Chapter 4 INter econ

Assume that there are two factors, capital and land, and that the U.S. is relatively capital abundant while Chile is relatively land abundant. According to the factor-proportions model

Chilean land owners should support U.S.-Chile free trade.

If the amount of capital and labor in Country A are $100 million and 100 million workers, and the amount of capital and labor in Country B are $50 million and 25 million workers, then:

Country B is capital abundant compared to Country A

Assume that the U.S. is relatively capital abundant and Mexico is relatively labor abundant. Further, assume that the production of wheat is capital intensive and the production of iron is labor intensive. Which of the following would be true

Mexico would tend to import wheat.

Which of the following statements is false

The productivity of labor rises as the K/L falls

The factor-proportions theory of international trade states that

a country will export the good that requires more intensive use of its abundant factor

A country is said to be relatively abundant in capital if it has:

a higher capital-to-labor ratio

When we say that wheat is labor intensive with respect to automobiles, this means that:

a higher capital-to-labor ratio is used in the production of automobiles than wheat.

When we say that steel is capital intensive with respect to wheat, this means that

a higher capital-to-labor ratio is used in the production of steel than wheat.

Constant returns to scale implies

as the amount of labor and capital doubles the resulting output doubles

International trade tends to

cause the price of the scarce factor to fall and the price of the abundant factor to rise

The factor-proportions theory identifies the source of comparative advantage as

differences in relative factor endowments between countries

A country will have a comparative disadvantage in goods whose production

intensively uses its relatively scarce factor of production

Suppose that Ecuador is a labor-abundant country and Chile is a capital-abundant country. If Ecuador and Chile trade with one another then

labor would tend to get more expensive in Ecuador.

Assume that Mexico is labor abundant and the U.S. is capital abundant. Trade between Mexico and the U.S. would tend to:

lower the price of capital in Mexico.

If output more than doubles when all inputs are doubled, production is said to occur under conditions of

perfect competition

Factor-price equalization means that

trade will have a tendency to equalize the prices of factors of production among countries that trade.