# Set03-HO - Econ 441 Problem Set 3 Alan Deardorff...

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Econ 441 Alan Deardorff Problem Set 3 Heckscher-Ohlin and 2-Cone Model Page 1 of 5 Problem Set 3 Heckscher-Ohlin and Two-Cone Model 1. Which of the following characterize the Heckscher-Ohlin Model? a. Perfect mobility of factors across industries b. Perfect mobility of factors across countries c. Constant returns to scale d. The law of diminishing returns e. Identical technologies across industries f. Identical technologies across countries g. Monopolistic competition h. Perfect competition i. Full employment j. Balanced trade k. Factor intensity reversals l. Identical homothetic preferences 2. Suppose that the price of a good, X , is 0 X p and that potential producers of that good in a country face factor prices w 0 and r 0 . The three figures below show three ways that these prices might appear in an isoquant-isocost diagram. What can you say, in each case, about what will happen in the X industry in this country? That is, will the good be produced, can these prices constitute an equilibrium, and if so, what technique of production will be used to produce X ? a) L 0 / 1 X p X = 1/ w 0 1/ r 0 b) L 0 / 1 X p X = 1/ w 0 1/ r 0 0 X L 0 X K c) L 0 / 1 X p X = 1/ w 0 1/ r 0

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Econ 441 Alan Deardorff Problem Set 3 Heckscher-Ohlin and 2-Cone Model Page 2 of 5 3. The Edgeworth Box below shows the contract curve of a country as well as a particular allocation, A 0 , along that contract curve at which the country would produce, given certain prices, 0 C p and 0 F p . Its outputs at A 0 are C 0 and F 0 .
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## This note was uploaded on 04/15/2009 for the course ACCOUNTING BUSI0027 taught by Professor Guan during the Spring '09 term at HKU.

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Set03-HO - Econ 441 Problem Set 3 Alan Deardorff...

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