Chap008

# Chap008 - Chapter 08 The Basis for Trade Factor Endowments...

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Chapter 08 - The Basis for Trade: Factor Endowments and Chapter 08 The Basis for Trade: Factor Endowments and Multiple Choice Questions 1. If a commodity is classified as "labor-intensive" at one set of relative factor prices but "capital-intensive" at another set of relative factor prices, this situation is known as a. Demand reversal B . Factor-intensity reversal c. Balance-of-payments reversal d. Factor price reversal 2. If relatively capital-abundant country A opens trade with relatively labor-abundant country B and the trade takes place in accordance with the Heckscher-Ohlin theorem, what would be the consequence for factor prices (w/r) in the two countries? a. (w/r) rises in A and falls in B b. (w/r) rises in A and also rises in B C . (w/r) falls in A and rises in B d. (w/r) falls in A and also falls in B 3. An implication of the Heckscher-Ohlin theorem is that a. If two countries have identical tastes, then no trade will occur between them b. The relative price of a country's scarce factor of production will rise when the country is opened to trade c. Income distribution in a country does not change when a country is opened to trade D . Two countries with identical tastes can still have a basis for trade if factor endowments of the countries differ and if factor intensities of the commodities differ 8-1

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Chapter 08 - The Basis for Trade: Factor Endowments and 4. Which one of the following is NOT an assumption made in the standard 2x2x2 Heckscher- Ohlin analysis? a. The production function for a given good is the same in both countries b. If a particular good is the relatively labor-intensive good at one set of relative factor prices, then it is also the relatively labor-intensive good at any other set of relative factor prices
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Chap008 - Chapter 08 The Basis for Trade Factor Endowments...

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