Chapter 4

................................Cigars (100 box)...Soy (100 bushel)... Land...............................0.2 acres...................0.8 acres........... Labor............................0.4 hours...................0.4 hours........... According to the data, the cigar industry currently uses a land-labor ratio equal to _____ while the land-labor ratio in soybeans is _____.

0.5; 2

According to the Heckscher-Ohlin model, a country exports goods that.... A. are intensive in its abundant factors. B. it has an absolute advantage over. C. are abundant in its intensive factors. D. use a lot of scarce factors.

A. are intensive in its abundant factors. Comparative advantage is determined by a​ nation's factor endowment.

In the specific factors model, a country's comparative advantage is determined by... A. the country's factor endowments relative to its trading partners. B. industry research and development activity which helps differentiate firms into specific industries. C. relative industry size and capacity in each specific industry. D. relative opportunity costs across countries, as in the Ricardian trade model.

A. the country's factor endowments relative to its trading partners.

If Heckscher-Ohlin is taught in all the textbooks, why don't more countries utilize its concepts and conclusions? A. Politicians dismiss it as too theoretical and esoteric, making it difficult to implement. B. Measurement errors make it difficult to test. C. Ricardian theory is more important and thus more widely used. D. With few exceptions, it pretty much is utilized.

B. Measurement errors make it difficult to test.

The sources of modern trade are largely rooted in... A. treaties written by capitalist governments. B. country differences in human and human-created resources. C. decisions implemented by multinational organizations. D. country differences in climate and natural resources.

B. country differences in human and human-created resources.

With each country that opens itself to international trade.... A. there will be losses to the country's abundant factor. B. some factor owners gain, but other factor owners lose. C. there is a clearcut gain for all factor owners. D. workers always lose while corporations always win.

B. some factor owners gain, but other factor owners lose.

Suppose that there are three factors of​ production: capital,​ labor, and land. Wool requires inputs of land and​ labor, and cement requires capital and labor. Suppose Brazil's endowments are 40 capital and 200 land and factor endowments for the United Kingdom are 120 capital and 300 land. When trade opens between these two countries, wool will be exported by _____, and cement will be exported by _____. In the aftermath of trade between these countries, the return to land will rise in _____, and the return to capital will rise in _____. Regarding the return to labor, it will be the case in both the United Kingdom and Brazil that trade as a(n) _____ impact on its return.

Brazil; the United Kingdom Brazil; the United Kingdom indeterminate

.....................................................U.S......................Canada.......... Capital...........................80 machines........20 machines..... Labor...............................160 workers..........50 workers....... Suppose that the United States and Canada have the factor endowments in the table above. Suppose further that the production requirements for a unit of cement are 3 machines and 12 workers, and the requirement for a unit of wool is 2 machines and 11 workers. Given the factor endowments above, it can be predicted that wool will be exported by _____.

Canada

.....................................................U.S......................Canada.......... Capital...........................80 machines........20 machines..... Labor...............................160 workers..........50 workers....... According to the table above, the relatively more labor-abundant country is _____, and the relatively capital-abundant country is _____.

Canada; U.S.

General Motors is a​ U.S.-based multinational, but it is also one of the largest car manufacturers in Europe and South America. Which of the following represents an aspect of​ Dunning's OLI theory that might explain the​ trade-offs GM faced as it decided whether to export to those two markets or to produce in​ them? A. Other auto manufacturers that could handle production are GM's direct competition, making GM unlikely to choose licensing and a sharing of its manufacturing, design, and technology. B. The European market may have design preferences that are different from the U.S. market (i.e., driving on the right side of the road, fuel economy given higher gas prices, higher speed limits, etc.). This would give advantages to a production location with more direct access to the final market. C. Transportation costs are significant in the auto sector, meaning that producing close to the final market can have cost advantages. D. All of the above. E. A and C only.

D Choices A and C each represent one of Dunning's "microeconomic" factors that plays a role in the determination of foreign direct investment. However, Dunning's OLI theory also included "macroeconomic" factors.

The French capital stock is 15 machines, while the Italian capital stock is 10 machines. This information allows you to conclude that... A. France is capital abundant. B. Italy is labor abundant. C. Italy is capital scarce. D. None of the above.

D. None of the above.

A country has a comparative advantage in the production of a good because... A. products made in industries with strong unions are better made. B. its people believe in free enterprise, which ensures productive industries, such as technology products. C. its political leaders give incentives to its industrial leaders toward the most profitable industries, such as green energy. D. its endowments of production inputs determine the relative costs of products.

D. its endowments of production inputs determine the relative costs of products.

(Early/Middle/Late in the production cycle?) Access is needed to capital that is willing to risk failure and an initial period of little or no profits.

Early

(Early/Middle/Late in the production cycle?) There must be a consumer base with substantial income and skilled marketing to advertise information about the product

Early

(T/F) Economists do not stress the income redistribution effects of international trade because those that lose from trade tend to be marginally impacted by trade, poorly organized, and largely devoid of political influence.

FALSE

(T/F) The Heckscher-Ohlin (HO) model allows a third factor that is used in each of two goods, while the specific factors (SF) model does not.

FALSE

(T/F) The Heckscher-Ohlin (HO) model allows migration of factors across countries, while the specific factors (SF) model does not.

FALSE

(T/F) The Heckscher-Ohlin (HO) model is a special case of the more general specific factors (SF) model.

FALSE

A counter-example to the Stolper-Samuelson theorem has firms using more skilled labor as it becomes more expensive, and less unskilled labor as it become less expensive, even if the firms have time to adjust their labor mix. (T/F) This is because skilled labor is an inferior good, as defined in microeconomics, hence higher price means higher demand.

