TrueFalsePoints:1 / 1Close ExplanationExplanation:In 1954, Wassily Leontief found that the capital/labor ratio for U.S. export industries was lower than that of U.S. import-competing industries. He thus concluded that U.S. exports were less capital intensive than its import-competing goods, a conclusion known as the Leontief paradox, since it contradicted the predictions of the factor-endowment theory. Leontief’s empirical findings brought into question the applicability of the factor-endowment theory by suggesting that the United States predominantly exported labor intensive goods. This conclusion contradicted the prediction of the factorendowment theory, when applied to the United States. To strengthen his conclusion, Leontief repeated his tests only to again find that U.S. import–competing goods were more capital intensive than U.S. exports. Leontief’s discovery was that America’s comparative advantage lay in something other than capital–intensive goods. The empirical tests highlighted the importance of the fact that a large amount of international trade is not between industrialized and developing countries but among industrialized countries with similar resource endowments. Thus, the determinants of trade are more complex than those identified by the basic factor–endowment theory, as factors such as technology, economies of scale, and demand conditions must also be included in the model. See section: “Is the Factor-Endowment Theory a Good Prediction of Trade Patterns?”Evaluate the following statement to indicate whether it accurately explains Staffan Linder’s theory of overlapping demands.True or False: According to Linder, although the factor–endowment theory explains trade in primary products (natural resources) and agricultural goods, it does not explain trade in manufactured goods because the main force influencing the manufactured–good trade is domestic demand conditions.TrueFalsePoints:1 / 1Close ExplanationExplanation:Staffan Linder, a Swedish economist in the 1960s, maintained that the factor-endowment theory is valid for trade in primary products, but that the theory of overlapping demands best applies to trade in
Mid-Term Study Guide31manufactured goods. Linder states that a nation's exports are thus an extension of the production for the domestic market. See section: “Overlapping Demands as a Basis for Trade.”The product life cycle theory views a variety ofmanufactured goods as going through a trade cycle, during which a nation initially isan exporter , then loses its export markets, and finally becomesan importer of the product. Points:1 / 1Complete the following statement.Empirical studies of trade cycles have demonstrated that trade cyclessometimes do exist formanufactured goods.
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