Question

1. True/False: In the HO model, relative to autarky prices in a country, trade always increases...

1. True/False: In the HO model, relative to autarky prices in a country, trade always increases price of the good that country exports in the traded equilibrium

2. True/False: In the HO model, trade always decreases the relative return of the relatively abundant factor.

3. True/False: In the HO model, trade always decreases the relative return of the relatively scarce factor.

4. True/False: In the HO model, trade always increases the relative return of the relatively abundant factor.

5. True/False In the HO model, trade always increases the relative return of the relatively scarce factor

6. True/False: In the HO model, owners of the relatively scarce factor (in autarky) necessarily gain from opening up to trade.

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Answer #1

1) "False" in HO model trade always decrease the price of the good that country exports because the country specializes in the production of that good using all their scarce resources.

2) "False" trade decrease the return for the scarce factor because the demand for that factor decreases after the trade and that good is imported.

3) "True" the demand for the scare factor decrease because the nation is importing that good now.

4) "True" because abundant factor in more in the demand.

5) "False" trade decreases the relative return of the scarce factor that is why labor unions in the developed country oppose trade because it decreases return to them.

6) "False" owner of the relatively scarce factor loose from the opening of trade.

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