Monash University

BFW 2104

CHAPTER 5

Multiple Choice

1)The H-O model extends the classical trade model by:

1. 1. explaining the basis for comparative advantage
   2. examining the effect of trade on factor prices
   3. both a and b
   4. neither a nor b

2. Which is not an assumption of the H-O model?
   1. the same technology in both nations
   2. constant returns to scale
   3. complete specialization
   4. equal tastes in both nations

3. With equal technology nations will have equal K/L in production if:
   1. factor prices are the same
   2. tastes are the same
   3. production functions are the same
   4. all of the above

4. We say that commodity Y is K-intensive with respect to X when:
   1. more K is used in the production of Y than X
   2. less L is used in the production of Y than X
   3. a lower L/K ratio is used in the production of Y than X
   4. a higher K/L is used in the production of X than Y

5. When w/r falls, L/K
   1. falls in the production of both commodities
   2. rises in the production of both commodities
   3. can rise or fall
   4. is not affected

6. A nation is said to have a relative abundance of K if it has a:
   1. greater absolute amount of K
   2. smaller absolute amount of L
   3. higher L/K ratio
   4. lower r/w

7. A difference in relative commodity prices between nations can be based on a difference in:
   1. technology
   2. factor endowments
   3. tastes
   4. all of the above

8. In the H-O model, international trade is based mostly on a difference in:
   1. technology
   2. factor endowments
   3. economies of scale
   4. tastes

9. According to the H-O model, trade reduces international differences in:
   1. relative but not absolute factor prices
   2. absolute but not relative factor prices
   3. both relative and absolute factor prices
   4. neither relative nor absolute factor prices

10. According to the H-O model, international trade will:

1. reduce international differences in per capita incomes
2. increases international differences in per capita incomes
3. may increase or reduce international differences in per capita incomes
4. lead to complete specialization

11. The H-O model is a general equilibrium model because it deals with:

1. production in both nations
2. consumption in both nations
3. trade between the two nations
4. all of the above

12. The H-O model is a simplification of a truly general equilibrium model because it deals with:

1. two nations
2. two commodities
3. two factors of production
4. all of the above

13. The Leontief paradox refers to the empirical finding that U.S.

1. import substitutes are more K-intensive than exports
2. imports are more K-intensive than exports
3. exports are more L-intensive than imports
4. exports are more K-intensive than import substitutes

14. From empirical studies, we conclude that the H-O theory:

1. must be rejected