International Economics 4th Edition

Feenstra Test Bank

Full download at link:

Test Bank: https://testbankpack.com/p/test-bank-for-international-

macroeconomics-4th-edition-feenstra-taylor-1319061729-
9781319061722/

Solution Manual: https://testbankpack.com/p/solution-manual-for-

international-macroeconomics-4th-edition-feenstra-taylor-
1319061729-9781319061722/

1. Which of the following statements is true?

A) The Heckscher–Ohlin model offers a reasonable explanation of the pattern of trade
and the gains from trade.
B) The Heckscher–Ohlin trade model does not offer an explanation of the pattern of
trade.
C) The Heckscher–Ohlin trade model does not offer an explanation of the gains from
trade.
D) The Ricardian trade model (with labor as the only input) offers a better explanation
of the pattern of trade and the gains from trade than the Heckscher–Ohlin model.

2. A long-run model of trade basic to the determination of how mobile factors of

production affect national welfare and the returns to the factors is known as:
A) the specific-factors model.
B) the Riparian model.
C) the Chicago model of trade.
D) the Heckscher–Ohlin model.

Page 1
3. The Heckscher–Ohlin model of international trade uses _____ and ______ to explain
trade patterns.
A) comparative advantage; absolute advantage
B) factor abundance; factor intensity
C) factor availability; factor usability
D) tariffs; quotas

4. The Heckscher–Ohlin theorem explains patterns of trade between countries using:

A) economies of scale.
B) monopoly power in the industry.
C) abundance or scarcity of resources.
D) tariffs and quota.

5. The Heckscher–Ohlin model simplifies the analysis by assuming:

A) there is unemployment in the home country.
B) the labor force consists of workers with different skill levels.
C) land is an important factor of production.
D) there are only two nations producing two goods using two factors of production.

6. Which of the following statements is correct?

A) The Heckscher–Ohlin model assumes that all resources can freely move between
industries.
B) The specific-factors model assumes that all resources can freely move between
industries.
C) Both the Heckscher–Ohlin and the specific-factor models assume that all resources
can freely move between industries.
D) Neither the Heckscher–Ohlin nor the specific-factor model assumes that all
resources can freely move between industries.

7. The Heckscher–Ohlin model assumes that factors of production can move freely
_______, but cannot move _______.
A) domestically; internationally
B) after they are fully trained; before the training period is over
C) internationally; domestically
D) within unskilled occupations; into high-skill jobs

Page 2
 8. The implication of resources being mobile domestically is that:
A) there is often unemployment.
B) capital and land are often not suited for use in other industries.
C) labor is paid the same wage and capital receives the same rental price in all
domestic industries.
D) they lose the chance to become guest workers in other nations.

9. The Heckscher–Ohlin model assumes that the factors of production are mobile ______,
but immobile _____.
A) in the short run; in the long run
B) in the long run; in the short run
C) domestically; internationally
D) internationally; domestically

10. In a capital-intensive industry, the labor–capital ratio will:

A) rise as the wage–rental ratio falls.
B) fall as the wage–rental ratio falls.
C) rise as the country's capital stock rises.
D) fall as the country's capital stock falls.

11. The Heckscher–Ohlin model assumes that a nation's two industries use labor and
capital:
A) at different intensities depending on changing technology.
B) at different intensities, with one being more capital-intensive than the other.
C) at the same intensity in each industry; that is, the capital–labor ratio is the same in
each industry.
D) in no definite pattern.

12. In the text, which of the following statements is NOT an assumption of the Heckscher–
Ohlin model?
A) There are two countries, each of which produces two goods using labor and capital.
B) Labor and capital can move freely between the production of two goods.
C) There is free trade between the two countries.
D) Labor and capital can move freely between the two countries.

Page 3
13. The Heckscher–Ohlin model assumes that there are two countries, each of which
produces two goods (say manufactures and agriculture) using labor and capital. Which
of the following is an additional assumption of the Heckscher–Ohlin model?
A) The ratio of the quantity of labor to the quantity of capital is different for each
nation, resulting in different “endowments” of capital and labor.
B) One nation has larger quantities of both capital and labor than the other country.
C) Capital is a specific resource in producing manufactured goods, and labor is a
specific resource in producing agricultural goods in each country.
D) Labor and capital can move between countries.

14. The Heckscher–Ohlin model assumes that technology in each industry:

A) is the same in each nation—each firm has access to the most profitable technology.
B) has increasing returns so that one nation will be able to gain a comparative
advantage by developing new technology.
C) is very different across the world—some nations have access to technology,
whereas others do not.
D) is hard to access because R&D is very expensive especially for low-income
nations.

15. The Heckscher–Ohlin Model assumes that:

A) factor endowments are the same in the two countries.
B) consumer tastes are different across countries.
C) the technologies used to produce the two goods are different in the two countries.
D) consumer tastes and technologies are the same in the two countries.

16. The Heckscher–Ohlin Model assumes that:

A) consumer tastes are different in the two countries and invariant with respect to
income.
B) consumer tastes are the same in the two countries and invariant with respect to
income.
C) consumer tastes within each country have no effect on international trade.
D) consumer tastes are different in the two countries and have no effect on
international trade.

