final exam
WEEK-6 Tutorial Questions
1. Country A has 200,000 workers and 50,000 capital, whereas Country B has 300,000 workers and 100,000 capital. Then,
A. Country B is labour-abundant. B. Country B is both labour-abundant and
capital abundant. C. Country A is labour-abundant. D. Country A is both labour-abundant and
capital abundant.
• (" # )%= '((,(((
*(,((( = 4
• (" # ),= -((,(((
.((,((( = 3
• Since (" # )% = 4 > 3 = ("
# ),
• Country A is labour aboundant and Country B, thus must be capital abundant.
1. Country A has 200,000 workers and 50,000 capital, whereas Country B has 300,000 workers and 100,000 capital. Then,
A. Country B is labour-abundant. B. Country B is both labour-abundant and
capital abundant. C. Country A is labour-abundant. D. Country A is both labour-abundant and
capital abundant.
2. If two factors are used in fixed coefficients to make two goods E and F, the relative supply curve, QE / QF will be
A. Horizontal. B. Positively-sloped. C. Vertical. D. Negatively-sloped.
2. If two factors are used in fixed coefficients to make two goods E and F, the relative supply curve, QE / QF will be
A. Horizontal. B. Positively-sloped. C. Vertical. D. Negatively-sloped.
3. Consider H-O model. In Japan cars (C) are made K-intensively and artistic wall-hangings (W) are made L-intensively. If over the next decade Japan accumulates capital while its labour force stays the same, its
A. Output of C will increase and the output of W will decrease.
B. Output of W will increase but less than the increase in C.
C. Output of C will increase and the output of W will be unchanged.
D. Output of C will increase but less than the increase in W.
4. The Rybczynski Theorem states that
A. Each country exports the good which is intensive in the factor in which it is abundant.
B. An increase in the supply of one factor will increase the output of the good that is intensive in that factor, and a reduction in the output of the other good.
C. In each country, the scarce factor’s income falls when trade opens in terms of both goods and the abundant factor’s income rises in terms of both goods.
D. If both countries produce both goods under free trade, then factor prices (such as wages) will be equalized across countries by trade.
5. The Heckscher-Ohlin Theorem states that
A. Each country exports the good which is intensive in the factor in which it is abundant.
B. An increase in the supply of one factor will increase the output of the good that is intensive in that factor, and a reduction in the output of the other good.
C. In each country, the scarce factor’s income falls when trade opens in terms of both goods and the abundant factor’s income rises in terms of both goods.
D. If both countries produce both goods under free trade, then factor prices (such as wages) will be equalized across countries by trade.
6. India is labour (L) abundant and the US is capital (K) abundant. The cut diamonds (C) industry is L-intensive while washing machines (W) manufacturing is K-intensive. According to Heckscher-Ohlin model, if India and the US start trading with each other, then
A. PC/PW will rise in both countries. B. PC/PW will fall in India but rise in the US. C. PC/PW will rise in India but fall in the US. D. PC/PW will fall in both countries.
7. According to the Stolper-Samuelson theorem
A. If both countries produce both goods under free trade, then factor prices (such as wages) will be equalized across countries by trade.
B. An increase in the supply of one factor will increase the output of the good that is intensive in that factor, and a reduction in the output of the other good.
C. Each country exports the good which is intensive in the factor in which it is abundant.
D. In each country, the scarce factor’s income falls when trade opens in terms of both goods and the abundant factor’s income rises in terms of both goods.
8. According to the Factor-price equalization theorem
A. If both countries produce both goods under free trade, then factor prices (such as wages) will be equalized across countries by trade.
B. An increase in the supply of one factor will increase the output of the good that is intensive in that factor, and a reduction in the output of the other good.
C. Each country exports the good which is intensive in the factor in which it is abundant.
D. In each country, the scarce factor’s income falls when trade opens in terms of both goods and the abundant factor’s income rises in terms of both goods.
9. Making of circuit-boards (C) is skilled-labour intensive while the assembly of wrist-watches (W) is unskilled-labour intensive. The US is skilled-labour abundant while China is unskilled-labour abundant. If the US and China trade with each other, then according to the Stolper-Samuelson theorem
A. Income inequality will decline in both the countries.
B. Income inequality will rise in the US but decline in China.
C. Income inequality will decline in the US but rise in China.
D. Income inequality will rise in both the countries.
10. Allowing for substitution between factors in production instead of fixed coefficients makes the
A. RS curve horizontal. B. RS curve positively-sloped. C. RD curve vertical. D. RD curve positively-sloped.
11. In the Heckscher-Ohlin with two factors, say labour and capital, and both being free to move across sectors, an outflow of capital from the country will cause the capital-labour ratio to:
A. Increase in the labour-intensive industry and decrease in the capital-intensive industry.
B. Increase in the capital-intensive industry and decrease in the labour-intensive industry.
C. Stay constant in both industries. D. Increase in both industries.
12. In the Heckscher-Ohlin model with two factors, say labour and capital, both being free to move across sectors and two goods, say Good 1 and Good 2, where Good 1 is L-intensive and Good 2 is K-intensive. A decrease in the price of Good 1 will:
A. Benefit workers in the industry where Good 2 is produced.
B. Benefit capital owners in each industry. C. Benefit workers in each industry. D. Benefit capital owners in the industry where
Good 1 is produced.
Short Answer Question: The manufacturing of Electric generators (E) takes 5 units of capital (K) and 2 units of labour (L). The manufacturing of footwear (F) takes 2 unit of K and 2 units of L. If the supply of K is 100 and the supply of L is 70 then the full- employment outputs for E (QE) and F (QF) respectively are:
Answer: each E requires and each F requires
If we write factor-market clearing conditions: For K: 5 QE + 2 QF = 100 (equation 1) For L: 2 QE + 2 QF = 70 (equation 2) From (equation 2), we have: QE = 35 – QF and plugging this value of QE into (equation 1), we get: 5 (35 – QF) + 2 QF = 100 QF = 25 Given that QE = 35 – QF QE = 10
5 units of K
2 units of L
2 units of K
2 units of L
Short Answer Question: The manufacturing of Electric generators (E) takes 4 units of capital (K) and 3 units of labour (L). The manufacturing of footwear (F) takes x unit of K and 1 unit of L. Assume that the supply of K is 160. If the full-employment outputs for E and F are QE = 20 and QF =40, respectively, what is x?
Answer: each E requires and each F requires
KTotal = 160 and QE = 20, QF = 40 Writing factor-market clearing condition for K: For K: 4 QE + x QF = KTotal (equation 1) Plugging the values for Ktotal, QE and QF into (equation 1), we obtain: 4*20 +40x = 160 x = 2
4 units of K
3 units of L
x units of K
1 unit of L