QUIZ 4: H-O MODEL

Which is not an assumption of the H-O model

• a. Perfect competition in all markets

• b. Immobility of factors of production

• c. Identical production technologies

• d. No transportation costs

With equal technology nations will have equal K/L in production if

• a. factor prices are the same

• b. tastes are the same

• c.  production functions are the same

• d.  all of the above

We say that commodity Y is K-intensive with respect to X when

• a.  more K is used in the production of Y than X

• b.  less L is used in the production of Y than X

• c.  a lower L/K ratio is used in the production of Y than X

• d.  a higher K/L is used in the production of X than Y

According to the H-O model, international trade will

 

• a.  reduce international differences in per capita incomes

• b.  may increase or reduce international differences in per capita incomes

• c.  increases international differences in per capita incomes

• d.  lead to complete specialization

The H-O model is a simplification of the a truly general equilibrium model

      because it deals with

• a.  two nations

• b.  two commodities

• c.  two factors of production

• d.  all of the above

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HECKSHER-OHLIN MODEL

The Leontief paradox refers to the empirical finding that U.S.

• a.  import substitutes are more K-intensive than exports

• b.  imports are more K-intensive than exports

• c.  exports are more L-intensive than imports

• d.  exports are more K-intensive than import substitutes

From empirical studies, we conclude that the H-O theory

• a.  must be rejected

• b.  must be accepted without reservations

• c.  can be accepted while awaiting further testing

• d.  explains all international trade

For factor reversal to occur, two commodities must be produced with

• a.  sufficiently different elasticity of substitution of factors  

• b.  the same K/L ratio

• c.  technologically-fixed factor proportions

• d.  equal elasticity of substitution of factors

Relaxing the assumptions on which the Heckscher-Ohlin theory rests

• a.  leads to rejection of the theory

• b.  leaves the theory unaffected

• c.  requires complementary trade theories

• d.  any of the above.

1.  Which of the following situations would violate the assumptions of the H-O model?

• a. Doubling all inputs doubled the production of all outputs.

• b. Nation 1 has technology that is different from Nation 2.

• c. Nation 1’s trade is balanced.

• d. Nation 2 does not completely specialize in either good.