17. According to the application in the text, why can Nike shoes be produced at a lower cost
in some foreign countries?
A) Some foreign countries have superior technology.
B) Some foreign countries are strategic allies for the home country.
C) Labor costs in some foreign countries are lower than in the United States.
D) Nike has no competition in some foreign countries.

Page 4
18. United States' agricultural production is ________ in comparison with Chinese
agricultural production.
A) capital intensive
B) labor intensive
C) less subsidized
D) more restrictive

19. A situation in which one nation produces good A using labor more intensively (relative
to capital) than good B while a second nation produces good A, using capital more
intensively (relative to labor) than good B is called:
A) a reversal of factor intensities.
B) a paradox of factor intensities.
C) backward technology.
D) micro intensity.

20. Suppose that country 1 is capital abundant relative to country 2. Both produce two
goods (X and Y). Factor-intensity reversal occurs whenever:
A) X is capital intensive in country 1 and labor intensive in country 2.
B) X is capital intensive in both countries.
C) Y is capital intensive in both countries.
D) X is capital intensive in country 1, and Y is labor intensive in country 2.

21. If agriculture is a capital-intensive industry in the United States and a labor-intensive

industry in India, then:
A) India should export agricultural goods to the United States.
B) neither country will have an advantage in agricultural production.
C) there is factor-intensity reversal in agricultural production between the two
countries.
D) it is difficult to determine which country is labor abundant.

22. There are many real-life examples of factor-intensity (the ratio of capital to labor)
differences in the same industries in different nations. How does the Heckscher–Ohlin
model handle this?
A) The Heckscher–Ohlin model makes no assumptions about different factor
intensities.
B) The Heckscher–Ohlin model assumes that all firms require equal amounts of
capital and labor just to be on the safe side.
C) The Heckscher–Ohlin model ignores the possibility of different factor intensities
and instead assumes that each industry has the same factor intensity in every
nation.
D) Factor-intensity differences do not change the predictive value of the model.

Page 5
23. Why is the PPF bowed out in the Heckscher–Ohlin model?
A) Capital is specific to the production of one good.
B) Labor is specific to the production of the other good.
C) There are increasing opportunity costs of producing more of each good.
D) Labor is not perfectly mobile between the production of the two goods.

24. According to the text, identical technologies are a more reasonable assumption for:
A) the shoe industry.
B) the call center industry.
C) neither the shoe nor call center industry.
D) both the shoe and call center industries.

25. The PPF of a country will be skewed toward the good that:
A) uses its scarce factor intensively.
B) uses its abundant factor intensively.
C) uses its intensive factor abundantly.
D) does not use its intensive factor abundantly.

26. (Figure: Home and Foreign Autarky Equilibria) Which line in the graph represents the
home relative price of computers in terms of shoes?

A) A
B) B
C) U
D) U*

Page 6
27. (Figure: Home and Foreign Autarky Equilibria) According to the shapes of the two
PPFs, which nation has a comparative advantage in the production of computers?

A) Home
B) Foreign
C) neither Home nor Foreign
D) both Home and Foreign

28. (Figure: Home and Foreign Autarky Equilibria) According to the graph, which nation
has a higher no-trade equilibrium relative price for computers (in terms of shoes)?

A) Home
B) Foreign
C) Home and Foreign have the same no-trade equilibrium relative price.
D) neither Home nor Foreign

Page 7
29. (Figure: Home and Foreign Autarky Equilibria) Which line in the graph represents
Foreign's relative price of computers in terms of shoes?

A) A
B) B
C) U
D) U*

30. (Figure: Home and Foreign Autarky Equilibria) At which point will Home find its no-
trade equilibrium consumption and production point?

A) A
B) B
C) C
D) U

Page 8
31. (Figure: Home and Foreign Autarky Equilibria) If shoes are a labor-intensive industry,
which nation is labor abundant?

A) Home
B) Foreign
C) neither Home nor Foreign
D) both Home and Foreign

32. Most trading nations do not completely specialize. Incomplete specialization is mainly
due to:
A) decreasing opportunity costs.
B) increasing opportunity costs.
C) constant opportunity costs.
D) perfectly substitutable resources.

33. In autarky, wages generally:

A) are higher in the labor-abundant country than in the capital-abundant country.
B) are lower in the labor-abundant country than in the capital-abundant country.
C) are the same in the labor-abundant and the capital-abundant countries.
D) have no relationship to labor abundance.

34. The international equilibrium price (or world price) and quantity for a traded item is
determined by:
A) the WTO.
B) the U.S. Department of Commerce.
C) the intersection of the export supply schedule and the import demand schedule.
D) trade negotiations conducted by representatives in the two nations.

Page 9
35. Consider two products: automobiles and shoes. If shoes are labor intensive and
automobiles are capital intensive, what can we expect in free-trade conditions?
A) The relative price of automobiles in the auto-exporting country will decrease.
B) The relative price of shoes in the shoe-exporting country will increase.
C) The capital-abundant country will produce more shoes.
D) The labor-abundant country will produce more automobiles.