FALSE

A counter-example to the Stolper-Samuelson theorem has firms using more skilled labor as it becomes more expensive, and less unskilled labor as it become less expensive, even if the firms have time to adjust their labor mix. (T/F) This is because unskilled labor is an inferior good, as defined in microeconomics, hence lower price means lower demand.

FALSE

Suppose Spain were to open its borders to the large number of unskilled Africans seeking to immigrate. (T/F) Spain may lose the comparative advantages it now has and trade between Spain and other countries would stop.

FALSE

(Early/Middle/Late in the production cycle?) Consumption in high-income nations begins to exceed production.

Late

(Early/Middle/Late in the production cycle?) Experimentation with design and manufacturing technologies is over, and the product is completely standardized.

Late

(Early/Middle/Late in the production cycle?) Standardized manufacturing routines are increasingly common, using low-skilled and semi-skilled labor in assembly type operations.

Middle

(Early/Middle/Late in the production cycle?) The product itself begins to be standardized in size, features, and manufacturing process.

Middle

_____ is the movement of some or all of a firm's activities to a location outside the home country.

Off-shoring

_____ is the reassignment of activities to another firm, either inside or outside the home country.

Outsourcing

The product cycle model of trade was developed by _____ _____.

Raymond Vernon

(T/F) Allowing foreign firms the ability to brand clothes through licensing causes the domestically owned firms to lose control of an important assets, their brand. Sewing labels in allows some element of quality control while reducing production costs.

TRUE

(T/F) Economists do not, generally, stress the income redistribution effects of international trade.

TRUE

(T/F) Economists focus on the aggregate gains from trade and place little emphasis on losses to specific groups.

TRUE

(T/F) Garment assembly is relatively labor intense and low skill, making it more desirable to locate in less-developed, labor-abundant countries.

TRUE

(T/F) Income distribution effects are not specific to international trade.

TRUE

(T/F) Intrafirm trade constitutes a role for comparative advantage, wherein a product's production process is divided into stages, with some of the stages relocated to countries where the factor endowments are consistent with the production requirements of each stage.

TRUE

(T/F) Most economists argue that trade with income transfers is better than no trade at all.

TRUE

(T/F) Owning an assembly operation directly is not necessary for the domestically owned firms to preserve an asset, their brand, as long as the firms have ultimate control over what product gets their name on it and how that product is distributed and marketed.

TRUE

(T/F) The specific factors (SF) model allows a third factor that is used in each of two goods, while the Heckscher-Ohlin (HO) model does not.

TRUE

A counter-example to the Stolper-Samuelson theorem has firms using more skilled labor as it becomes more expensive, and less unskilled labor as it become less expensive, even if the firms have time to adjust their labor mix. (T/F) This is because broader technology applications require more skilled labor and less unskilled labor.

TRUE

Suppose Spain were to open its borders to the large number of unskilled Africans seeking to immigrate. (T/F) An influx of unskilled labor into Spain may end up working in the non-traded goods sector of Spain's economy, thus having no impact on its comparative advantage and, consequently, on its trade patterns.

TRUE

Suppose Spain were to open its borders to the large number of unskilled Africans seeking to immigrate. (T/F) Spain may become relatively abundant in unskilled labor, thereby acquiring a comparative advantage in products that use intensively unskilled labor.

TRUE

Intrafirm trade and the theory of comparative advantage _____ (are/are not) generally a contradiction.

are not

.....................................................U.S......................Canada.......... Capital...........................80 machines........20 machines..... Labor...............................160 workers..........50 workers....... Suppose that the United States and Canada have the factor endowments in the table above. Suppose further that the production requirements for a unit of cement are 3 machines and 12 workers, and the requirement for a unit of wool is 2 machines and 11 workers. Based on these production requirements, the capital-intensive good is _____ and the labor-intensive good is _____.

cement; wool A good cannot be both capital-intensive and labor-intensive.

A century ago each​ country's exports were shaped largely by what two things?

climate and natural resources

Suppose furniture production is more capital-intensive relative to clothing production. If the U.S. is capital abundant compared with Thailand, the Heckscher-Ohlin model implies that the U.S. should import _____.

clothing

Since the Heckscher-Ohlin model involves multiple inputs, such as land, labor and capital, with various suitabilities for different tasks, the production possibility curve (PPC) is _____ (curved/straight) because production costs are _____ (constant/decreasing/increasing).

curved; increasing

Suppose a country is abundant in capital and the relative price of the good that intensely uses capital for its production increases. The Stolper-Samuelson theorem predicts that it will see wage _____ for labor because of the _____ demand for the good that uses capital intensively.

decreases; higher

Suppose a country is abundant in capital, and the relative price of the good that intensely uses capital for its production increases. The Stolper-Samuelson theorem predicts that it will see wage _____ (decreases/increases) for labor because of the _____ (higher/lower) demand for the good that uses capital intensively.

decreases; higher

The disadvantage for domestic labor is that its relatively _____ productivity is insufficient to offset its _____ price.

high; high

................................Cigars (100 box)...Soy (100 bushel)... Land...............................0.2 acres...................0.8 acres........... Labor............................0.4 hours...................0.4 hours........... Based on this data, it is clear that soybeans are the _____-intensive good, and cigars are the _____-intensive good.

land; labor

Suppose that furniture production is more​ capital-intensive relative to clothing​ production, which is more​ labor-intensive. If the relative price of furniture to clothing​ rises, this will _____ (lower/raise) the income of _____ (capital/labor) owners.

raise; capital

A _____ factor is one whose only use is in the production fo a single good.

specific

Recessions, wars, and natural disasters are examples of _____-_____ factors of migration.

supply-push

The Ricardian model fo international trade makes predictions about actual international trade flows that are _____ (supported/not supported) _____ (with/without) qualification by the empirical evidence.

supported; with