Question

47. If relatively capital-abundant country A opens trade with relatively labor-abundant country B and the trade takes place in accordance with the Heckscher-Ohlin theorem, what would be the consequence for factor prices (w/r) in the two countries? a. (w/r) rises in A and falls in B b. (w/r) rises in A and also rises in B c. (w/r) falls in A and rises in B d. (w/r) falls in A and also falls in B 48. Which one of the following is NOT an assumption made in the standard 2x2x2 Heckscher-Ohlin analysis? a. The production function for a given good is the same in both countries b. If a particular good is the relatively labor-intensive good at one set of relative factor prices, then it is also the relatively labor-intensive good at any other set of relative factor prices. c. A given relative commodity price ratio, say (Px/PY), can be associated with more than one relative factor price ratio, e.g., say with (w/r), as well as with (w/r)2. d. Tastes and preferences (i.e., the community indifference curve maps) are identical in the two countries.

Answer 1

47. (w/r) falls in A and rises in B (country A would use capital intensively and r would rise , country B would use labour intensively and w would rise)

48. c - A given relative commodity price ratio, can be associated with more than one relative factor price ratio.