36. Suppose that the United States and China each produce steel and cloth. In the
Heckscher–Ohlin model, if the United States enjoys a comparative advantage in steel
production, then:
A) China must have an absolute advantage in cloth production.
B) the United States will also have a comparative advantage in cloth production.
C) China must have a comparative advantage in cloth production.
D) the United States must have an absolute advantage in steel production.

37. LCD TVs are capital intensive, and tennis racquets are labor intensive. Suppose Canada
has $100 billion of capital and 2 million workers and Mexico has $10 billion of capital
and 20 million workers. According to the Heckscher–Ohlin model:
A) Canada will specialize in and export LCD TVs.
B) Mexico will specialize in and export LCD TVs.
C) Canada will specialize in and export tennis racquets.
D) Mexico will import tennis racquets.

38. Malaysia is relatively abundant in labor, whereas Canada is relatively abundant in

capital. In both countries, shirt production is relatively more labor intensive than
computer production. According to the Heckscher–Ohlin model, Malaysia will have
a(n) ________ advantage in the production of __________.
A) absolute; shirts and computers
B) absolute; computers
C) comparative; shirts
D) comparative; computers

Page 10
39. (Table: Capital Intensity Across Industries) According to the table, which industry is the
most labor intensive?

A) apparel and other textile products

B) lumber and wood products
C) primary metal industries
D) chemicals and allied products

40. (Table: Capital Intensity Across Industries) Suppose that the United States is labor
abundant relative to Canada. According to the table, which U.S. industry is most likely
to export products to Canada?

A) furniture
B) electronic and electrical equipment
C) primary metal industries
D) paper and allied products

Page 11
41. Assume there are two nations each producing two goods, X and Y, and they only trade
with each other. Which of the following is identical for both nations if they engage in
free trade?
A) the equilibrium relative price of X
B) the opportunity cost of X
C) the opportunity cost of producing X and the opportunity cost of producing Y
D) both the equilibrium relative price of X and the opportunity cost of X

42. Suppose that Home is a capital-abundant country. When Home trades with Foreign, a
labor-abundant country, the Heckscher–Ohlin model predicts that the price of:
A) the labor-intensive good will rise in Home.
B) the labor-intensive good will rise in Foreign.
C) the capital-intensive good will rise in Foreign.
D) the capital-intensive good will fall in Home.

43. (Figure: A Country's Before and After Trade Equilibria) At what point will this nation
be in a no-trade equilibrium?

A) A
B) B
C) C
D) D

Page 12
44. (Figure: A Country's Before and After Trade Equilibria) What are the pre-trade
quantities of shoes and computers produced by this nation?

A) 300 shoes; 300 computers

B) 225 shoes; 175 computers
C) 225 shoes; 200 computers
D) 150 shoes; 300 computers

Page 13
45. (Figure: A Country's Before and After Trade Equilibria) What is the equilibrium post-
trade point of production of this nation?

A) A
B) B
C) C
D) D

Page 14
46. (Figure: A Country's Before and After Trade Equilibria) What are the post-trade
quantities of shoes and computers produced by this nation?

A) 300 shoes; 300 computers

B) 225 shoes; 175 computers
C) 225 shoes; 200 computers
D) 150 shoes; 300 computers

Page 15
47. (Figure: A Country's Before and After Trade Equilibria) What happened to the relative
price of shoes in this nation after trade?

A) Shoes became relatively more expensive in terms of computers.

B) Shoes became relatively cheaper in terms of computers.
C) Shoes were not as desirable after trade.
D) The price of shoes did not change—only the quantity.

Page 16
48. (Figure: A Country's Before and After Trade Equilibria) The trade triangle shows the
exports that were exchanged for imports. What are the three points of the trade triangle?

A) A, B, C
B) A, B, D
C) A, D, C
D) B, C, D

Page 17
49. (Figure: A Country's Before and After Trade Equilibria) How many shoes will this
nation export?

A) 0
B) 125
C) 350
D) 500

Page 18
50. (Figure: A Country's Before and After Trade Equilibria) How many shoes will this
nation import?

A) 0
B) 125
C) 350
D) 500

Page 19
51. (Figure: A Country's Before and After Trade Equilibria) How many computers will this
nation export?

A) 0
B) 125
C) 350
D) 500

Page 20
52. (Figure: A Country's Before and After Trade Equilibria) How many computers will this
nation import?

A) 0
B) 125
C) 350
D) 500

Page 21
53. (Figure: A Country's Before and After Trade Equilibria) If the new international relative
price of computers increases from its pre-trade position, how will the slope of the price
line change in the graph?

A) The slope will increase.

B) The slope will decrease.
C) The slope will not change but the price line will shift to the right.
D) The slope will not change but the price line will shift to the left.

Page 22
54. (Figure: A Country's Before and After Trade Equilibria) Suppose that the new
international relative price of computers increases from the pre-trade price. If we then
subtract the number of computers purchased domestically at the new international price
from the number of computers produced, we will get one point on ____________ for
computers.

