- Sara Falla

- Diego Rubiano
- Sergio Preciado
- Louise Ruíz
- Angela López

WORLD ECONOMICS

Second workshop Chapters 5- 7 Krugman

This first workshop has been designed to test your knowledge of the topics covered in class.
You may solve the following workshop in groups of up to 6 students. Each question has a
point value assigned to it in accordance to the heading of each of the sections. Open ended
questions will have an additional 20%point value added to them if they are adequately
answered in English.
MULTIPLE CHOICE SECTION
(each question is worth 0.5 points)

1. One of the main differences between the Heckscher-Ohlin model and other models of
international trade is
a. There is only one factor of production therefore competitive advantage only arises from
differences in productivity.
b. Because the factors of production are fixed, competitive advantage only arises on the basis
of available capital and labor in the long term.
c. Competitive advantage is defined by the intensive use of relatively abundant factors that
are all mobile.
d. Since all things are fixed in the model, only relative size and distance define competitive
advantage.
2. In the context of the Hechscher-Ohlin model, a factor is considered abundant when:
a. Once a certain number of units of said factor are accumulated in the country on a general
level, it can be considered abundant.
b. Once a certain number of units of said factor are accumulated in the country relative to its
trading partners, it can be considered abundant.
c. Once a relative number of units of said factor are exploited, it can be considered abundant.
d. Once said factor has a larger number of units in relative terms to the other factor used in
the analysis can the country be said to be abundant in said factor.
3. In the context of the Hechscher-Ohlin model the main prediction for the pattern of trade that
the model makes is that:
a. That countries will specialize in those industries for which they have higher relative
productivity than others.
b. That countries will specialize in those industries for which their relative supply of a fixed
factor will enable cheaper production.
c. That the larger the partner and the closer it is from our borders, the larger the trade
conducted with it will be.
d. That countries will ultimately export goods that use abundant factors intensively in their
production.
4. The Hechscher-Ohlin theorem states that:
a. Changes in the prices of finished goods have a direct relationship with relative prices of
factors used intensively in their production and an inverse relationship with relative prices
of factors not used intensively in their production.
b. Capital abundant nations will export capital intensive goods, while labor abundant nations
will export labor intensive goods.
c. When prices of outputs are equalized between two countries that have moved towards free
trade, then the prices of factors will also be equalized between those two countries.
d. Given a set of prices for goods, as the supply of a factor of production increases, then the
relative supply of goods that use that factor intensively in their production will also
increase and the supply of goods that don´t use the factor intensively will decrease.
5. In the context of the Hechscher-Ohlin model the slope of the production possibilities frontier
(PPF) can be interpreted as:
a. The amount of one finished good that must be produced to be able to produce another
good.
b. The opportunity cost of producing one good instead of another.
c. The relative price of a good to another.
d. Both B and C are correct.
6. In the context of the Hechscher-Ohlin model an isovalue line is:
a. It’s a restriction on the basis of amount of income for the consumer described by the
equation M=QxPx + QyPy.
b. It’s a restriction on the basis of amount of income for the consumer described by the
equation V=QaPa + QbPb.
c. A line on which any point will equal the same total value representing the total of all items
produced by the economy, described by the equation M=QxPx + Qypy.
d. A line on which any point will equal the same total value representing the total of all items
produced by the economy, described by the equation V=QaPa + QbPb.
7. In the context of the standard trade model different countries will have different PPFs:
a. On the basis of differences in technology.
b. On the basis of differences in resources.
c. On the basis of both technology and resources available.
d. All of the above.
8. In the context of the standard trade model the relation between the relative price of goods and
the relative supply is:
a. Using the same tools as the H-O model the optimal production of an economy is used to
project a supply line that has a negative slope on the basis of relative prices on the y axis
and relative supply of goods on de x axis.
b. Using the same tools as the H-O model the optimal production of an economy is used to
project a supply line that has a positive slope on the basis of relative prices on the y axis
and relative supply of goods on de x axis.
c. Using the same tools as the H-O model the optimal production of an economy is used to
project a supply line that has a negative slope on the basis of relative prices on the x axis
and relative supply of goods on de y axis.
d. Using the same tools as the H-O model the optimal production of an economy is used to
project a supply line that has a positive slope on the basis of relative prices on the x axis
and relative supply of goods on de y axis.
9. In the context of the standard trade model the relation between the relative price of goods and
the relative demand is:
a. The optimal production and consumption of an economy are used to project a demand
line that has a negative slope on the basis of relative prices on the y axis and relative supply
of goods on de x axis.
b. The optimal production and consumption of an economy are used to project a demand
line that has a positive slope on the basis of relative prices on the y axis and relative supply
of goods on de x axis.
c. The optimal production and consumption of an economy are used to project a demand
line that has a negative slope on the basis of relative prices on the x axis and relative supply
of goods on de y axis.
d. The optimal production and consumption of an economy are used to project a demand
line that has a positive slope on the basis of relative prices on the x axis and relative supply
of goods on de y axis.
10. In the context of the standard trade model terms of trade refers to:
a. The relative prices of all goods inside a country divided by all goods in foreign countries.
b. The prices of all imports divided by the price of all exports.
c. The relative prices of all goods in a foreign country divided by all goods in foreign
countries.
d. The prices of export goods divided by the price of import goods.