Model Quiz 4
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In the Heckscher-Ohlin model, trade cannot make a country as a whole worse off because
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Trade restrictions increase when imports increase.
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The autarky level of production and consumption is still available.
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Of the assumption that exports exceed imports
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Those who gain from trade can compensate those who lose from trade.
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Of the assumption that tariffs increase the welfare of both producers and consumers
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Model Quiz 4 explores the Heckscher-Ohlin model, focusing on trade impacts, differences from the Ricardian model, and income redistribution. It assesses understanding of economic theories shaping global trade patterns, suitable for students and professionals in economics.
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- 2.
What is the main difference between the Heckscher-Ohlin model and the Ricardian model?
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Unlike in the Ricardian model, endowments of factors of production affect trade patterns in the Heckscher-Ohlin model.
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Unlike in the Ricardian model, factors are mobile across countries in the Heckscher-Ohlin model.
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Unlike in the Ricardian model, all factors of production gain as a result of trade in the Heckscher-Ohlin model.
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Unlike in the Ricardian model, trade is not assumed to be free in the Heckscher-Ohlin model.
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Unlike in the Ricardian model, factors are mobile across industries in the Heckscher-Ohlin model
Correct Answer
A. Unlike in the Ricardian model, endowments of factors of production affect trade patterns in the Heckscher-Ohlin model.Explanation
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.Rate this question:
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- 3.
If cloth production is labor intensive and food production is land intensive, what would be the result of a decrease in the price of food in the Heckscher-Ohlin model?
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The real wage will rise in terms of both goods, and the real income of land owners will fall in terms of food and rise in terms of cloth.
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The real wage will fall in terms of both goods, and the real income of land owners will rise in terms of both goods.
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The real wage will rise in terms of both goods, and the real income of land owners will fall in terms of both goods.
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The real wage will rise in terms of both goods, and the real income of land owners will rise in terms of food and fall in terms of cloth.
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The real wage will rise in terms of both goods, and the real income of land owners will rise in terms of both goods
Correct Answer
A. The real wage will rise in terms of both goods, and the real income of land owners will fall in terms of both goods.Explanation
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.Rate this question:
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- 4.
What does the Heckscher-Ohlin model predict about the pattern of trade?
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Each country specializes in production of goods that use available technology most efficiently.
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The pattern of trade depends on the size of a country.
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Each country specializes in production of goods that use its abundant resource intensively.
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The pattern of trade between countries depends on the size of their economies and the distance between them.
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Each country sells abundant factors of production.
Correct Answer
A. Each country specializes in production of goods that use its abundant resource intensively.Explanation
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.Rate this question:
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- 5.
According to the Heckscher-Ohlin model, how is income redistributed as a result of trade?
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The owners of abundant factors of production gain, but the effect on the owners of scarce factors of production is ambiguous.
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The owners of all factors of production gain, but unemployed people lose.
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Income distribution does not change because each member of society benefits from trade.
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The owners of scarce factors of production lose, and the owners of abundant factors of production gain
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The owners of abundant factors of production lose, and the owners of scarce factors of production gain
Correct Answer
A. The owners of scarce factors of production lose, and the owners of abundant factors of production gainExplanation
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.Rate this question:
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- 6.
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,
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The United States will find its industrial base sucked into Mexico.
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Mexico will find its relatively highly skilled workers drawn to the United States
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The wages of highly skilled Mexican workers will fall to those in the United States.
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The wages of highly skilled U.S. workers will be drawn down to Mexican levels
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The wages of highly skilled Mexican workers will rise to those in the United States
Correct Answer
A. The wages of highly skilled Mexican workers will fall to those in the United States.Explanation
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.Rate this question:
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- 7.
In international-trade equilibrium in the Heckscher-Ohlin model,
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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.
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The capital rich country will charge the same price for the capital intensive good as that paid for it by the capital poor country.
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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
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The workers in the capital rich country will earn more than those in the poor country.
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The workers in the capital rich country will earn less than those in the poor country.
Correct Answer
A. The capital rich country will charge the same price for the capital intensive good as that paid for it by the capital poor country.Explanation
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.Rate this question:
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- 8.
Consider two countries, Peru and Chile in an H-O world. Each country produces two goods, cars (a relatively capital intensive good) and shirts with two factors of production labor and capital. At the world relative price of 200 for cars, Chile exports cars and imports shirts from Peru. In self-sufficiency,
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Compared to Peru, Chile produces relatively few cars and produces those cars at a higher domestic relative price
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Compared to Peru, Chile produces relatively more cars and produces those cars at a higher domestic relative price
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Compared to Peru, Chile produces relatively more cars and produces those cars at a lower domestic relative price
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Chile’s domestic relative price for shirts is higher than Peru’s domestic relative price for shirts
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Both c. and d. above
Correct Answer
A. Both c. and d. aboveExplanation
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.Rate this question:
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- 9.
The table above shows the capital intensity across industries. Which industry is the most labor intensive?___ and which of the following products in the United States most likely to import from Canada?___ جدول
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Apparel and other textile products and paper and allied products
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Apparel and other textile products and apparel and other textile products
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Lumber and wood products and paper and allied products
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Textile mill products and leather and leather products
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Chemicals and allied products and apparel and other textile products
Correct Answer
A. Apparel and other textile products and paper and allied productsExplanation
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.Rate this question:
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- 10.
Suppose that Home is a labor-abundant country. When trade occurs with Foreign, a capital-abundant country, the HO model predicts that:
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The price of the labor-intensive good will rise in Home.
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The price of the labor-intensive good will rise in Foreign
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The price of the capital-intensive good will fall in Foreign.
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The price of the capital-intensive good will rise in Home.
