International Trade

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In the 2-factor, 2-good Heckscher-Ohlin model (H-O), the two countries differ in

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relative abundance of factors of production

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The H-O model differs from the Ricardian Model of comparative advantage in that the former

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Has only two factors of production

Front 3

In the 2-factor, 2-good H-O model, the country with a relative abundance _________ will have a production possibility frontier that is biased toward the production of the _______________ good.

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labor, labor intensive

capital, capital intensive

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In the H-O model, trade will ________ the owners of a country's ________ factor and will __________ the good that uses that factor intensively.

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benefit; abundant; export

Front 5

Starting from an autarky (no trade) situation, with H-O model, if country A is relatively labor abundant, then once trade begins

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Wage should rise and rent should fall in A.

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If country B has many workers but little land and even less productive capital from the H-O model, we predict that B will export

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Labor intensive goods

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Holding output prices constant, as the amount of factors of production __________ then the supply of the good that uses this factor intensively ___________ and the supply of the other good ______________.

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Increases, increases, decreases

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If a country produces good Y (measured on the vertical axis) and good X (measured on thehorizontal axis), then the absolute value of the slope of its production possibility frontier is equalto

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the opportunity cost of good X.

Front 9

In the Heckscher-Ohlin model, when two countries begin to trade with each other

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the relative prices of traded goods in the two countries converge

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If a good is labor intensive it means that the good is produced

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using relatively more labor than goods that are not labor intensive.

Front 11

In the Heckscher-Ohlin model, when there is international-trade equilibrium

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the relative price of the capital intensive good in the capital rich country will be the same as that in the capital poor country.

Front 12

If Australia has relatively more land per worker, and Belgium has relatively more capital perworker, then if trade began between these two countries,

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the relative price of the land-intensive product would increase in Australia.

Front 13

If Japan is relatively capital rich and the United States is relatively land rich, and if food isrelatively land intensive then trade between these two, formerly autarkic countries will result in

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an increase in the relative price of food in the U.S.

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11) If Gambinia has many workers but very little land and even less productive capital, then,following the Heckscher-Ohlin model, we predict that Gambinia will export

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labor-intensive goods.

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

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wages should rise and rents should fall in H

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Empirical observations on actual North-South trade patterns tend to

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support the validity of the Heckscher-Ohlin model.

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The Leontieff Paradox

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failed to support the validity of the Heckscher-Ohlin model.

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The 1987 study by Bowen, Leamer and Sveikauskas

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supported the validity of the Leontieff Paradox

Front 19

The meaning of "terms of trade" is

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the price of a country's exports divided by the price of its imports

Front 20

If the ratio of price of cloth (PC) divided by the price of food (PF) increases in the international marketplace, then

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world relative quantity of cloth supplied will increase

Front 21

If a small country were to levy a tariff on its imports then this would

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decrease the country's economic welfare.

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When the production possibility frontier shifts out relatively more in one direction, we have

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biased growth

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Suppose that a "small country" experiences growth strongly biased toward its export, cloth,

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this will have no effect on terms of trade for the country's trading partner.

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point c; point b; remain unchanged

Front 25

Refer to the figure above, which shows a country's possible production possibility frontiers andindifference curves. If the country is producing at ________, then moving to ________ will causeutility to ________.

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point b; point a; increase

Front 26

If the U.S. (a large country) imposes a tariff on its imported good, this will tend to

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improve the terms of trade of the United States.

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If Slovenia is a small country in world trade terms, then if it imposes a large series of tariffs onmany of its imports, this would

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have no effect on its terms of trade

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Internal economies of scale arise when the cost per unit

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falls as the average firm grows larger.

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If a firm's output more than doubles when all inputs are doubled, production is said to occurunder conditions of

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increasing returns to scale

Front 30

One advantage of the specialization that results from international trade is that countries can takeadvantage of

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scale economies

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External economies of scale will ________ average cost when output is ________ by ________.

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reduce; increased; the industry

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The existence of external economies of scale

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may be associated with a perfectly competitive industry

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The existence of internal economies of scale

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cannot be associated with a perfectly competitive industry.

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External economies of scale often arise because similar firms

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locate in the same geographic region.

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If output is increased in the long-run, average production costs in the presence of internaleconomies of scale will ________, and in the presence of external economies of scale, will________.

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decrease; decrease

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If two countries begin trade and both produce a product subject to external economies of scale,then the country with the ________ rate of production will ________ production until it controls________ of the market.

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higher; increase; 100%

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A learning curve relates ________ to ________ and is a case of ________ returns.

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unit cost; cumulative production; dynamic increasing returns

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Monopolistic competition is associated with

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product differentiation.

Front 39

The simultaneous export and import of widgets by the United States is an example of

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intra-industry trade.

Front 40

If there are a large number of firms in a monopolistically competitive industry,

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long-run profit will be equal to zero.

Front 41

If a firm increases its output in the ________ and unit costs ________, then the firm is experiencing________ of scale.

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long-run; decrease; economies

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f a firm that uses a production process that yields economies of scale charges a price equal to ________, then profit will be ________.

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marginal cost; negative

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Firms that produce ________ products must be ________ competitive.

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differentiated; imperfectly

Front 44

Under oligopoly, firms' pricing policies are ________ and, under monopolistic competition, theyare ________.

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interdependent; independent

Front 45

Under the model of monopolistic competition, a(an) ________ in the number of firms in theindustry will cause ________ to ________.

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increase; markup; decrease

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Intra-industry trade is most common in the trade patterns of

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the industrial countries of Western Europe.

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International trade based on external scale economies in both countries is likely to be carried outby

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a relatively large number of price competing firms.

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A firm in long-run equilibrium under monopolistic competition will earn

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zero economic profits because of free entry.

Front 49

A product is produced in a monopolistically competitive industry with scale economies. If thisindustry exists in two countries, and these two countries engage in trade with each other, then wewould expect

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each country will export different varieties of the product to the other.

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Two countries engaged in trade in products with scale economies, produced under conditions ofmonopolistic competition, are likely to be engaged in

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intra-industry trade.

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If the market for products produced by firms in a monopolistically competitive industry becomes________, then there will be ________ firms and each firm will produce ________ output andcharge a ________ price.

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smaller; fewer; less; higher

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In the model of monopolistic competition, if firms have ________ average cost curves, thenopening trade will cause ________ firms to ________ the industry.

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different; less efficient; exit

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In the model of monopolistic competition, an increase in industry output will ________ producersof higher-priced goods and ________ producers of lower-priced goods.

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benefit; benefit

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In the model of monopolistic competition, trade costs between countries cause

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marginal costs of exported goods to exceed the marginal costs of goods sold domestically.

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Complaints are often made to the International Trade Commission concerning foreign "dumping"practices. These complaints typically claim that

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U.S. firms are harmed by the unfair pricing of foreign exporters.

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A corporation is considered a multinational ________ if ________.

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parent; it owns more than 10% of a foreign firm

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When a multinational affiliate replicates production in a foreign country it is called ________foreign direct investment.

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horizontal

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Foreign outsourcing is

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the transfer of operations to foreign contractors.