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Chapter 5

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IE Chapter 5

IE Chapter 5

Question 1 of 47

1

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

Select one of the following:

  • move the point of production along the production possibility curve.

  • shift the production possibility curve outward; and increase the production of both goods.

  • shift the production possibility curve outward and decrease the production of the labor-intensive product.

  • shift the production possibility curve outward and decrease the production of the capital-intensive product.

  • shift the possibility curve outward and displace preexisting labor.

Explanation

Question 2 of 47

1

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

Select one of the following:

  • tastes and preferences.

  • military capabilities.

  • the size of their economies.

  • relative abundance of factors of production.

  • labor productivities.

Explanation

Question 3 of 47

1

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.

Select one of the following:

  • factor endowments

  • scale of production

  • factor intensities

  • technology

  • opportunity costs

Explanation

Question 4 of 47

1

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

Select one of the following:

  • the opportunity cost of good X.

  • the price of good X divided by the price of good Y.

  • the price of good Y divided by the price of good X.

  • the opportunity cost of good Y.

  • the cost of capital (assuming that good Y is capital intensive) divided by the cost of labor.

Explanation

Question 5 of 47

1

The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former

Select one of the following:

  • has only two countries.

  • has only two products.

  • has two factors of production.

  • has two production possibility frontiers (one for each country).

  • has varying wage rates.

Explanation

Question 6 of 47

1

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.

Select one of the following:

  • labor; labor intensive

  • labor; capital intensive

  • land; labor intensive

  • land; capital intensive

  • capital; land intensive

Explanation

Question 7 of 47

1

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.

Select one of the following:

  • capital; capital intensive

  • labor; capital intensive

  • land; labor intensive

  • land; capital intensive

  • labor; land intensive

Explanation

Question 8 of 47

1

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

Select one of the following:

  • there is no factor substitution in production.

  • the opportunity cost of production is constant.

  • there are unemployed factor resources.

  • a country does not engage in trade.

  • transportation costs are very high.

Explanation

Question 9 of 47

1

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

Select one of the following:

  • countries will not be fully specialized in one product.

  • countries will benefit from free international trade.

  • countries will consume outside their production possibility frontier.

  • comparative advantage will not determine the direction of trade.

  • global production will decrease under trade.

Explanation

Question 10 of 47

1

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

Select one of the following:

  • factor endowments.

  • tastes and preferences.

  • available technologies.

  • factor productivities.

  • physical size.

Explanation

Question 11 of 47

1

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.

Select one of the following:

  • benefit; abundant; export

  • harm; abundant; import

  • benefit; scarce; export

  • benefit; scarce; import

  • harm; scarce; export

Explanation

Question 12 of 47

1

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

Select one of the following:

  • factor endowments.

  • technology.

  • advertising.

  • human capital.

  • political system.

Explanation

Question 13 of 47

1

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.

Select one of the following:

  • harm; scarce; import

  • harm; abundant; import

  • benefit; scarce; export

  • benefit; scarce; import

  • harm; scarce; export

Explanation

Question 14 of 47

1

According to the Heckscher-Ohlin model

Select one of the following:

  • the gainers from trade could compensate the losers and still retain gains.

  • everyone gains from trade.

  • the scarce factor gains from trade and the abundant factor loses.

  • a country gains from trade if its exports have a high value added.

  • only the country with the more advanced technology gains from trade.

Explanation

Question 15 of 47

1

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

Select one of the following:

  • the relative prices of traded goods in the two countries converge.

  • relative factor prices in the two countries diverge.

  • benefits from trade are evenly distributed between the two countries.

  • all factors in both countries will gain from trade.

  • all factors in one country will gain, but there may be no gains in the other country.

Explanation

Question 16 of 47

1

Assume that only two countries, A and B, exist.
Factor Endowments A B
Labor Force 45 20
Capital Stock 15 10

Refer to the table above. If good S is capital intensive, then following the Heckscher-Ohlin Theory

Select one of the following:

  • country B will export good S.

  • country A will export good S.

  • both countries will export good S.

  • trade will not occur between these two countries.

  • both countries will import good S.

Explanation

Question 17 of 47

1

Assume that only two countries, A and B, exist.
Factor Endowments A B
Labor Force 45 20
Capital Stock 15 10

Refer to the table above. If you are told that Country B is very much richer than Country A, then the correct answer is

Select one of the following:

  • country B will export good S.

  • country A will export good S.

  • both countries will export good S.

  • trade will not occur between these two countries.

  • both countries will import good S.

Explanation

Question 18 of 47

1

Assume that only two countries, A and B, exist.
Factor Endowments A B
Labor Force 45 20
Capital Stock 15 10

Refer to the table above. You are told that Country B is very much larger than country A. The correct answer is

Select one of the following:

  • country B will export good S.

  • country A will export good S.

  • both countries will export good S.

  • trade will not occur between these two countries.

  • both countries will import good S.