A) the import demand schedule

B) the export supply schedule
C) the production possibilities frontier
D) the indifference curve

Page 23
55. (Figure: A Country's Before and After Trade Equilibria) Suppose that the new
international relative price of computers increases from the pre-trade price. If we then
subtract the number of shoes produced domestically at the new international price from
the number of shoes consumed at this price, we will get one point on ____________ for
shoes.

A) the import demand schedule

B) the export supply schedule
C) the production possibilities frontier
D) the indifference curve

56. Which statement about the Heckscher–Ohlin model is correct?

A) It does not offer an explanation of the gains from trade.
B) It does not offer an explanation of the patterns of trade.
C) It offers an explanation of the effects of trade on the returns to capital and labor.
D) It offers an explanation of the effects of trade on factor abundance.

Page 24
57. Which of the following is one conclusion of the Heckscher–Ohlin model?
A) In the real world, with unlimited goods, nations will buy products that satisfy their
demands and sell products they have no use for.
B) If there are limited resources, such as capital and land, production varies directly
with the amount of labor used.
C) Some factors of production are fixed and some are variable. We need only consider
the variable factors when we analyze international trade.
D) With two goods and two factors, each country will export the good that uses
intensively the factor of production it has in abundance and will import the other
good.

58. The conclusion that a labor-abundant country exports the good using labor intensively in
production and a capital-abundant country exports the good using capital intensively in
production is known as:
A) factor-intensity reversal.
B) the Heckscher–Ohlin theorem.
C) Ricardian comparative advantage.
D) the Stolper–Samuelson theorem.

59. Consider two products: automobiles and shoes. If shoes are labor intensive and
automobiles are capital intensive, what will happen under the Heckscher–Ohlin model?
A) The labor-abundant country will export automobiles.
B) The capital-abundant country will export shoes.
C) The labor-abundant country will import shoes.
D) The capital-abundant country will import shoes.

60. Suppose Portugal has 700 workers and 26,000 units of capital, and France has 18,000
workers and 700 units of capital. Technology is identical in both countries. Assume that
wine is the capital-intensive good and cloth is the labor-intensive good. Which one of
the following statements is correct?
A) Portugal will export wine and import cloth.
B) France will export wine and import cloth.
C) There is no basis for trade between France and Portugal.
D) Portugal will export cloth and import wine.

Page 25
61. Suppose Portugal has 700 workers and 26,000 units of capital, and France has 18,000
workers and 700 units of capital. Technology is identical in both countries. Assume that
wine is the capital-intensive good and cloth is the labor-intensive good. Which of the
following statements is correct if the nations start trading with each other?
A) Wages will increase in Portugal.
B) Rental rates in France will increase.
C) Wages in France will decrease.
D) Rental rates in Portugal will increase.

62. (Table: Data on Suburbia) Use this table, which represents autarkic and free-trade
production and consumption and resource use for Suburbia, to answer the following
question.

Which of the following statement is correct?

A) Surburbia is a labor-intensive country.
B) Suburbia is a labor-abundant country.
C) Suburbia is a capital-intensive country.
D) Suburbia is a capital-abundant country.

Page 26
63. (Table: Data on Suburbia) Use this table, which represents autarkic and free-trade
production and consumption and resource use for Suburbia, to answer the following
question.

What is the ratio of total capital to total labor in Suburbia?

A) 1 unit/day
B) 1.5 units/day
C) 1.67 units/day
D) 3 units/day

64. (Table: Data on Suburbia) Use this table, which represents autarkic and free-trade
production and consumption and resource use for Suburbia, to answer the following
question.

How many units of which product will Suburbia import?

A) 2,000 units of X
B) 1,000 units of X
C) 2,000 units of Y
D) 1,500 units of Y

Page 27
65. (Table: Data on Suburbia) Use this table, which represents autarkic and free-trade
production and consumption and resource use for Suburbia, to answer the following
question.

Did the capital–labor ratio used in the production of good X rise, fall, or remain
unchanged as Suburbia moved from autarky to free trade?
A) It rose.
B) It fell.
C) It remained the same.
D) It rose, then it fell.

66. (Table: Data on Suburbia) Use this table, which represents autarkic and free-trade
production and consumption and resource use for Suburbia, to answer the following
question.

Which of the following statements is true regarding the change in the marginal product
of labor as Suburbia moved from autarky to a free-trade situation?
A) The MPL in good X production rose.
B) The MPL in good Y production fell.
C) The MPL in good X and good Y production both rose.
D) The MPL in good X and good Y production both fell.

Page 28
67. Leontief suggested that his results were not a paradox once we account for differences
in:
A) resource endowments.
B) capital stocks.
C) labor forces.
D) resource productivities.

68. (Table: Factor Use in Trade) In the hypothetical economy provided in the table, what is
the capital–labor ratio for imports?

A) $31,250
B) $21,500
C) $1,600
D) $3,125

69. In his test of the Heckscher–Ohlin model for the United States, Leontief found that:
A) the United States was importing labor-intensive commodities.
B) the U.S. capital–labor ratio for imported goods was larger than that for the exported
goods.
C) the U.S. capital–labor ratio for imported goods was smaller than that for the
exported goods.
D) there was a trade imbalance in the United States.

