Model Quiz 4

16 Questions

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Model Quiz 4

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Questions and Answers
  • 1. 
    • A. 

      Trade restrictions increase when imports increase.

    • B. 

      The autarky level of production and consumption is still available.

    • C. 

      Of the assumption that exports exceed imports

    • D. 

      Those who gain from trade can compensate those who lose from trade.

    • E. 

      Of the assumption that tariffs increase the welfare of both producers and consumers

  • 2. 
    • A. 

      Unlike in the Ricardian model, endowments of factors of production affect trade patterns in the Heckscher-Ohlin model.

    • B. 

      Unlike in the Ricardian model, factors are mobile across countries in the Heckscher-Ohlin model.

    • C. 

      Unlike in the Ricardian model, all factors of production gain as a result of trade in the Heckscher-Ohlin model.

    • D. 

      Unlike in the Ricardian model, trade is not assumed to be free in the Heckscher-Ohlin model.

    • E. 

      Unlike in the Ricardian model, factors are mobile across industries in the Heckscher-Ohlin model

  • 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?
    • A. 

      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.

    • B. 

      The real wage will fall in terms of both goods, and the real income of land owners will rise in terms of both goods.

    • C. 

      The real wage will rise in terms of both goods, and the real income of land owners will fall in terms of both goods.

    • D. 

      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.

    • E. 

      The real wage will rise in terms of both goods, and the real income of land owners will rise in terms of both goods

  • 4. 
    • A. 

      Each country specializes in production of goods that use available technology most efficiently.

    • B. 

      The pattern of trade depends on the size of a country.

    • C. 

      Each country specializes in production of goods that use its abundant resource intensively.

    • D. 

      The pattern of trade between countries depends on the size of their economies and the distance between them.

    • E. 

      Each country sells abundant factors of production.

  • 5. 
    According to the Heckscher-Ohlin model, how is income redistributed as a result of trade?
    • A. 

      The owners of abundant factors of production gain, but the effect on the owners of scarce factors of production is ambiguous.

    • B. 

      The owners of all factors of production gain, but unemployed people lose.

    • C. 

      Income distribution does not change because each member of society benefits from trade.

    • D. 

      The owners of scarce factors of production lose, and the owners of abundant factors of production gain

    • E. 

      The owners of abundant factors of production lose, and the owners of scarce factors of production gain

  • 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,
    • A. 

      The United States will find its industrial base sucked into Mexico.

    • B. 

      Mexico will find its relatively highly skilled workers drawn to the United States

    • C. 

      The wages of highly skilled Mexican workers will fall to those in the United States.

    • D. 

      The wages of highly skilled U.S. workers will be drawn down to Mexican levels

    • E. 

      The wages of highly skilled Mexican workers will rise to those in the United States

  • 7. 
    In international-trade equilibrium in the Heckscher-Ohlin model,
    • A. 

      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.

    • B. 

      The capital rich country will charge the same price for the capital intensive good as that paid for it by the capital poor country.

    • C. 

      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

    • D. 

      The workers in the capital rich country will earn more than those in the poor country.

    • E. 

      The workers in the capital rich country will earn less than those in the poor country.

  • 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,
    • A. 

      Compared to Peru, Chile produces relatively few cars and produces those cars at a higher domestic relative price

    • B. 

      Compared to Peru, Chile produces relatively more cars and produces those cars at a higher domestic relative price

    • C. 

      Compared to Peru, Chile produces relatively more cars and produces those cars at a lower domestic relative price

    • D. 

      Chile’s domestic relative price for shirts is higher than Peru’s domestic relative price for shirts

    • E. 

      Both c. and d. above

  • 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
    • A. 

      Apparel and other textile products and paper and allied products

    • B. 

      Apparel and other textile products and apparel and other textile products

    • C. 

      Lumber and wood products and paper and allied products

    • D. 

      Textile mill products and leather and leather products

    • E. 

      Chemicals and allied products and apparel and other textile products

  • 10. 
    Suppose that Home is a labor-abundant country. When trade occurs with Foreign, a capital-abundant country, the HO model predicts that:
    • A. 

      The price of the labor-intensive good will rise in Home.

    • B. 

      The price of the labor-intensive good will rise in Foreign

    • C. 

      The price of the capital-intensive good will fall in Foreign.

    • D. 

      The price of the capital-intensive good will rise in Home.

  • 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 
    • A. 

      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

    • B. 

      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

    • C. 

      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

    • D. 

      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

    • E. 

      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

  • 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:
    • A. 

      Unfortunately, neither industry can afford to hire laid-off resources.

    • B. 

      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.

    • C. 

      The government usually provides assistance to workers laid off due to trade.

    • D. 

      The lower wage (rental price) means that consumers will not be able to purchase all the production and there will be a recession.

  • 13. 
    • A. 

      Widen or aggravate the income disparity between skilled and unskilled workers.

    • B. 

      Reduce the income disparity between skilled and unskilled workers.

    • C. 

      Lower the wages of both groups of workers.

    • D. 

      Raise the wages of both groups of workers.

    • E. 

      It depends on what good is produced with different categories of labor.

  • 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?___
    • A. 

      I) Wages of Canadian workers should rise and ii) price of chemicals should rise in the United States

    • B. 

      I) Returns to capital in Canada should rise and ii) price of chemicals should rise in the United States.

    • C. 

      I) i) Returns to capital in US should rise and ii) price of chemicals should fall in the United States

    • D. 

      I) Wages of Canadian workers should fall and ii) price of chemicals should fall in the United States.

    • E. 

      I) Wages of Canadian workers should rise and ii) price of chemicals should fall in the United States

  • 15. 
    Based on the HO model, what is the result on the real returns to factors of production?
    • A. 

      Labor and capital must be used together in production, and there is no room for competition for remuneration

    • B. 

      Capital owners always get the “gains from trade.”

    • C. 

      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.

    • D. 

      Poor nations will always get the least returns to their factors of production

  • 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?
    • A. 

      Home wages will rise by more than 10%.

    • B. 

      Home rental rates will rise by more than 10%.

    • C. 

      Home wages will rise by no more than 10%

    • D. 

      Home rental rates will fall by at least 10%.