Problem Set 2

1) The Ricardian model of international trade demonstrates that trade can be mutually beneficial. Why, then, do governments restrict imports of some goods? 

A) The Ricardian model is often incorrect in its prediction that trade can be mutually beneficial.

 B) Import restrictions are the result of trade wars between hostile countries.

 C) Trade can have substantial effects on a country's distribution of income. 

D) Imports are only restricted when foreign-made goods do not meet domestic standards of quality.

 E) Restrictions on imports are intended to benefit domestic consumers.

2) The specific factors model assumes that there are ________ goods and ________ factor(s) of production. 

A) two; two 

B) two; one 

C) three; two 

D) four; three

 E) two; three

3) In the specific factors model, a country's production possibility frontier is ________ because of ________. 

A) a straight line; diminishing marginal returns 

B) a curved line; diminishing marginal returns 

C) a straight line; constant marginal returns 

D) a curved line; constant marginal returns 

E) a curved line; a limited supply of labor

4) The slope of a country's production possibility frontier with cloth measured on the horizontal and food measured on the vertical axis in the specific factors model is equal to ________ and it ________ as more cloth is produced. 

A) -MPL C /MPL F ; becomes steeper 

B) -MPL F /MPL C ; becomes steeper 

C) -MPL C /MPL F ; is constant 

D) -MPL F /MPL C ; becomes flatter 

E) -MPL F /MPL C ; is constant

5) In the specific factors model, which of the following will increase the quantity of labor used in cloth production?

 A) a decrease in the price of labor 

B) an increase in the price of cloth relative to that of food 

C) an equal percentage decrease in the price of food and cloth

D) an equal percentage increase in the price of food and cloth

E) an increase in the price of food relative to that of cloth

6) In the specific factors model, a 5% increase in the price of food accompanied by a 5% increase in the price of cloth will cause wages to ________, the production of cloth to ________, and the production of food to ________. 

A) increase by more then 5%; increase; remain unchanged 

B) increase by 5%; remain unchanged; remain unchanged 

C) remain constant; decrease; decrease 

D) remain constant; increase; increase 

E) increase by less then 5%; decrease; increase

7) In the specific factors model, a 5% increase in the price of food accompanied by a 5% increase in the price of cloth will cause ________ in the welfare of labor, ________ in the welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed factor in the production of cloth.

 A) a decrease; an increase; an increase 

B) a decrease; a decrease; a decrease 

C) no change; no change; no change 

D) an increase; a decrease; a decrease 

E) an increase; an increase; an increase

8) In the specific factors model, the effects of trade on welfare are ________ for mobile factors, ________ for fixed factors used to produce the exported good, and ________ for fixed factors used to produce the imported good. 

A) ambiguous; positive; negative 

B) positive; positive; positive

 C) ambiguous; negative; positive

 D) positive; ambiguous; ambiguous 

E) negative; ambiguous; ambiguous

9) The world’s poorest countries cannot find anything to export. There is no resource that is abundant—certainly not capital or land, and in small poor nations not even labor is abundant.” Discuss.

10) In the 2-factor, 2-good Heckscher-Ohlin model, an influx of workers from across the border would

 A) move the point of production along the production possibility curve. 

B) shift the production possibility curve outward, and increase the production of both goods.

 C) shift the production possibility curve outward and decrease the production of the labor- intensive product. 

D) shift the production possibility curve outward and decrease the production of the capital- intensive product.

 E) shift the possibility curve outward and displace preexisting labor.

11) In the 2-factor, 2-good Heckscher-Ohlin model, the two countries differ in 

A) tastes and preferences.

 B) military capabilities. 

C) the size of their economies.

 D) relative abundance of factors of production. 

E) labor productivities.

12) In the 2-factor, 2-good Heckscher-Ohlin model, the country with a relative abundance of ________ will have a production possibility frontier that is biased toward production of the ________ good. 

A) labor; labor intensive 

B) labor; capital intensive

 C) land; labor intensive

 D) land; capital intensive 

E) capital; land intensive

13) The assumption of diminishing returns in the Heckscher-Ohlin model means that, unlike in the Ricardian model, it is likely that 

A) countries will not be fully specialized in one product. 

B) countries will benefit from free international trade. 

C) countries will consume outside their production possibility frontier.

 D) comparative advantage will not determine the direction of trade. 

E) global production will decrease under trade.

14) One way in which the Heckscher-Ohlin model differs from the Ricardo model of comparative advantage is by assuming that ________ is (are) identical in all countries. 

A) factor endowments 

B) scale of production 

C) factor intensities

 D) technology 

E) opportunity costs

15) In the 2-factor, 2-good Heckscher-Ohlin model, trade will ________ the owners of a country's ________ factor and will ________ the good that uses that factor intensively. 

A) benefit; abundant; export 

B) harm; abundant; import 

C) benefit; scarce; export 

D) benefit; scarce; import 

E) harm; scarce; export

16) According to the Heckscher-Ohlin model 

A) the gainers from trade could compensate the losers and still retain gains. 

B) everyone gains from trade.

 C) the scarce factor gains from trade and the abundant factor loses. 

D) a country gains from trade if its exports have a high value added. 

E) only the country with the more advanced technology gains from trade.

17) Assume that only two countries, A and B, exist. Refer to the table above. If good S is capital intensive, then following the Heckscher-Ohlin Theory

 A) country B will export good S. 

B) country A will export good S. 

C) both countries will export good S. 

D) trade will not occur between these two countries. 

E) both countries will import good S.

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