70. Economist Wassily Leontief tested the Heckscher–Ohlin model to determine whether it
correctly predicted the capital and labor content of imports and exports of:
A) Russia.
B) China.
C) the United States.
D) Belgium.

Page 29
71. (Table: Factor Use in Trade) In the hypothetical economy provided in the table, what is
the capital–labor ratio for exports?

A) $1,849
B) $35,500
C) $18,490
D) $1,920

72. The Leontief paradox found that:

A) exports should always be capital intensive.
B) imports should always be labor intensive.
C) U.S. exports were labor intensive.
D) U.S. exports were capital intensive.

73. Leontief discovered a “paradox” in his test of the Heckscher–Ohlin model for the
United States. He expected the United States to export _____-intensive goods and
import _____-intensive goods; but his study indicated the reverse was true.
A) land; technology
B) labor; land
C) capital; labor
D) labor; capital

74. Which of the following statements is NOT an explanation of Leontief's paradox?

A) Leontief ignored the fact that the United States imports a variety of products rather
than just one.
B) He ignored the fact that U.S. labor is highly skilled.
C) He ignored the importance of land as a factor in many U.S. exports.
D) Trade patterns in 1947 might have been affected by the fact that World War II had
ended only two years earlier.

75. Leontief found that:

A) U.S. trade increased after World War II.
B) U.S. exports were capital intensive compared with its import-competing
production.
C) U.S. exports were labor intensive compared with its import-competing production.
D) U.S. exports were neither capital nor labor intensive.

Page 30
76. Leontief's study of U.S. post-World War II trade concluded that the:
A) United States did not gain from trade.
B) United States exports were labor intensive.
C) The Heckscher–Ohlin model did not explain trade between Europe and the United
States.
D) United States exports were capital intensive.

77. What was “paradoxical” about the results of Leontief's test of the Heckscher–Ohlin
model on U.S. trade?
A) Leontief concluded that U.S. imports were more labor intensive than U.S. exports.
B) Leontief concluded that U.S. imports were more capital intensive than U.S.
exports.
C) Leontief concluded that U.S. imports were primarily agricultural products.
D) Leontief concluded that U.S. exports were not internationally competitive.

78. Which of the following offers an explanation for the Leontief paradox?
A) Leontief assumed that U.S. and foreign technologies were not the same.
B) Leontief incorporated land and other resources.
C) Leontief did not distinguish between skilled and unskilled labor.
D) Leontief assumed that the United States was capital intensive.

79. Which of the following is NOT an explanation of Leontief's paradox?

A) Leontief did not distinguish between high-skilled and low-skilled labor.
B) The United States was not engaged in completely free trade in 1947 as the
Heckscher–Ohlin model assumes.
C) The data from 1947 might be unusual because the war had recently ended.
D) United States' trading partners gave preferential treatment to U.S. exports.

80. Which of the following countries had the most physical capital in 2013?
A) the United States
B) China
C) Japan
D) India

81. Which of the following countries had the most R&D scientists in 2013?
A) the United States
B) China
C) Japan
D) India

Page 31
82. Which of the following countries had the most illiterate labor in 2013?
A) the United States
B) China
C) Japan
D) India

83. Compared with the rest of the world in 2013, the United States was most abundant in:
A) capital.
B) skilled labor.
C) less-skilled labor.
D) arable land.

84. Compared with the rest of the world in 2013, the United States is LEAST abundant in:
A) capital.
B) skilled labor.
C) unskilled labor.
D) illiterate labor.

85. To determine whether a nation has an “abundance” of a resource, economists look at:
A) the exports of the nation.
B) the imports of the nation.
C) the total quantity of that resource compared with the total quantity of the other
resource.
D) a nation's share of the resource compared with its share of world GDP.

86. A problem with measuring the factor shares to determine scarcity or abundance is that:
A) it is very hard to count workers in some nations.
B) estimates are very unreliable.
C) the quantity of a factor may not be as important as its productivity.
D) scientists disagree over the method by which to compute “share.”

87. A country's effective factor endowment is defined as its:

A) actual factor endowment times factor productivity.
B) actual factor endowment times GDP.
C) factor productivity.
D) actual factor endowment divided by its factor productivity.

Page 32
88. If we measure scarcity or abundance correctly, we should use the concept of “effective
factor endowment.” This means:
A) the actual factor endowment multiplied by the average productivity of workers
compared with its share of world GDP.
B) trying to find out how much labor and capital are really involved in producing
goods competing with imports and exports.
C) measuring more effectively a nation's actual factor endowment.
D) the actual factor endowment of labor multiplied by the productivity of capital,
because, effectively, the productivity of one depends on the quantity of the other.

89. Compared with other countries, the United States' effective factor endowment is greatest
for:
A) capital.
B) R&D scientists.
C) arable land.
D) unskilled labor.