Explanation

Question 19 of 47

1

Assume that only two countries, A and B, exist.
Factor Endowments A B
Labor Force 45 20
Capital Stock 15 10

Refer to the table above. You are told that Country B has no minimum wage or child labor laws. Now the correct answer is

Select one of the following:

  • country B will export good S.

  • country A will export good S.

  • both countries will export good S.

  • trade will not occur between these two countries.

  • both countries will import good S.

Explanation

Question 20 of 47

1

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

Select one of the following:

  • using relatively more labor than goods that are not labor intensive.

  • using labor as the only input.

  • using more labor per unit of output than goods that are not labor intensive.

  • using labor such that the total cost of labor is greater than the total cost of capital.

  • using labor such that the cost of labor is more than 50% of total cost.

Explanation

Question 21 of 47

1

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

Select one of the following:

  • the relative price of the capital intensive good in the capital rich country will be the same as that in the capital poor country.

  • the capital rich country will charge less for the capital intensive good than the price paid by the capital poor country for the capital-intensive good.

  • the capital rich country will charge more for the capital intensive good than the price paid by the capital poor country for the capital-intensive good.

  • workers in the capital rich country will earn more than those in the poor country.

  • the workers in the capital rich country will earn less than those in the poor country.

Explanation

Question 22 of 47

1

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

Select one of the following:

  • using relatively more capital than goods that are not labor intensive.

  • using capital as the only input.

  • using more capital per unit of output than goods that are not capital intensive.

  • using capital such that the total cost of capital is greater than the total cost of labor.

  • using capital such that the cost of capital is more than 50% of total cost.

Explanation

Question 23 of 47

1

The Heckscher-Ohlin model predicts all of the following EXCEPT

Select one of the following:

  • the volume of trade.

  • which country will export which product.

  • which factor of production within each country will gain from trade.

  • that relative wages will tend to become equal in both trading countries.

  • that trade increases a country's overall welfare.

Explanation

Question 24 of 47

1

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

Select one of the following:

  • the relative price of the land-intensive product would increase in Australia.

  • the relative price of the capital-intensive product would increase in Australia.

  • the relative price of the land-intensive product would increase in Belgium.

  • the relative price of the capital-intensive product would decrease in Belgium.

  • relative product prices would diverge between Australia and Belgium.

Explanation

Question 25 of 47

1

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

Select one of the following:

  • the real income of landowners in Belgium would decline.

  • the real income of capital owners in Australia would increase.

  • the real income of labor in Australia would decline.

  • the real income of labor in Belgium would decline.

  • the real income of labor in both countries would decline.

Explanation

Question 26 of 47

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

Select one of the following:

  • an increase in the relative price of food in the U.S.

  • an increase in the relative price of food in Japan.

  • a global increase in the relative price of food.

  • a decrease in the relative price of food in both countries.

  • an increase in the relative price of food in both countries.

Explanation

Question 27 of 47

1

Trade benefits a country by

Select one of the following:

  • increasing available consumption choices.

  • reducing the need for specialization in production.

  • reducing the relative price of the exported good.

  • increasing the real income of all resource owners.

  • increasing the wage rate.

Explanation

Question 28 of 47

1

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

Select one of the following:

  • labor-intensive goods.

  • capital-intensive goods.

  • both capital- and land-intensive goods.

  • land-intensive goods.

  • both labor- and land-intensive goods.

Explanation

Question 29 of 47

1

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

Select one of the following:

  • engage in free trade.

  • protect the capital-intensive product.

  • protect the land-intensive product.

  • protect the labor-intensive product.

  • discontinue all international trade.

Explanation

Question 30 of 47

1

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

Select one of the following:

  • wages should rise and rents should fall in H.

  • wages and rents should rise in H.

  • wages and rents should fall in H.

  • wages should fall and rents should rise in H.

  • rent will be unchanged but wages will rise in H.

Explanation

Question 31 of 47

1

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

Select one of the following:

  • European capitalists should support U.S.-European free trade.

  • European landowners should support U.S.-European free trade.

  • all capitalists in both countries should support free trade.

  • all landowners should support free trade.

  • the U.S. should compensate European countries once trade commences.

Explanation

Question 32 of 47

1

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

Select one of the following:

  • will tend to hurt some groups in each trading country.

  • is beneficial to everyone in both trading countries.

  • will tend to hurt one trading country.

  • will tend to hurt everyone in both countries.

  • will be beneficial to all those engaged in international trade.

Explanation

Question 33 of 47

1

Factors tend to be specific to certain uses and products

Select one of the following:

  • in the short run.

  • in countries lacking comparative advantage.

  • in capital-intensive industries.

  • in labor-intensive industries.

  • in countries lacking fair labor laws.

Explanation

Question 34 of 47

1

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

Select one of the following:

  • the relative price of the capital intensive product will fall to some point between the pretrade relative prices.

