WEEK-11

Tutorial Questions
1. In the way goods are manufactured nowadays

A. Each component of a good is made by one

firm in one country.
B. Each of the components of a good involves
several firms in many countries.
C. Each of the components of a good involves
several firms in one country.
D. Each of the components of a good involves
only one firm but located in many countries.

2. The difference between the world of Heckscher-Ohlin

and the current world is that

A. Comparative advantage of making a component,

not the good lies in one country.
B. Comparative advantage of making a component
involves specialized firms but still located in one
country.
C. Comparative advantage of making a component
involves specialized firms located in more than
one country.
D. Comparative advantage of making a component
involves only one firm but located in more than
one country.

3. Let wS be the wage rate of skilled labour and wU

the wage rate of unskilled labour. Also let LS and
LU be the amount of skilled and unskilled labour
respectively. The United States can be called
skill-labour abundant relative to China if

A. The wS /wU is lower in the US than in China.

B. The wS /wU is higher in the US than in China.
C. LS < LU in the US, but LS > LU in China.
D. LS of the US > LS of China.

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4. According to traditional trade theory, if the
US is skilled-labour abundant and China
unskilled-labour abundant, trade between the
two will

A. Raise both wS and wU in the US.

B. Raise wS but lower wU in the US.
C. Lower wS but raise wU in the US.
D. Lower both wS and wU in the US.

5. According to traditional trade theory, if the US is

skilled-labour abundant and China unskilled-
labour abundant, trade between the two will

A. Increase inequality in both the US and China.

B. Decrease inequality in the US, but increase
inequality in China.
C. Increase inequality in the US, but decrease
inequality in China.
D. Decrease inequality in both the US and
China.

6. According to the Feenstra-Hanson model, if

the US is skilled-labour abundant and China
unskilled-labour abundant, trade between the
two will

A. Decrease wS/wU in both China and the US.

B. Increase wS/wU in both China and the US.
C. Increase wS/wU in China but lower wS/wU
in the US.
D. Decrease wS/wU in China but raise wS/wU
in the US.

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7. Let there be two countries, the US and South Korea,
and two factors of production, skilled and unskilled
labour. The wS/wU is lower in the US. If one were to
draw isocost lines on a graph with skilled labour on
the vertical axis and unskilled labour on the horizontal
axis,

A. The one for the US will be flatter than the one for
South Korea.
B. The two lines would be parallel with the one for
the US outside that of South Korea’s.
C. The two lines would be parallel with the one for
the US inside that of South Korea’s.
D. The one for the US will be steeper than the one for
South Korea.

8. Consider Feenstra-Hanson model of offshoring.

Suppose that the designing of Samsung cell-phones
(Task 3) and the making of chips and other components
(Task 2) are done in S. Korea, and the assembly (Task 1)
is done in China. The numbers on the Tasks represent a
descending order of skill-intensity. If Task 2 is moved
from S. Korea to China, then

A. It will become the least skill-intensive task in China.

B. It will become the most skill-intensive task in
China.
C. It will become the most skill-intensive task to leave
S. Korea.
D. It will be both the least skill-intensive task to leave
S. Korea and will become the least skill-intensive
task in China.

9. Consider Feenstra-Hanson model of offshoring.

Suppose that the designing of Samsung cell-phones
(Task 3) and the making of chips and other components
(Task 2) are done in S. Korea, and the assembly (Task 1)
is done in China. The numbers on the Tasks represent a
descending order of skill-intensity. If Task 2 is moved
from S. Korea to China, then

A. That will lower the demand for skilled labour in S.

Korea.
B. That will lower the supply of skilled labour in S.
Korea.
C. That will increase the demand for skilled labour in
China.
D. That will increase the supply of skilled labour in
China.

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 Questions 10-13 are based on the following
information:
Consider the Grossman-Rossi Hansberg model of offshoring. There
are two goods: Good X and Good Y. Good X requires 2 units of
skilled labour and in addition, 4 units of unskilled labour to do Task 1
and 2 additional unit of unskilled labour to do Task 2. Good Y
requires 3 units of skilled labour and in addition, 2 units of unskilled
labour to do Task 1 and 1 additional unit of unskilled labour to
perform Task 2. The prices of Good X and Good Y are fixed on world
markets at $12 per unit. Initially, all of these unskilled-labour tasks
were performed domestically, but now it becomes possible to perform
Task 1 in another country (offshoring), where labour is much cheaper
that to a good approximation we can treat that Task 1 as being done
for free.

10.What is the wage that the skilled workers

receive before offshoring?

A. $1.
B. $2.
C. $3.
D. $4.

11.What is the wage that the unskilled workers

receive before offshoring?

A. $1.
B. $2.
C. $3.
D. $4.

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12.What is the wage that the skilled workers
receive after offshoring?

A. $1.
B. $2.
C. $3.
D. $4.

13.What is the wage that the unskilled workers

receive after offshoring?

A. $1.
B. $2.
C. $3.
D. $4.

14.Empirical evidence showed that as US firms

increasingly offshored tasks to Mexico

A. The wS/wU increased in Mexico.

B. The wS/wU decreased in Mexico.
C. The wS/wU remained unchanged in Mexico.
D. The wS/wU decreased in the US.

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15. Multinationals from Home employ workers at
Home, LM, and in their affiliates in Foreign, LF,
to service the Home market. If LF and LM are
complements, then an increase in LF will cause

A. The wage rate in Home to rise and LM to

decrease.
B. The wage rate in Home to fall and LM to
increase.
C. The wage rate in Home to rise and LM to
increase.
D. The wage rate in Home to fall and LM to
decrease.

16. Multinationals from Home employ workers at

Home, LM, and in their affiliates in Foreign, LF,
to service the Home market. If LF and LM are
substitutes, then an increase in LF will cause

A. The wage rate in Home to rise and LM to

decrease.
B. The wage rate in Home to fall and LM to
increase.
C. The wage rate in Home to rise and LM to
increase.
D. The wage rate in Home to fall and LM to
decrease.

17. Let LM be the employment by US-based

multinationals in the US, and LF be their
employment in the rest of the world. Slaughter,
as reported in the textbook, found that between
1991 and 2001

A. LF increased but LM decreased.

B. Both LM and LF increased at the same rate.
C. Both LM and LF increased but the increase in
LM exceeded the increase in LF.
D. Both LM and LF decreased but the fall in LF
exceeded the fall in LM.