18. In the Heckscher-Ohlin model, when two countries begin to trade with each other
a. the relative prices of traded goods in the two countries converge.
b. the relative factor prices in the two countries diverge.
c. all factors in both countries will gain from trade.
d. all factors in one country will gain, but there may be no gains in the other country.
e. benefits from trade are evenly distributed between the two countries.
19. In the Heckscher-Ohlin model, when there is an international-trade equilibrium
a. the workers in the capital-abundant country will earn less than those in the capital-scarce country.
b. the capital-abundant country will charge less for the capital intensive good than the price paid by the capital-scarce country for the capital-intensive good.
c. the capital-abundant country will charge more for the capital intensive good than the price paid by the capital-scarce country for the capital-intensive good.
d. the workers in the capital-abundant country will earn more than those in the poor country.
e. the relative price of the capital intensive good in the capital-abundant country will be the same as that in the capital-scarce country.
18. In the Heckscher-Ohlin model, when two countries begin to trade with each other
a. the relative prices of traded goods in the two countries converge.
b. the relative factor prices in the two countries diverge.
c. all factors in both countries will gain from trade.
d. all factors in one country will gain, but there may be no gains in the other country.
e. benefits from trade are evenly distributed between the two countries.
19. In the Heckscher-Ohlin model, when there is an international-trade equilibrium
a. the workers in the capital-abundant country will earn less than those in the capital-scarce country.
b. the capital-abundant country will charge less for the capital intensive good than the price paid by the capital-scarce country for the capital-intensive good.
c. the capital-abundant country will charge more for the capital intensive good than the price paid by the capital-scarce country for the capital-intensive good.
d. the workers in the capital-abundant country will earn more than those in the poor country.
e. the relative price of the capital intensive good in the capital-abundant country will be the same as that in the capital-scarce country.
Related textbook solutions
Related questions
1. Use the information in the table below to answer the following questions.
| US | Argentina | |
| wheat | 300 | 20 |
| beef | 100 | 20 |
(a) Does either country have an absolute advantage in the production of wheat or beef? Explain.
(b) What is the opportunity cost of wheat in each country?
(c) What is the opportunity cost of beef in each country?
(d) Analyze comparative advantage and opportunities for trade between the U.S. and Argentina.
2. Suppose that China is labor-abundant country and U.S. is capital-abundant country. iPad is capital-intensive and cloth is labor-intensive. Show that U.S. exports iPad after opening up to trade using Heckscher-Ohlin model.
3. Explain the immiserizing growth using standard trade model.
4. Consider the following Heckscher-Ohlin model: there are two countries, America and China, two goods, high-tech manufactures and low-tech manufactures, and two factors of production, skilled labor and unskilled labor. America is skilled-labor abundant and China is unskilled-labor abundant. High-tech manufactures are skilled-labor intensive and low-tech manufactures are unskilled-labor intensive. What happens to the price of high-tech manufactures relative to the price of low-tech manufactures in America following trade?
Draw the graph carefully. Please use one graph per country and show both the autarky and the free trade equilibrium on each graph.
Consider the following data on the factor endowments of two countries A and B:
|
Countries |
||
|
Factor Endowments |
A |
B |
|
Labor force: L |
100 workers |
50 workers |
|
Capital Stock: K |
60 machines |
10 machines |
a. Which country is relatively capital abundant? Which country is relatively labor abundant? Explain (calculate the ratios).
b. Supposing that cars are capital intensive relative to shoes, which country will have a comparative advantage in the production of cars? Of shoes? Explain.
c. Graphically demonstrate the pre-trade and post-trade equilibrium between these two countries (production and consumption points). Draw a Demand Diagonal. Find and label the trade triangles for each country.
d. Which factor gains and which factor loses when trade arises between these two countries? Explain precisely.
