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.