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Exam 4: The Heckscher-Ohlin Model

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Question 1

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According to the HO model,

A) everyone automatically gains from trade.
B) the gainers from trade outnumber the losers from trade.
C) the scarce factor necessarily gains from trade.
D) None of the above.

E) A) and B)
F) A) and C)

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Question 2

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Let Kj and Lj denote the capital and labor stocks of country j (j = A,B) ,then country A is said to be capital abundant relative to country B if

A) KA > KB.
B) KA/LA > KB/LB.
C) LA < LB.
D) All of the above.

E) All of the above
F) A) and C)

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Question 3

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Which of the following theorems predicts that trade benefits the abundant factors of a country and harms the scarce factors?

Even if some people are hurt by international trade,the HO model predicts that free international trade improves the standard of living for the country as a whole.

Which of the following is false?

Answer the question(s) below based on the following diagram of a country that is in international trade equilibrium. -Refer to the figure above.This country's exports equal

Explain how free international trade tends to lead to factor price equalization under the assumptions of the HO model.What does this process predict about which groups should be in favor of or opposed to free international trade?

According to the factor price equalization theorem,the ________ factor should oppose free trade policies in any given country.

Answer the question(s) below based on the following diagram of a country that is in international trade equilibrium. -Refer to the figure above.If this country is labor abundant,then according to the HO theory good X should be ________ intensive.

The assumption of increasing opportunity costs in the HO model increases the likelihood that

Answer the question(s) below based on the following diagram of a country that is in international trade equilibrium. -Refer to the figure above.This country has comparative advantage in

Describe the controversy surrounding the HO model and the widening of the American income gap.

According to the Heckscher-Ohlin (HO) model the source of comparative advantage is a country's

Suppose that there are two factors,capital and land,and that the United States is relatively capital abundant while Canada is relatively land abundant.According to the HO model,

The Heckscher-Ohlin model basically states that countries will specialize and trade those goods in which they have comparative advantage.

The HO model rules out the classical model's basis for trade by assuming that ________ is (are) identical between countries.

In the HO model,the production possibility frontier is bowed out due to the assumption of

Answer the question(s) below based on the following diagram of a country that is in international trade equilibrium. -Refer to the figure above.If Y is labor intensive then according to the HO theory,this country should be ________ abundant.

Explain carefully why the assumption of identical technology worldwide eliminates the classical basis for international trade.

According to the Rybczynski theorem,if a country increases its endowment of capital and prices remain constant,then its output of both the capital and labor intensive goods will rise.