90. According to the text, which of the following statements best describes U.S. factor
abundance in 1947?
A) Taking into account different labor productivities, the U.S. “effective” labor force
was much larger than the U.S. share of world GDP.
B) Taking into account different labor productivities, the U.S. “effective” labor force
was much smaller than the U.S. share of world GDP.
C) Taking into account productivities of capital in different industries, the U.S.
“effective” capital stock was much smaller than the U.S. share of world GDP.
D) Corrected data indicate that the United States was actually was a labor-abundant
and capital-poor country in 1947.

91. Suppose that Home has 20% of the world's capital, 10% of the world's skilled labor, and
30% of the world's unskilled labor and produces 20% of the world's GDP. What does
this information suggest?
A) only that Home is capital abundant
B) only that Home is skilled-labor abundant
C) only that Home is abundant in unskilled labor
D) Home is not abundant in capital, skilled labor, or unskilled labor.

Page 33
92. After accounting for differing _________ as well as _________, evidence for many
countries is broadly consistent with the Heckscher–Ohlin model.
A) factor productivities; factor endowments
B) preferences; factor productivities
C) preferences; factor endowments
D) factor endowments; generalities

93. Assume that Home is relatively abundant in labor and relatively scarce in land. The
Heckscher–Ohlin model predicts that trade with other countries will cause increased
returns to:
A) Home's laborers.
B) Home's landowners.
C) neither Home's laborers nor landowners.
D) both Home's laborers and landowners.

94. If the wage–rental ratio in Japanese auto production is lower than the wage–rental ratio
in U.S. auto production, then:
A) Japan must have a comparative advantage in the production of autos.
B) Japan must have an absolute advantage in the production of autos.
C) auto production costs must be lower in Japan than in the United States.
D) auto production costs could be lower in the United States if U.S. labor productivity
is higher than Japanese labor productivity.

95. In a capital-abundant country, free trade will cause a(n) __________ in the rental of
capital and a(n) ____________ in the marginal product of capital.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

96. In a labor-abundant country, free trade will cause a(n) __________ in the rental of
capital and a(n) _________ in the marginal product of capital.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

Page 34
 97. The wage paid to labor should increase when:
A) the capital–labor ratio increases.
B) the capital–labor ratio decreases.
C) a country's labor force increases.
D) a country's capital stock decreases.

98. With the “opening” of trade, the item exported experiences a(n) ________ in demand
and therefore a(n) ________ in its relative (domestic) price.
A) increase, increase
B) increase, decrease
C) decrease, decrease
D) decrease, increase

99. The Heckscher–Ohlin model predicts that the factor of production used more intensively
in the production of exports will experience:
A) decreased demand and a decline in its relative price.
B) decreased demand and an increase in its relative price.
C) increased demand and an increase in its relative price.
D) no change in its demand because the factors of production are fixed in the short
run.

100. In the Heckscher–Ohlin Model, as trade occurs in a capital-abundant country, increased

imports will force domestic import-competing firms to decrease price and production.
Labor and capital will move to exporting firms. What will then happen to wages and
returns to capital?
A) Both wages and returns to capital will increase.
B) Both wages and returns to capital will decrease.
C) Wages will increase and returns to capital will decrease.
D) Wages will decrease and returns to capital will increase.

101. France and Italy only trade with each other. Each produces wine and bread. The
production of bread is relatively capital intensive, and the production of wine is
relatively labor intensive. France is relatively abundant in capital, while Italy is
relatively abundant in labor.
Which of the following statements is correct?
A) Italy has a larger labor force than France.
B) France has a larger labor force than Italy.
C) The ratio of Italy's total capital stock to its labor force is smaller than the same ratio
for France.
D) The ratio of Italy's total capital stock to its labor force is larger than the same ratio
for France.

Page 35
102. France and Italy only trade with each other. Each produces wine and bread. The
production of bread is relatively capital intensive, and the production of wine is
relatively labor intensive. France is relatively abundant in capital, while Italy is
relatively abundant in labor.
According to the Heckscher–Ohlin model, what product(s) will Italy export?
A) bread
B) wine
C) neither bread nor wine
D) both bread and wine

103. France and Italy only trade with each other. Each produces wine and bread. The
production of bread is relatively capital intensive, and the production of wine is
relatively labor intensive. France is relatively abundant in capital, while Italy is
relatively abundant in labor. According to the Heckscher–Ohlin model, free trade
between Italy and France should cause:
A) a decrease in the French price of wine and a decrease in the Italian price of wine.
B) increases in the price of wine in Italy and in France.
C) an increase in the French price of wine and an increase in the Italian price of bread.
D) a decrease in the Italian price of bread and a decrease in the French price of wine.

104. France and Italy only trade with each other. Each produces wine and bread. The
production of bread is relatively capital intensive, and the production of wine is
relatively labor intensive. France is relatively abundant in capital, while Italy is
relatively abundant in labor. According to the Stolper–Samuelson theorem, free trade
between France and Italy should result in:
A) increased real wages in both countries
B) decreased real wages in both countries.
C) increased real wages in France and increased real returns to capital in Italy.
D) increased real returns to capital in France and increased real wages in Italy.

105. According to the Stolper–Samuelson theorem, international trade for a nation with a
relative abundance of skilled labor and a relative scarcity of unskilled labor will tend to:
A) widen or aggravate the income disparity between skilled and unskilled workers.
B) reduce the income disparity between skilled and unskilled workers.
C) lower the wages of both groups of workers.
D) raise the wages of both groups of workers.

