Question : Suppose Australia, a land (K)-abundant country, and Sri-Lanka, a labor(L)-abundant : 1303502

 

Suppose Australia, a land (K)-abundant country, and Sri-Lanka, a labor(L)-abundant country, both produce labor and land intensive goods with the same technology.

 

 

29) Refer to above figure. Imagine that the relative capital abundance of Australia was so much greater than that of Sri-Lanka, that we would have to locate Australia far to the right on the K/L axis. If this were so far to the right that there was no area of overlap on the w/r axis, then what product would Australia export? Which product will each of the trade partners export? Will the relative wages as calculated now be the same or different in both Australia and Sri Lanka?

 

 

30) Starting from an autarky (no-trade) situation with Heckscher-Ohlin model, if Country H is relatively labor abundant, then once trade begins

A) wages should rise and rents should fall in H.

B) wages and rents should rise in H.

C) wages and rents should fall in H.

D) wages should fall and rents should rise in H.

E) rent will be unchanged but wages will rise in H.

 

 

31) Suppose that there are two factors, capital and land, and that the United States is relatively land endowed while the European Union is relatively capital-endowed. According to the Heckscher-Ohlin model

A) European capitalists should support U.S.-European free trade.

B) European landowners should support U.S.-European free trade.

C) all capitalists in both countries should support free trade.

D) all landowners should support free trade.

E) the U.S. should compensate European countries once trade commences.

 

 

32) International trade has strong effects on income distributions. Therefore, international trade

A) will tend to hurt some groups in each trading country.

B) is beneficial to everyone in both trading countries.

C) will tend to hurt one trading country.

D) will tend to hurt everyone in both countries.

E) will be beneficial to all those engaged in international trade.

 

33) Factors tend to be specific to certain uses and products

A) in the short run.

B) in countries lacking comparative advantage.

C) in capital-intensive industries.

D) in labor-intensive industries.

E) in countries lacking fair labor laws.

 

 

34) If the price of the capital intensive product rises more than does the price of the land intensive product, then

A) the relative price of the capital intensive product will fall to some point between the pretrade relative prices.

B) demand will shift away from the capital-intensive product, and its production will decrease.

C) demand will shift away from the capital-intensive product, and its production will decrease relative to that of the land intensive product.

D) the production of the capital-intensive product will decrease, but by less than production of the land-intensive product.

E) the country that exports the capital-intensive good will lose its comparative advantage.

 

 

35) If trade opens up between the two formerly autarkic countries, Australia and Belgium, then

A) the real income of both countries may increase.

B) the real income of Australia and of Belgium will increase.

C) the real income of Australia but not of Belgium will increase.

D) the real income of neither country will increase.

E) the real income of both countries will increase.

 

 

 

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