Review_Midterm2 AK

Answer the capital intensity of production in both

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Unformatted text preview: suppose a country exports a capital intensive good. What happened to the capital intensity of production in the capital intensive good? What happened to the capital intensity of production in the labor intensive good? Answer: The capital intensity of production in BOTH goods will fall after we open to trade. This is as a result of capital becoming relatively more expensive to employ which we know to be the case according to the Stolper- Samuelson Theorem. 3. In the Heckscher- Ohlin model, do the returns to factors depend on which industry a factor is employed? ANSWER: No. Since all factors are mobile, factor returns are not dependent on the industry in which they are employed. 4. Why were the results of Leontief’s test of the Heckscher- Ohlin model considered a paradox? Name...
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