Chapters 3, 4, 5

Consider a world in which there are two nations - the US and the UK, each produces two goods - C (clothing) and F (food). We assume that the two countries are exactly the same in terms of technology, tastes, etc. and are different in terms of factor endowments, that is the UK is relatively capital abundant country and the US is relatively labor abundant country or (K/L)UK > (K/L)US. Further clothing requires relatively capital intensive technology and food requires relatively labor abundant technology (KC/LC > KF/LF). We further assume that food and clothing are produced using constant returns to scale technology. If for some reason, the US decides levy a tax on its imports from UK. In such a case, one would expect that

rents in the US to increase.

factor intensity reversal refers to a situation where

(A) the same commodity is capital - intensive in the capital abundant country and labor - intensive in the labor abundant country

Some economists believe differences in capital and labor are not as important as endowments of skilled and unskilled labor. Comparative advantage based on human skills means

Countries with relatively large endowments of highly skilled labor will have comparative advantage in products that are relatively intensive in skilled labor.

Intra - industry trade index for chemical industry in the US is 1.00. This means that

US exports of chemicals equal US imports of chemicals

Leontief tested in _____ model and found paradoxical results for the US because US is believed to be

HOS; capital abundant relative to rest of world.

Consider two countries US and South Korea and both produce ships and food. US is a capital abundant country and South Korea is a labor abundant country. Further, production of ships requires use of capital intensive technology and production of food requires use of labor intensive technology. Everything else is the same in two countries. Thus in autarky

Price of ship relative price of food will be higher in South Korea relative to the US.

Suppose both India and US produce clothing as well as food. An example of intra - industry trade is

US and IN both export and import C.

Consider a world in which there are two nations - the US and the UK, each produces two goods - C (clothing) and F (food). We assume that the two countries are exactly the same in terms of technology, tastes, etc. and are different in terms of factor endowments, that is the UK is relatively capital abundant country and the US is relatively labor abundant country or (K/L)UK > (K/L)US. Further clothing requires relatively capital intensive technology and food requires relatively labor abundant technology (KC/LC > KF/LF). We further assume that food and clothing are produced using constant returns to scale technology. Thus, based on the assumptions,

US will export F and import C.

Consider two countries US and South Korea and both produce ships and food. US is a capital abundant country and South Korea is a labor abundant country. Further, production of ships requires use of capital intensive technology and production of food requires use of labor intensive technology. Everything else is the same in two countries. Thus as per HOS model,

US will export ships and import food.

Consider two countries US and South Korea and both produce ships and food. US is a capital abundant country and South Korea is a labor abundant country. Further, production of ships requires use of capital intensive technology and production of food requires use of labor intensive technology. Everything else is the same in two countries. Thus in autarky

US will produce relatively more ships than food as compared to SK

Consider two countries US and South Korea and both produce ships and food. US is a capital abundant country and South Korea is a labor abundant country. Further, production of ships requires use of capital intensive technology and production of food requires use of labor intensive technology. Everything else is the same in two countries. Thus in autarky

Wages/rent will be lower in South Korea as compared to the US.

Trump wants to place import tax %20 on Mexico, who's he trying to protect?

Workers Mexico is L-abundant According to HOS

In real world, we have more than 2 goods, 2 countries, and 2 factors of production. Thus, in the real world, the results of HOS model

are still valid as long as number of goods produced is greater than or equal to number of factors of production.

Consider a situation where we have 2 countries producing 2 goods using 2 factors of production. If PPC exhibits constant cost principle, then we will have ______________ specialization in production. In such a case, the results of factor price equalization theorem will be _____________ . When in Increasing Cost Principle:

complete, invalid. Incomplete, valid.

Consider a world in which there are two nations - the US and the UK, each produces two goods - C (clothing) and F (food). We assume that the two countries are exactly the same in terms of technology, tastes, etc. and are different in terms of factor endowments, that is the UK is relatively capital abundant country and the US is relatively labor abundant country or (K/L)UK > (K/L)US. Further clothing requires relatively capital intensive technology and food requires relatively labor abundant technology (KC/LC > KF/LF). We further assume that food and clothing are produced using constant returns to scale technology. If there is an incrase in supply of L in the US (Rybczinski Theorem).

food production in US will increase.

Suppose, "Beautiful Country" produces two goods -- clothing and food using labor and capital. Further capital is sector specific i.e. machines used to produce food cannot be used to produce clothing and vice - versa. Further, food is produced using labor - intensive technology and "Beautiful Country" is labor abundant. With international trade, "Beautiful Country" will export ____________ and rent on machines will __________ in the food sector and rent on machines will ______________ in the clothing sector.

food; increase; decrease

With international trade, the US will produce more _____ and thus demand for _____ will increase and this will increase _____ in the US.

food; labor; wages.

If we permit international factor mobility across countries within the HOS framework, then

higher international factor mobility will lead to lower international trade.

Consider a world in which there are two nations - the US and the UK, each produces two goods - C (clothing) and F (food). We assume that the two countries are exactly the same in terms of technology, tastes, etc. and are different in terms of factor endowments, that is the UK is relatively capital abundant country and the US is relatively labor abundant country or (K/L)UK > (K/L)US. Further clothing requires relatively capital intensive technology and food requires relatively labor abundant technology (KC/LC > KF/LF). We further assume that food and clothing are produced using constant returns to scale technology. Thus, (Pc/Pf) in A will be _____ in the _____ as compared to _____.

lower; UK; US.

Consider two countries US and South Korea and both produce ships and food. US is a capital abundant country and South Korea is a labor abundant country. Further, production of ships requires use of capital intensive technology and production of food requires use of labor intensive technology. Everything else is the same in two countries. Thus people (owners and employees) involved in

ship industry in US and F industry in SK will support foreign trade