Heckscher-Ohlin Model and International Trade
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Questions and Answers

What does Factor Price Insensitivity (Leamer, 1995) in the H-O model highlight?

  • The absence of zero-profit conditions in the determination of factor prices
  • The occurrence of Factor Intensity Reversals (FIRs)
  • The direct influence of factor endowments on factor prices
  • The complex relationship between factor prices and factor endowments (correct)

    • What is one of the main questions the H-O model aims to answer?

  • What is the impact of consumer preferences on international trade?
  • How does technological change impact factor prices?
  • What are the equilibrium factor prices? (correct)
  • How does a change in government policies affect factor endowments?

    • According to the H-O model, what happens when Factor Intensity Reversals (FIRs) occur?

  • Goods become less competitive in the global market
  • It simplifies the analysis and determination of factor intensities
  • There is a direct link between factor prices and factor endowments
  • The factor intensity rankings of goods change with changing factor prices (correct)

    • In the H-O model, what is assumed to be equalized across countries due to free trade?

    <p>Prices (p1, p2)</p> Signup and view all the answers

    Which concept in the H-O model asserts that factor endowments have no direct impact on determining factor prices?

    <p>Factor Price Insensitivity</p> Signup and view all the answers

    What effect does a steeper slope of the PPF relative to the relative price have in the H-O model?

    <p>Increases relative abundance of labor over capital</p> Signup and view all the answers

    Which condition in the H-O model ensures that there is no involuntary unemployment or underutilization of labor and capital?

    <p>Equilibrium Production Condition</p> Signup and view all the answers

    What is one of the outcomes when FIRs occur in the H-O model?

    <p>'Factor Price Equalization' fails to hold true</p> Signup and view all the answers

    'Resources are limited' in the context of the H-O model implies what?

    <p>'Factor endowments are fixed'</p> Signup and view all the answers

    'FOC implies Equilibrium production occurs where the slope of the PPF equals the relative price' in the H-O model. What does FOC stand for?

    <p>'First-Order Condition'</p> Signup and view all the answers

    According to the Factor Price Equalization (FPE) theorem, under what conditions do factor prices become equal between two countries in free trade?

    <p>Both goods are produced in both countries without any Foreign Direct Investment (FDI).</p> Signup and view all the answers

    What does the Stolper-Samuelson Theorem suggest regarding the effect of an increase in the relative price of a good on factor returns?

    <p>It increases the real return to the factor used intensively in the production of that good.</p> Signup and view all the answers

    Which theorem predicts that an increase in a factor endowment will lead to an increase in output for the industry using that factor intensively?

    <p>Rybczynski</p> Signup and view all the answers

    In a perfect specialization scenario according to the Heckscher-Ohlin (H-O) Model, what does each country export?

    <p>The good using its abundant factor intensively.</p> Signup and view all the answers

    What is one of the factors that contribute to observed deviations from Factor Price Equalization (FPE) in practice?

    <p>Market imperfections and factor mobility constraints.</p> Signup and view all the answers

    Which theory suggests that not everyone gains from trade when there is an increase in the relative price of a good?

    <p>Stolper-Samuelson Theorem</p> Signup and view all the answers

    What does Leontief's paradox attempt to explain regarding international trade patterns?

    <p>'Heckscher-Ohlin' model predictions compared to actual trade data.</p> Signup and view all the answers

    'Dutch disease' can be linked to which theorem based on the text provided?

    <p>'Rybczynski Theorem'</p> Signup and view all the answers

    'Leontief's paradox' is explained by factors such as:

    <p>'Protectionism' and 'tech differences.'</p> Signup and view all the answers

    'Empirical tests of the H-O Model' require data related to:

    <p>'Trade,' 'endowments,' and 'technology.'</p> Signup and view all the answers

    What is one reason countries trade according to the text?

    <p>Due to differences in endowments</p> Signup and view all the answers

    In the specific factors model, why does China export textiles according to the text?

    <p>Due to abundant labor supply</p> Signup and view all the answers

    Why does Germany export machinery according to the text?

    <p>Due to a lack of capital</p> Signup and view all the answers

    What does the H-O model show about trade patterns?

    <p>Trade is due to both resource endowments and differences in factor abundance</p> Signup and view all the answers

    What determines the trade pattern in the H-O model?

    <p>Differences in factor abundance and factor intensity</p> Signup and view all the answers

    How does Samuelson contribute to the trade model discussed?

    <p>He formalized the model developed by Heckscher and Ohlin</p> Signup and view all the answers

    What differentiates countries in the H-O model?

    <p>Differences in factor intensity</p> Signup and view all the answers

    Why can China efficiently produce textiles according to the text?

    <p>Due to an abundance of labor</p> Signup and view all the answers

    What is one reason for China's exports of textiles according to the text?

    <p>Its abundant supply of labor</p> Signup and view all the answers

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