Chapter 4: Trade and Resources: The Heckscher-Ohlin Model

Multiple Choice
Instructions: Read the following questions carefully and choose the answer that best
describes. There are 40 questions in total and each question has 2.5 points (100 points in
total). This is an open-book test. The given time for this quiz is 60 minutes.

Question 1 Multiple Choice

LCD TVs are capital intensive, and tennis rackets are labor intensive. Suppose Canada has
$100 billion of capital and 2 million workers and Mexico has $10 billion of capital and 20
million workers. According to the HO model:

Answer
a. Canada will specialize in and export LCD TVs.
b. Mexico will specialize in and export LCD TVs.
c. Canada will specialize in and export tennis rackets.
d. Mexico will import tennis rackets.

Question 2 Multiple Choice

Hong Kong is relatively abundant in labor, whereas Canada is relatively abundant in capital.
In both countries, shirt production is relatively more labor intensive than computer
production. According to the Heckscher-Ohlin model, Hong Kong will have a(n) ________
advantage in the production of __________ .

Answer
a. absolute; shirts and computers
b. absolute; computers
c. comparative; shirts
d. comparative; computers

Question 3 Multiple Choice

If there are only two nations, one nation's exports are the other's imports; which of the
following is identical for both nations?

Answer
a. equilibrium relative price
b. trade triangle
c. opportunity cost
d. equilibrium relative price, trade triangle, and opportunity cost

Question 4 Multiple Choice

Suppose that Home is a labor-abundant country. When trade occurs with Foreign, a capital-
abundant country, the HO model predicts that:
Chapter 4: Trade and Resources: The Heckscher-Ohlin Model

Answer
a. the price of the labor-intensive good will rise in Home.
b. the price of the labor-intensive good will rise in Foreign.
c. the price of the capital-intensive good will fall in Foreign.
d. the price of the capital-intensive good will rise in Home.

Question 5 Multiple Choice

Figure: A Country's Before and After Trade Equilibria

Reference: Ref 4-3

(Figure: A Country's Before and After Trade Equilibria) The trade triangle shows the exports
that were exchanged for imports. What are the three points of the trade triangle?

Answer
a. A, B, C
b. A, B, D
c. A, D, C
d. B, C, D

Question 6 Multiple Choice

Figure: A Country's Before and After Trade Equilibria

Chapter 4: Trade and Resources: The Heckscher-Ohlin Model

Reference: Ref 4-3

(Figure: A Country's Before and After Trade Equilibria) How many shoes will this nation
export?

Answer
a. 0
b. 125
c. 350
d. 500

Question 7 Multiple Choice

Figure: A Country's Before and After Trade Equilibria

Chapter 4: Trade and Resources: The Heckscher-Ohlin Model

Reference: Ref 4-3

(Figure: A Country's Before and After Trade Equilibria) How many shoes will this nation
import? 500 - 150 =350
Answer
a. 0
b. 125
c. 350
d. 500

Question 8 Multiple Choice

Figure: A Country's Before and After Trade Equilibria

Chapter 4: Trade and Resources: The Heckscher-Ohlin Model

Reference: Ref 4-3

(Figure: A Country's Before and After Trade Equilibria) How many computers will this
nation export?
Answer
a. 0
b. 125
c. 350
d. 500

Question 9 Multiple Choice

Consider two products, automobiles and shoes. If shoes are labor intensive and automobiles
are capital intensive, what will happen under the HO model?

Answer
a. The labor-abundant country will export automobiles.
b. The capital-abundant country will export shoes.
c. The labor-abundant country will import shoes.
d. The capital-abundant country will import shoes.

Question 10 Multiple Choice

Suppose Portugal has 700 workers and 26,000 units of capital, and France has 18,000
workers and 700 units of capital. Technology is identical in both countries. Assume that wine
is the capital-intensive good and cloth is the laborintensive good. Which of the following
statements is correct?
Chapter 4: Trade and Resources: The Heckscher-Ohlin Model

Answer
a. Portugal will export wine and import cloth.
b. France will export wine and import cloth.
c. There is no basis for trade between France and Portugal.
d. Portugal will export cloth and import wine.

Question 11 Multiple Choice

Suppose Portugal has 700 workers and 26,000 units of capital, and France has 18,000
workers and 700 units of capital. Technology is identical in both countries. Assume that wine
is the capital-intensive good and cloth is the laborintensive good. Which of the following
statements is correct if the nations start trading with each other?

Answer
a. Wages will increase in Portugal.
b. Rental rates in France will increase.
c. Wages in France will decrease.
d. Rental rates in Portugal will increase.

Question 12 Multiple Choice

Leontief found that the HO model did not work for the United States because:

Answer
a. the United States was importing labor-intensive commodities.
b. the U.S. capital/labor ratio for imported goods was larger than that for the exported goods.
c. the U.S. capital/labor ratio for imported goods was smaller than that for the exported
goods.
d. there was a trade imbalance in the United States.

Question 13 Multiple Choice

Using 1947 data, Leontief discovered a “paradox” in his test. If the Heckscher-Ohlin model is
correct, the United States would have exported _____-intensive goods and imported _____-
intensive goods; but his study indicated the reverse was true.

Answer
a. land; technology
b. labor; land
c. capital; labor
d. labor; capital

Question 14 Multiple Choice

If we measure scarcity or abundance correctly, we should use the concept of “effective factor
endowment.” This means:
Chapter 4: Trade and Resources: The Heckscher-Ohlin Model

Answer
a. the actual factor endowment multiplied by the average productivity of workers compared
with its share of world GDP.
b. trying to find out how much labor and capital are really involved in producing goods
competing with imports and exports.
c. measuring more effectively a nation's actual factor endowment.
d. the actual factor endowment of labor multiplied by the productivity of capital, because,
effectively, the productivity of one depends on the quantity of the other.

Question 15 Multiple Choice

Compared with other countries, the United States' effective factor endowment is greatest for:

Answer
a. capital.
b. R&D scientists.
c. arable land.
d. unskilled labor.

Question 16 Multiple Choice

If Japanese workers receive lower wages in the production of autos compared with American
workers, then:

Answer
a. Japan must have a comparative advantage in the production of autos.
b. Japan must have an absolute advantage in the production of autos.
c. auto production costs must be lower in Japan than in the United States.
d. auto production costs could be lower in the United States if U.S. labor productivity is
higher than Japanese labor productivity.

Question 17 Multiple Choice

In a capital-abundant country, free trade will cause a(n) __________ in the rental of capital
and a(n) ____________ in the marginal product of capital.

Answer
a. increase; increase
b. increase; decrease
c. decrease; decrease
d. decrease; increase

Question 18 Multiple Choice

In a labor-abundant country, free trade will cause a(n) __________ in the rental of capital and
a(n) _________ in the marginal product of capital.

Answer
Chapter 4: Trade and Resources: The Heckscher-Ohlin Model

a. increase; increase
b. increase; decrease
c. decrease; decrease
d. decrease; increase

Question 19 Multiple Choice

The wage paid to labor should increase when:

Answer
a. the capital/labor ratio increases.
b. the capital/labor ratio decreases.
c. a country's labor force increases.
d. a country's capital stock decreases.

Question 20 Multiple Choice

With the “opening” of trade, the item exported experiences a ________ in demand and
therefore a ________ in its relative (domestic) price, whereas the item imported experiences
a(n) ________ in demand and therefore a(n) ________ in its relative (domestic) price.

Answer
a. rise, rise; decrease, decrease
b. rise, fall; increase, decrease
c. fall, fall; increase, increase
d. fall, rise; decrease, increase

The End.