Page 36
106. Canada and the United States produce computers and chemicals using labor and capital
as the only inputs in production. The United States is capital abundant, and Canada is
labor abundant. Computer production is more labor intensive than chemical production
in both countries.
What does the Heckscher–Ohlin model predict will happen to wages and returns to
capital after trade takes place between Canada and the United States?
A) Wages of Canadian workers should rise.
B) Returns to capital in Canada should rise.
C) Wages of U.S. workers should rise.
D) Returns to capital in the United States should fall.

107. Canada and the United States produce computers and chemicals using labor and capital
as the only inputs in production. The United States is capital abundant, and Canada is
labor abundant. Computer production is more labor intensive than chemical production
in both countries.
What does the Heckscher–Ohlin model predict will happen to prices of computers or
chemicals in the two countries?
A) The price of chemicals should rise in the United States.
B) The price of chemicals should fall in the United States.
C) The price of computers should fall in Canada.
D) The price of chemicals should rise in Canada.

108. Chile and the United States use capital and labor to produce wheat and automobiles. The
United States is capital abundant, and Chile is labor abundant. Wheat production is
more labor intensive than automobile production.
According to the Stolper–Samuelson theorem:
A) Chilean workers should support United States–Chile free trade.
B) Chilean owners of capital should support United States–Chile free trade.
C) U.S. owners of capital should oppose United States–Chile free trade.
D) both U.S. and Chilean owners of capital should oppose United States–Chile free
trade.

Page 37
109. Chile and the United States use capital and labor to produce wheat and automobiles. The
United States is capital abundant, and Chile is labor abundant. Wheat production is
more labor intensive than automobile production.
What is the most important reason why U.S. workers might oppose United States–Chile
free trade?
A) Returns to capital in the United States are expected to rise as a result of United
States–Chile free trade.
B) Wages in the United States are expected to rise as a result of United States–Chile
free trade.
C) Returns to capital in Chile are expected to rise as a result of United States–Chile
free trade.
D) Wages in the United States are expected to fall as a result of United States–Chile
free trade.

110. Which statement best describes the Heckscher–Ohlin model?

A) It only offers an explanation of the gains from international trade.
B) It only offers an explanation of the pattern of international trade.
C) It only offers an explanation of the effects of international trade on returns to
mobile resources.
D) It offers an explanation of the gains, the pattern of international trade, and the
effects of international trade on returns to mobile resources.

111. What does the Stolper–Samuelson theorem predict will happen to the real returns to
factors of production after trade occurs?
A) Labor and capital must be used together in production, and there is no room for
competition for remuneration.
B) Capital owners always get the “gains from trade.”
C) Resources used intensively in export industries (such as labor in China and capital
in the United States) will see an increase in their returns, whereas the resources
used intensively in import-competing industries will see a decline in their return.
D) Poor nations will always get the least returns to their factors of production.

112. If Home is capital abundant, then when it begins to freely trade with the rest of the
world, the return to capital in Home should _________ and the real wage in Home
should _______.
A) fall; rise
B) fall; fall
C) rise; rise
D) rise; fall

Page 38
113. In the long run, when factors are mobile, an increase in the relative price of a good will
increase the real earnings of the factor used intensively in the production of that good.
This is known as:
A) the Heckscher–Ohlin model.
B) the Stolper–Samuelson theorem.
C) the Ricardian model.
D) the specific-factor theorem.

114. The conclusion that international trade will lead to an increase in real earnings of a
country's abundant resource is known as:
A) factor-intensity reversal.
B) the Heckscher–Ohlin model.
C) Ricardian comparative advantage.
D) the Stolper–Samuelson theorem.

115. If a country finds its comparative advantage in computer production, which is capital
intensive, what will happen to the rental rate on capital when trade occurs?
A) It will decrease.
B) It will stay the same.
C) It will increase.
D) Not enough information is given to answer this question.

116. Suppose that, with trade, the price of shoes (which are labor intensive) increases by
10%. Then which of the following can you say for sure about returns to labor and
capital in the country?
A) Wages will rise by more than 10%.
B) Rental rates will rise by more than 10%.
C) Wages will rise by no more than 10%.
D) Rental rates will fall by at least 10%.

117. Feenstra and Taylor describe the “magnification effect” of trade. This effect describes
how:
A) workers tend to complain more about trade than is justified.
B) owners of capital can “magnify” their earnings if they are able to trade.
C) small changes in relative prices as a result of trade lead to larger long-run changes
in the real wage or rental of factors.
D) unemployment is a big problem among workers but not capital because workers
have to move when they are laid off.

Page 39
118. Surveys have found that U.S. ____________ are the strongest proponents of placing
limits on imports.
A) unskilled workers
B) farmers
C) skilled workers
D) college professors

119. Which of the following groups is most likely to favor free trade for the United States?
A) unskilled workers
B) barbers
C) more educated workers
D) homeowners

120. Which of the following groups will NOT gain if China and the United States engage in
completely free trade?
A) U.S. unskilled labor
B) U.S. consumers of Chinese made products
C) U.S. skilled labor
D) U.S. owners of capital

121. (Table: Factor Use in Latvian Trade)

Does Latvia import capital-intensive or labor-intensive products?

