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D) it increases society's consumption choices.

E) None of the above. Answer: D

18) International trade leads to complete equalization of factor prices. Discuss. Answer: This statement is typically \

original Heckscher-Ohlin model which excludes country specific technologies; non- homothetic tastes; factor intensity reversals; large country differences in (relative) factor abundances, more factors than goods, and an equilibrium solution within the \then it may be demonstrated that internal consistency demands that the above stated sentence is \relaxes any of the above listed assumptions one may easily identify solutions, which contradict the factor price equalization theorem.

19) Starting from an autarky (no-trade) situation with Heckscher-Ohlin model, if Country H is relatively labor

abundant, then once trade begins

A) wages and rents should rise in H.

B) wages and rents should fall in H. C) w ages should rise and rents should fall in H. D) wages should fall and rents should rise in H.

E) None of the above. Answer: C

20) According to the Heckscher-Ohlin model, if the United States is richly endowed in human-capital relative to

Mexico, then as NAFTA increasingly leads to more bilateral free trade between the two countries, A) the United States will find its industrial base sucked into Mexico.

B) Mexico will find its relatively highly skilled workers drawn to the United States. C) t he wages of highly skilled U.S. workers will be drawn down to Mexican levels. D) the wages of highly skilled Mexican workers will rise to those in the United States.

E) the wages of highly skilled Mexican workers will fall to those in the United States. Answer: E

21) International trade has strong effects on income distributions. Therefore, international trade

A) is beneficial to everyone in both trading countries.

B) will tend to hurt one trading country. C) w ill tend to hurt some groups in each trading country. D) will tend to hurt everyone in both countries.

E) will be beneficial to all those engaged in international trade. Answer: C

22) Groups that lose from trade tend to lobby the government to

A) shift the direction of comparative advantage.

B) abolish the Specific Factor model from practical application. C) p rovide public support for the relatively efficient sectors. D) provide protection for the relatively inefficient sectors.

E) None of the above. Answer: D 23) The Leontieff Paradox

A) supported the validity of the Ricardian theory of comparative advantage.

B) supported the validity of the Heckscher-Ohlin model. C) f ailed to support the validity of the Ricardian theory. D) failed to support the validity of the Heckscher -Ohlin model.

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E) proved that the U.S. economy is different from all others. Answer: D

24) The Leontieff Paradox

A) refers to the finding that U.S. exports were more labor intensive than its imports.

B) refers to the finding that U.S. Exports were more capital intensive than its exports. C) r efers to the finding that the U.S. produces outside its Edgeworth Box. D) still accurately applies to today's pattern of U.S. international trade.

E) refers to the fact that Leontieffª¥an American economistª¥had a Russian name. Answer:

Answers to Textbook Problems

A

2. a. The box diagram has 600 as the length of two sides (representing labor) and 60 as the length of the other two sides (representing land). There will be a ray from each of the two corners representing the origins. To find the slopes of these rays we use the information from the question concerning the ratios of the production coefficients. The question states that aLC/aTC ? 20 and aLF/aTF ? 5.

Since areasoning, aLC/aTC ? (L? (LC/QC)/(TC/QC) ? L LC/TC we have LC ? 20TC. Using the same LF/aTF F/QF)/(TF/QF) ?F/TF and since this ratio equals 5, we have L 5TL ? L? TF ?F. We can solve this algebraically since C ??LF ? 600 and T C ??TF ? 60.

The solution is LC ? 400, TC ? 20, LF ? 200 and TF ? 40.

b. The dimensions of the box change with each increase in available labor, but the slopes of the rays from the origins remain the same. The solutions in the different cases are as follows.

L ? 800: TC ? 33.33, LC ? 666.67, TF ? 26.67, LF ? 133.33 L ? 1000: TC ? 46.67, LC ? 933.33, TF ? 13.33, LF ? 66.67 L ? 1200: TC ? 60, LC ? 1200, TF ? 0, LF ? 0. (complete specialization).

c. At constant factor prices, some labor would be unused, so factor prices would have to change, or there would be unemployment.

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