  • demand will shift away from the capital-intensive product, and its production will decrease.

  • demand will shift away from the capital-intensive product, and its production will decrease relative to that of the land intensive product.

  • the production of the capital-intensive product will decrease, but by less than production of the land-intensive product.

  • the country that exports the capital-intensive good will lose its comparative advantage.

Explanation

Question 35 of 47

1

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

Select one of the following:

  • the real income of both countries may increase.

  • the real income of Australia and of Belgium will increase.

  • the real income of Australia but not of Belgium will increase.

  • the real income of neither country will increase.

  • the real income of both countries will increase.

Explanation

Question 36 of 47

1

The Leontief Paradox

Select one of the following:

  • failed to support the validity of the Heckscher-Ohlin model.

  • supported the validity of the Ricardian theory of comparative advantage.

  • supported the validity of the Heckscher-Ohlin model.

  • failed to support the validity of the Ricardian theory.

  • proved that the U.S. economy is different from all others.

Explanation

Question 37 of 47

1

The Leontief Paradox

Select one of the following:

  • refers to the finding that U.S. exports were more labor intensive than its imports.

  • refers to the finding that U.S. Exports were more capital intensive than its exports.

  • refers to the finding that the U.S. produces outside its Edgeworth Box.

  • still accurately applies to today's pattern of U.S. international trade.

  • refers to the fact that Leontief—an American economist—had a Russian name.

Explanation

Question 38 of 47

1

The 1987 study by Bowen, Leamer and Sveikauskas

Select one of the following:

  • supported the validity of the Leontief Paradox.

  • supported the validity of the Heckscher-Ohlin model.

  • used a two-country and two-product framework.

  • demonstrated that in fact countries tend to use different technologies.

  • proved that the U.S.'s comparative advantage relied on skilled labor.

Explanation

Question 39 of 47

1

Empirical observations on actual North-South trade patterns tend to

Select one of the following:

  • support the validity of the Heckscher-Ohlin model.

  • support the validity of the Leontief Paradox.

  • support the validity of the Rybczynski Theorem.

  • support the validity of the wage equalization theorem.

  • support the validity of the neo-imperialism exploitation theory.

Explanation

Question 40 of 47

1

The Case of the Missing Trade refers to

Select one of the following:

  • the fact that factor trade is less than predicted by the Heckscher-Ohlin theory.

  • the 9th volume of the Hardy Boys' Mystery series.

  • the fact that world exports does not equal world imports.

  • the fact that the Heckscher Ohlin theory predicts much less volume of trade than actually exists.

  • the fact that the Heckscher Ohlin theory never applies to China-U.S. trade practices.

Explanation

Question 41 of 47

1

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

Select one of the following:

  • the Factor Price Equalization Theorem

  • the Heckscher-Ohlin Theorem

  • the Law of One Price

  • the Law of Demand

  • the Gravity Theorem

Explanation

Question 42 of 47

1

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

Select one of the following:

  • the study by Wassily Leontief

  • the study by Bowen, Leamer, and Sveikauskas

  • the study by David Ricardo

  • the study by Adam Smith

  • the study by Davis and Weinstein

Explanation

Question 43 of 47

1

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

Select one of the following:

  • the study by Wassily Leontief

  • the study by Bowen, Leamer, and Sveikauskas

  • the study by David Ricardo

  • the study by Adam Smith

  • the study by Davis and Weinstein

Explanation

Question 44 of 47

1

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

Select one of the following:

  • all of the assumptions of the model.

  • all of the assumptions of the model except that regarding technology.

  • all of the assumptions of the model except those regarding technology, goods and shipping costs.

  • all of the assumptions of the model except those regarding technology, shipping costs and gravity.

  • all of the assumptions of the model except those regarding shipping costs.

Explanation

Question 45 of 47

1

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

Select one of the following:

  • The wage-rental ratio is determined by relative product prices.

  • An increase in a country's labor supply will increase production of both the capital-intensive and the labor-intensive good.

  • In the long-run, labor is mobile and capital is not.

  • Factor price equalization will occur only if there is costless mobility of all factors across borders.

  • Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage.

Explanation

Question 46 of 47

1

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

Select one of the following:

  • The wage-rental ratio determines the capital-labor ratio in a country's industries.

  • An increase in a country's labor supply will increase production of both the capital-intensive and the labor-intensive good.

  • In the long-run, labor is mobile and capital is not.

  • Factor price equalization will occur only if there is costless mobility of all factors across borders.

  • Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage.

Explanation

Question 47 of 47

1

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

Select one of the following:

  • An increase in a country's labor supply will increase production of the labor-intensive good and decrease production of the capital-intensive good.

  • An increase in a country's labor supply will increase production of both the capital-intensive and the labor-intensive good.

  • In the long-run, labor is mobile and capital is not.

  • Factor price equalization will occur only if there is costless mobility of all factors across borders.

  • Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage.

Explanation

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