Question

1. In the HO model, which of the following is correct? A An increase in (Pc/PF)...

1. In the HO model, which of the following is correct?

A An increase in (Pc/PF) will increase (w/r) whenever cloth is capital intensive

B An increase in (Pc/PF) will increase (w/r) whenever food is capital intensive

C A decrease in (Pc/PF) will increase (w/r) whenever food is capital intensive

D A decrease in (Pc/PF) will decrease (w/r) whenever cloth is capital intensive

2.  

In which model(s) is it true that a Utilitarian, someone who maximizes the welfare of the country overall (total national income), would always favor free trade?

A The Ricaridan Model

B The Heckscher-Ohlin Model

C Both models

D Neither model

3. If cloth is labor intensive and food is capital intensive, then according to the Stolper-Samuelson Theorem, when a country opens up to trade, a(n)

A Increase in (Pc / Py) implies (w / r) will increase

B Increase in (Pc / Py) implies (w / r) will decrease

C Decrease in (Pc / Py) implies (w / r) will increase

D (B) and (C)

E All of the above

4. In which model(s) is it possible to discuss the effects of trade on income inequality within countries?

A The Ricardian Model

B The Heckscher-Ohlin Model

C Both models

D Neither model

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Homework Answers

Answer #1

1) B . An increase in (Pc/PF) will increase (w/r) whenever food is capital intensive

Relationship between relative price of output and relative factor returns . Under certain economic conditions and assumptions , a rise in the relative price will cause rise in returns to the factor which is used more intensively in production of the good . If cloth is labour intensive , food must be capital intensive .

2) B. The Heckscher-Ohlin Model

Since in this model there is no perfect specialization . All the producers can gain .

3) A. Increase in (Pc / Py) implies (w / r) will increase

4) B. The Heckscher-Ohlin Model

Since it takes into account returns to the factors of production ( Stolper Samuelson theorem ) .

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