Question

Computers are relatively capital intensive in their production, while wool is relatively labor intensive. Australia is relatively capital abundant and New Zealand is relatively labor abundant. According to the Heckscher–Ohlin theorem and the factor price equalization theorem:

Select one:

a. we would expect the return to capital in Australia to fall relative to the return to labor in Australia.

b. we would expect the return to capital in Australia to rise relative to the return to labor in Australia.

c. we would expect the return to capital in Australia to equal the return to labor in Australia.

d. we would expect the return to capital in Australia to fall relative to the return to labor in New Zealand.

The rate of exchange between the Mexican peso and the U.S. dollar is 12.650 (peso/dollar) and the rate of exchange between the U.S. dollar and the euro is 1.350 (dollar/euro). The cross-rate of exchange between the peso and the euro is 9.370.

Select one:

True

False

Answer 1

Computers are relatively capital intensive in their production, while wool is relatively labor intensive. Australia is relatively capital abundant and New Zealand is relatively labor abundant. According to the Heckscher–Ohlin theorem and the factor price equalization theorem: we would expect the return to capital in Australia to rise relative to the return to labor in Australia.

The rate of exchange between the Mexican peso and the U.S. dollar is 12.650 (peso/dollar) and the rate of exchange between the U.S. dollar and the euro is 1.350 (dollar/euro). The cross-rate of exchange between the peso and the euro is 9.370.- FALSE, the cross rate is =17.0775