Correct Answer
A. The price of the labor-intensive good will rise in Home.Explanation
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.Rate this question:
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- 11.
The diagram above that shows the before and after trade equilibria of a country. Use the diagram to answer the following questions: i) At what point will the nation be in a no-trade equilibrium?__ ii) What are the pretrade quantities of shoes and computers produced by this nation?__ iii) What is the equilibrium post-trade point of production?___ iv) What are the post-trade quantities of shoes and computers produced by this nation?___ v) What happened to the relative price of shoes in this nation after trade?_ vi) The trade triangle shows the exports that were exchanged for imports. What are the three points of the “trade triangle”?___ vii) How many shoes will this nation export?___ and how many shoes will the nation import?___ viii) How many computers will this nation export?__ and how many computers will this nation import?___ ix) If we change the price line in the diagram to increase the relative price of computers from the pretrade position, the price line will slide ______ on the diagram and show the new production point in the domestic economy .رسم
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I) B, ii) 225 shoes, 200 computers, iii) C, iv) 150 shoes; 300 computers, v) Shoes became relatively more expensive in terms of computers, vi) A, D, C; vii) 0 and 350 viii) 125 and 0; and xi) down to the right
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I) B, ii) 200 shoes, 225 computers, iii) A, iv) 150 shoes; 300 computers, v) Shoes became relatively cheaper in terms of computers, vi) A, D, C; vii) 0 and 350 viii) 0 and 125; and xi) down to the right
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I) B, ii) 225 shoes, 200 computers, iii) C, iv) 150 shoes; 300 computers, v) Shoes became relatively cheaper in terms of computers, vi) A, D, C; vii) 0 and 350 viii) 125 and 0; and xi) down to the right
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I) B, ii) 150 shoes, 300 computers, iii) C, iv) 150 shoes; 300 computers, v) Shoes became relatively cheaper in terms of computers, vi) A, D, C; vii) 350 and 0 viii) 125 and 0; and xi) down to the right
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I) B, ii) 225 shoes, 200 computers, iii) A, iv) 150 shoes; 300 computers, v) Shoes became relatively cheaper in terms of computers, vi) A, D, C; vii) 0 and 350 viii) 125 and 0; and xi) upward to the right
Correct Answer
A. I) B, ii) 225 shoes, 200 computers, iii) C, iv) 150 shoes; 300 computers, v) Shoes became relatively cheaper in terms of computers, vi) A, D, C; vii) 0 and 350 viii) 125 and 0; and xi) down to the right -
- 12.
As trade takes place, imports will force firms to decrease price and production and lay off resources, which will be absorbed by the other industry at a lower wage (rental price). The result is that:
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Unfortunately, neither industry can afford to hire laid-off resources.
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The lower wage makes it possible for both industries to hire more of the resource, and therefore the ratio of that resource to the other rises in both industries.
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The government usually provides assistance to workers laid off due to trade.
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The lower wage (rental price) means that consumers will not be able to purchase all the production and there will be a recession.
Correct Answer
A. The lower wage makes it possible for both industries to hire more of the resource, and therefore the ratio of that resource to the other rises in both industries.Explanation
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.Rate this question:
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- 13.
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:
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Widen or aggravate the income disparity between skilled and unskilled workers.
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Reduce the income disparity between skilled and unskilled workers.
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Lower the wages of both groups of workers.
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Raise the wages of both groups of workers.
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It depends on what good is produced with different categories of labor.
Correct Answer
A. Widen or aggravate the income disparity between skilled and unskilled workers.Explanation
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.Rate this question:
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- 14.
Canada and the United States produce computers and chemicals using labor and capital as the only inputs in production. The United States is capital abundant, and Canada is labor abundant. Computer production is more labor intensive than chemical production in both countries. i) What does the Heckscher-Ohlin model predict will happen to wages and returns to capital after trade takes place between Canada and the United States?___ and ii) What does the Heckscher-Ohlin model predict will happen to prices of computers and chemicals in the two countries?___
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I) Wages of Canadian workers should rise and ii) price of chemicals should rise in the United States
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I) Returns to capital in Canada should rise and ii) price of chemicals should rise in the United States.
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I) i) Returns to capital in US should rise and ii) price of chemicals should fall in the United States
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I) Wages of Canadian workers should fall and ii) price of chemicals should fall in the United States.
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I) Wages of Canadian workers should rise and ii) price of chemicals should fall in the United States
Correct Answer
A. I) Wages of Canadian workers should rise and ii) price of chemicals should rise in the United StatesExplanation
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.Rate this question:
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- 15.
Based on the HO model, what is the result on the real returns to factors of production?
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Labor and capital must be used together in production, and there is no room for competition for remuneration
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Capital owners always get the “gains from trade.”
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Resources used intensively in export industries (such as labor in China and capital in the United States) will see an increase in their returns, whereas the resources used intensively in import-competing industries will see a decline in their return.
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Poor nations will always get the least returns to their factors of production
Correct Answer
A. Resources used intensively in export industries (such as labor in China and capital in the United States) will see an increase in their returns, whereas the resources used intensively in import-competing industries will see a decline in their return.Explanation
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.Rate this question:
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- 16.
Suppose that the price of shoes (which are labor intensive) have risen by 10%. Then which of the following can you say for sure about Home?
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Home wages will rise by more than 10%.
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Home rental rates will rise by more than 10%.
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Home wages will rise by no more than 10%
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Home rental rates will fall by at least 10%.
Correct Answer
A. Home wages will rise by more than 10%.Explanation
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%.Rate this question:
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Mar 22, 2023Quiz Edited by
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Feb 12, 2012Quiz Created by
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