Quiz Week 4

In the Heckscher-Ohlin model, the interaction between nations' resources influences comparative advantage, called (a)   , and the technology of production, called (b)   , used in the production of different goods.

• factor abundance
• relative abundance
• interactive technology
• factor resources
• factor intensity

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

• has only two countries.

• has only two products.

• has two factors of production.

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

Emily is managing a factory that produces two goods: cloth and food. She needs to decide on the production point. Which of the following statements is NOT true? In the Heckscher-Ohlin model, the economy produces at the point

• that minimizes the value of production given the prices it faces.

• that maximizes the value of production given the prices it faces.

• which is on the highest possible isovalue line.

• at which the opportunity cost of cloth in terms of food is equal to the relative price of cloth, Pc/Pf.

At any given wage-rental ratio, cloth production uses a higher labor-capital ratio than food production; then cloth production is (a)   and food production is (b)   .

• labor-intensive

• capital-intensive

• labor-intensive

• capital-intensive

In the 2-factor, 2-good Heckscher-Ohlin model, an increase in capital from foreign investment would

• 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 capital-intensive product.

• shift the production possibility curve outward and much larger in the direction of the capital-intensive good.

Arthur and Elsie are discussing international trade. Arthur says that countries tend to

• export goods whose production is intensive in factors with which the countries are abundantly endowed.

• import goods whose production is intensive in factors with which the countries are abundantly endowed.

• export goods whose production is intensive in factors with which the countries are not abundantly endowed.

• import goods whose production is not intensive in factors with which the countries are not abundantly endowed.

Consider a scenario where a country, let's say Country X, is engaging in international trade. In terms of income distribution effects of international trade in the long run,

• owners of Country X's abundant factors gain from trade, but owners of Country X's scarce factors lose.

• owners of Country X's abundant factors lose from trade, but owners of Country X's scarce factors gain.

• both owners of Country X's abundant factors and owners of Country X's scarce factors lose from trade.

• both owners of Country X's abundant factors and owners of Country X's scarce factors gain from trade.

If Japan is relatively capital rich and the United States is relatively land rich, and if automobiles are relatively capital intensive then trade between these two, formerly autarkic countries will result in

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

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

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

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

In the context of the Heckscher-Ohlin model, if Country H is relatively capital abundant, then once trade begins

• capital returns should fall and wages should rise in H.

• capital returns and wages should fall in H.

• capital returns should rise and wages should fall in H.

• wages will be unchanged but capital returns will rise in H.

Arjun and Amelia are studying the effects of international trade on income distributions in their economics class. They learn that international trade

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

• will tend to hurt one trading country.

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

• is beneficial to everyone in both trading countries.