Model Quiz 4

According to the HO model, resources used intensively in export industries will experience an increase in their returns, while resources used in import-competing industries will see a decline in their returns. This is because export industries benefit from increased demand and higher prices in the international market, leading to higher returns for the resources employed. On the other hand, import-competing industries face competition from cheaper foreign alternatives, resulting in lower returns for the resources utilized. This pattern of returns is a key feature of the HO model and helps explain the distribution of income and factors of production across countries.

The Heckscher-Ohlin model predicts that each country will specialize in producing goods that use its abundant resources most intensively. This means that countries will focus on producing goods that require the resources they have in abundance, such as natural resources, labor, or capital. By specializing in the production of these goods, countries can increase their efficiency and productivity, leading to a pattern of trade where they export these goods and import goods that require resources they lack. This prediction is based on the idea that countries have different endowments of resources, and by specializing, they can benefit from comparative advantage and increase overall welfare.

As trade takes place, imports force firms to decrease price and production, leading to layoffs. However, the lower wage (rental price) makes it possible for both industries to hire more of the resource, resulting in an increase in the ratio of that resource to the other in both industries. This means that despite the layoffs, both industries are able to benefit from the lower wage and hire more resources.

The main difference between the Heckscher-Ohlin model and the Ricardian model is that in the Heckscher-Ohlin model, trade patterns are affected by the endowments of factors of production, whereas in the Ricardian model, they are not. This means that in the Heckscher-Ohlin model, countries will specialize in producing goods that require the abundant factors of production they possess. In contrast, the Ricardian model focuses solely on differences in technology and assumes that trade is based on comparative advantage, without considering the endowments of factors of production.

According to the Heckscher-Ohlin model, international trade for a nation with a relative abundance of skilled labor and a relative scarcity of unskilled labor will tend to widen or aggravate the income disparity between skilled and unskilled workers. This is because the model suggests that countries will specialize in producing goods that use their abundant factor of production more intensively. In this case, the nation will specialize in producing goods that require skilled labor, leading to an increase in demand and wages for skilled workers. On the other hand, the demand and wages for unskilled workers will decrease, exacerbating the income disparity between the two groups.

According to the Heckscher-Ohlin (HO) model, trade between a labor-abundant country (Home) and a capital-abundant country (Foreign) will lead to the price of the labor-intensive good rising in the labor-abundant country (Home). This is because in Home, where labor is abundant, the increased demand for the labor-intensive good from Foreign will cause its price to increase. On the other hand, the price of the capital-intensive good will fall in Foreign, as the increased supply of this good from Home will lead to a decrease in its price.

According to the Heckscher-Ohlin model, trade leads to a redistribution of income. The owners of scarce factors of production, which are in relatively low supply, tend to lose out as their resources are in less demand. On the other hand, the owners of abundant factors of production, which are in relatively high supply, tend to gain as their resources become more valuable in the global market. Therefore, the correct answer is that the owners of scarce factors of production lose, and the owners of abundant factors of production gain.

When the price of labor-intensive goods like shoes increases, it is likely that the wages in the home country will also increase. This is because the higher price of shoes indicates a higher demand for labor, which can lead to an increase in wages. Therefore, we can say for sure that home wages will rise by more than 10%.

According to the Heckscher-Ohlin model, when trade takes place between two countries with different factor endowments (in this case, labor and capital), the country that is abundant in a particular factor (Canada, with labor) will see an increase in the returns to that factor (wages of Canadian workers), while the country that is scarce in that factor (United States, with labor) will see a decrease in the returns to that factor. Additionally, the model predicts that the price of the good that is labor-intensive (chemicals) will rise in the country that is capital-abundant (United States). Therefore, the correct answer is that the wages of Canadian workers should rise and the price of chemicals should rise in the United States.

A decrease in the price of food would lead to an increase in the demand for food and a decrease in the demand for cloth. This would cause a shift in production towards food and away from cloth, resulting in an increase in the demand for labor in the food sector and a decrease in the demand for labor in the cloth sector. As a result, the real wage, which is the wage adjusted for inflation, would rise in terms of both goods. However, the decrease in the demand for labor in the cloth sector would lead to a decrease in the real income of land owners in terms of cloth, while the increase in the demand for labor in the food sector would lead to an increase in the real income of land owners in terms of food.

According to the Heckscher-Ohlin model, if the United States is richly endowed in human capital relative to Mexico, then as NAFTA increasingly leads to more bilateral free trade between the two countries, the wages of highly skilled Mexican workers will fall to those in the United States. This is because free trade allows for the movement of goods and services across borders, including the movement of highly skilled workers. As more highly skilled workers from Mexico move to the United States, the supply of highly skilled workers in Mexico will increase, leading to a decrease in their wages. At the same time, the United States, being richly endowed in human capital, will not experience a significant decrease in wages for highly skilled workers.

The correct answer is the autarky level of production and consumption is still available. This means that even with trade, a country can still produce and consume goods at the level it would have if it were not engaged in trade. This ensures that trade does not make the country worse off as it can always fall back on its own production and consumption capabilities.

In international-trade equilibrium in the Heckscher-Ohlin model, the capital rich country will charge the same price for the capital intensive good as that paid for it by the capital poor country. This is because in the Heckscher-Ohlin model, countries specialize in producing goods that utilize their abundant factor of production. The capital rich country is abundant in capital, so it will produce and export capital-intensive goods. The capital poor country, on the other hand, is abundant in labor, so it will produce and export labor-intensive goods. In order for trade to occur, the prices of these goods must be equalized between the two countries. Therefore, the capital rich country will charge the same price as the capital poor country for the capital-intensive good.

The most labor-intensive industry is apparel and other textile products, as indicated by the phrase "apparel and other textile products" being repeated in both options. The question asks which industry is the most labor-intensive, and this option is the only one that includes "apparel and other textile products" as one of the industries. Additionally, the phrase "paper and allied products" suggests that this industry requires less labor compared to the other options. Therefore, the most likely product to import from Canada would be apparel and other textile products.

In an H-O world, countries specialize in producing goods that are relatively intensive in the factor of production that they have in abundance. Since cars are a capital-intensive good, Chile, which has a relatively higher abundance of capital, produces more cars compared to Peru. This means that Chile produces relatively more cars than Peru. Additionally, since Chile exports cars and imports shirts from Peru, it can be inferred that Chile produces cars at a lower domestic relative price compared to Peru. Furthermore, since Chile exports cars and imports shirts, it can be assumed that Chile's domestic relative price for shirts is higher than Peru's domestic relative price for shirts. Therefore, both options c. and d. are correct.

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