KTQT PART 2

The Heckscher-Ohlin theorem states that a country will have comparative advantage in the good whose production is relatively intensive in the ________ with which the country is relatively abundant.

• tastes

• technology

• factor/resource

• opportunity cost

One of the predictions of the Heckscher-Ohlin model is that:

• countries with different factor endowments but similar technologies and preferences will have a strong basis for trade with each other.

• countries will tend to specialize, but not completely, in their comparative advantage good.

• reciprocal demand leads to an equilibrium terms of trade by inducing changes in both demand and supply.

• all of the above.

Wassily Leontief used an input-output table in order to test the

• Ricardian theory of comparative advantage

• Heckscher Ohlin theory of comparative advantage

• Linder theory of overlapping demand

• all of the above

The Heckscher-Ohlin assumes that _______ are identical between countries.

• tastes and preferences

• technology levels

• factor endowments

• both (a) and (b)

In his empirical tests, Wassily Leontief used an input-output table to

• calculate the capital and labor required to produce $1 million of U.S. exports and imports.

• calculate the labor productivity of American workers relative to foreign workers.

• calculate the capital productivity of American capital relative to foreign capital.

• all of the above

In his empirical test of comparative advantage, Wassily Leontief found that

• U.S. exports are capital intensive relative to U.S. imports

• U.S. imports are labor intensive relative to U.S. exports

• U.S. exports are neither labor nor capital intensive

• none of the above

Leontief’s results were considered paradoxical because the United Stated was believed to be

• technologically efficient relative to the rest of the world

• capital abundant relative to the rest of the world

• labor abundant relative to the rest of the world

• all of the above

According to the Heckscher-Ohlin model

• everyone automatically gains from trade

• the gainers from trade outnumber the losers from trade

• the scarce factor necessarily gains from trade

• none of the above

Wassily Leontief’s results can be interpreted as

• evidence against the Ricardian model

• evidence against the Heckscher-Ohlin model

• support for the Ricardian model

• support for the Heckscher-Ohlin model

Advocates of industrial policy maintain that government should

• pursue free trade as a policy that leads to maximum global efficiency

• grant subsidies to firms offering potential comparative advantage

• provide loans to domestic workers in exporting industries

• increase interest rates on loans made to firms in import-competing industries