A) capital-intensive
B) labor-intensive
C) neither capital- nor labor-intensive
D) both capital- and labor-intensive

Page 40
122. (Table: Factor Use in Latvian Trade)

According to the Heckscher–Ohlin model, Latvia's capital–labor ratios are consistent

with:
A) Latvia being a capital-abundant country.
B) Latvia being a labor-abundant country.
C) Latvia being neither a capital- nor labor-abundant country.
D) Latvia being both a labor- and capital-abundant country.

123. The following table represents autarkic and free-trade production and consumption and
resource use for Suburbia.

I. Is Surburbia a labor-abundant or a capital-abundant country? Explain your answer.

II. What is the price of good X in autarky? With free trade?
III. How many units of what product are exported? How many units of what product
are imported?
IV. Has the marginal product of labor in good X production increased or decreased?
Explain your answer.
V. Has the marginal product of capital in good Y production increased or decreased?
Explain your answer.

Page 41
124. (Figure: A Country's Before and After Trade Equilibria) Using the graph, how can you
decide whether the nation has “gained” from trade and has a higher standard of living?

125. Suppose the information given in the following table is for a country with abundant
labor. Does this information indicate that the country's trade pattern violates the
Heckscher–Ohlin model?

126. I. Is the United States a net exporter or importer of agricultural products?

II. Consider a Heckscher–Ohlin model with arable land as one of the two resources. Are
the model's predictions consistent with the data presented in the text?

127. Why is the specific-factors model referred to as a “short-run” version of the Heckscher–
Ohlin model?

Page 42
128. Suppose that Home has 10% of the world's capital, 10% of the world's skilled labor,
40% of the world's unskilled labor, and produces 20% of the world's GDP. What does
this information suggest about Home's resource endowments? Explain your answer.

129. Suppose that the following table gives annual employee compensation (including fringe
benefits) in the United States, China, and India for various industries. According to the
Heckscher–Ohlin model, which U.S. industries are most likely to face the strongest
competition from Indian imports? Explain your answer.

130. According to the Stolper–Samuelson theorem, would you expect U.S. skilled workers to
benefit from free trade worldwide?

131. The United States and China, respectively, had 19.6% and 21.3% of the world's R&D
scientists in 2013. Why then did the United States have 33.5% of the world's “effective”
R&D scientists and China have 8.1% of the world's “effective” R&D scientists in 2013?

132. One way to measure a country's labor endowment is to adjust its share of the world's
population using wages as a measure for differences in labor productivity and then
compare this adjusted share to the country's share of world GDP. Use the hypothetical
data in the following table to compute a country's share of world GDP, its share of
world population, and its share of “effective” labor, as measured by wages.

133. According to the Stolper–Samuelson theorem, would you expect all workers across the
globe to favor limiting trade? Why or why not?

134. If India has a comparative advantage in producing low-skilled, labor-intensive goods,

what should happen to Indian low-skilled workers' wages as trade barriers against
Indian imports fall across the world? What should happen to returns to capital in India?

Page 43
135. In a labor-abundant nation, will workers be more or less favorable to international trade?
What about a capital-abundant nation? Why?

136. Who is likely to lose if the United States imposed restrictions on its imports from
China?

137. Who is likely to gain if the United States imposed restrictions on its imports from
China?

138. Consider the Heckscher–Ohlin model and the Stolper–Samuelson theorem. What do
they suggest about what are the gainers and the losers from international trade?

Page 44
Answer Key
1. A
2. D
3. B
4. C
5. D
6. A
7. A
8. C
9. B
10. A
11. B
12. D
13. A
14. A
15. D
16. B
17. C
18. A
19. A
20. A
21. C
22. C
23. C
24. B
25. B
26. A
27. A
28. B
29. B
30. C
31. B
32. B
33. B
34. C
35. B
36. C
37. A
38. C
39. A
40. A
41. A
42. B
43. B
44. C

Page 45
45. C
46. D
47. B
48. C
49. A
50. C
51. B
52. A
53. A
54. B
55. A
56. C
57. D
58. B
59. D
60. A
61. D
62. B
63. C
64. D
65. A
66. C
67. D
68. A
69. B
70. C
71. C
72. C
73. C
74. A
75. C
76. B
77. B
78. C
79. D
80. B
81. B
82. D
83. B
84. D
85. D
86. C
87. A
88. A
89. B
90. A

Page 46
 91. C
92. A
93. A
94. D
95. A
96. C
97. A
98. A
99. C
100. D
101. C
102. B
103. D
104. D
105. A
106. A
107. A
108. A
109. D
110. D
111. C
112. D
113. B
114. D
115. C
116. A
117. C
118. A
119. C
120. A
121. A
122. B
123.
124.
125.
126.
127.
128.
129.
130.
131.
132.
133.
134.
135.
136.

Page 47
137.
138.

Page 48