econ353-09fall-ps5 - METU/FEAS Econ 353 Hakan Ercan Tuna...

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METU/FEAS 16.12.09 Econ 353 Hakan Ercan Tuna GONULDAS Gorkem KARABAYIR PROBLEM SET 5 PART A: MULTIPLE CHOICE QUESTIONS 1) Country A is said to be labor abundant if a) (L A /K A ) < (L B /K B ) b) (w/r) A > (w/r) B c) (w/r) A < (w/r) B d) none of the above 2) Commodity y is said to be capital intensive relative to commodity x if a) More K is used in the production of y than x b) Less L is used in the production of y than x c) A lower K/L ratio is used in the production of y than x d) A higher K/L ratio is used in the production of y than x 3) According to Heckscher-Ohlin theorem a) increasing the relative supply of one factor, holding relative goods prices constant, leads to biased expansion of production possibilities favoring the relative supply of the good which uses that factor intensively. b) countries tend to export goods whose production is intensive in factors with which they are relatively abundantly endowed. c) countries tend to specialize in the production of the good in which they have the greatest comparative advantage. d) trade in goods leads to an equalization in the rewards to factors across countries. 4) Which of the following characterize the Heckscher-Ohlin Model? a) Perfect mobility of factors across industries b) Perfect mobility of factors across countires 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 5) Given the following graph, determine whether the following statements are true or false in the context of H-O theorem. Explain your answer in each case. 1
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a) X is the capital-intensive commodity. b) Any change in the wage rate influences the price of Y more than price of X. c) Country I is the capital-abundant country. 6) Answer the following two questions according to the graph and information given below. i) The monopolist continues to be the price setter at home but becomes a price taker on the world market. Namely, imports are prevented from coming into the country. Suppose that at autarky, the monopolist is initially maximizing profits at the quantity of output where
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econ353-09fall-ps5 - METU/FEAS Econ 353 Hakan Ercan Tuna...

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