1) Suppose that we observe a consumer with the utility function
consumption of cars and
is consumption of wine. If the relative price of cars to wine is 10,
what will be the ratio of cars to wine consumed?
2) In the Heckscher-Ohlin model the opportunity cost of producing another unit of output of one
good ________ as that country produces more of that good. In the Ricardian model, this
opportunity cost ____________.
a) increases, increases
b) increases, is constant
c) is constant, increases
d) is constant, constant
e) is increases, decreases
3) Suppose that we observe a Heckscher-Ohlin world with two factors of production: land and
labor. Suppose that Canada is relatively land abundant and that the United States is relatively
labor abundant. For “everyone” to gain from a movement from autarky to free trade, there must
be transfer payments from ____________ to ____________ in Canada and from _____________
to _____________ in the United States.
a) land owners, labor, labor, land owners
b) labor, land owners, land owners, labor
c) land owners, labor, land owners, labor
d) labor, land owners, labor, land owners
e) labor, labor, land owners, land owners
4) Suppose that we observe the equilibrium of the Ricardian model illustrated below. Which of
the following statements will be true in a free trade equilibrium?
a) The South will produce one good.