accepted Answer

The answer of Suppose Australia, a land (K)-abundant country, and...

Question 16

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

Accepted Answer

The answer of Why is the H.O.model called the factor-proportions...

Question 17

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

Country B having no minimum wage or child labor laws may indicate that they have lower production costs for goods, making them more competitive in the international market. This means they may export more of good S to country A who may not be able to produce it at a lower cost. Therefore, choice A is the correct answer.

Question 18

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?

Accepted Answer

The answer of One of the commonly used assumptions in...

Question 19

-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?

Accepted Answer

The answer of 
-Refer to above figure.In autarky,Country P was...

Question 20

Trade benefits a country by

Accepted Answer

Trade benefits a country by increasing available consumption choices, as it allows access to a wider variety of goods and services than would be available domestically.

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