EPPE3023 EKONOMI ANTARABANGSA

TUTORIAL 2

1. Which of the following suggests that a nation will export the commodity in the production of which a great
deal of its relatively abundant and cheap factor is used?
A. The Linder theory
B. The product life cycle theory
C. The MacDougall theory
D. The Heckscher-Ohlin theory

2. Assume that Country A, without trade, finds itself relatively abundant in labour and relatively scarce in the
land. The factor endowment theory reasons that with free trade, the internal distribution of national income
in Country A will change in favour of:
A. Labour
B. Land
C. Both labour and land
D. Neither labour nor land

3. Eli Heckscher and Bertil Ohlin are associated with the theory of comparative advantage that stresses
differences in:
A. Income levels among countries
B. Tastes and preferences among countries
C. Resource endowments among countries
D. Labour productivity among countries

4. Hong Kong is relatively abundant in labour, while Canada is relatively abundant in the capital. In both
countries, the production of shirts is relatively more labour-intensive than the production of computers.
According to the factor endowment theory, Hong Kong will have a(n):
A. Absolute advantage in the production of shirts and computers
B. Absolute advantage in the production of computers
C. Comparative advantage in the production of shirts
D. Comparative advantage in the production of computers

5. The Heckscher-Ohlin theory explains comparative advantage as the result of differences in countries:
A. Economies of large-scale production
B. Relative abundance of various resources
C. Relative costs of labour
D. Research and development

6. The trade model of the Swedish economists Heckscher and Ohlin maintains that:
A. Absolute advantage determines the distribution of the gains from trade
B. Comparative advantage determines the distribution of the gains from trade
C. The division of labour is limited by the size of the world market
D. A country exports goods for which its resource endowments are most suited

7. According to the factor endowment model, countries heavily endowed with land will:
A. Devote excessive amounts of resources to agricultural production
B. Devote insufficient amounts of resources to agricultural production
C. Export products that are land-intensive
D. Import products that are land-intensive

8. The factor endowment theory states that comparative advantage is explained

A. Exclusively by differences in relative supply conditions
B. Exclusively by differences in relative national demand conditions
C. Both supply and demand conditions
D. None of the above
9. The factor endowment theory assumes
A. Same tastes and preferences
B. Factor inputs of uniform quality
C. Same technology
D. All of the above

Figure 3.1: China-US Trade Possibilities

10. Considering Figure 3.1 before the trade, China’s and the US’s production of textiles and aircraft is 19 and 9.
Which of the following represents the pre-trade situation?
A. China has a comparative advantage in the production of textiles, and the US has a comparative advantage
in the production of aircraft.
B. China has a comparative advantage in the production of aircraft, and the US has a comparative advantage
in the production of textiles.
C. China has an absolute advantage in producing textiles and aircraft.
D. The US has an absolute advantage in producing textiles and aircraft.

11. Considering Figure 3.1, which of the following would be true?

A. China has more of both labour and capital than the US.
B. The US has more both labour and capital than China.
C. The US is relatively capital-abundant, and China is relatively labour abundant.
D. The US is relatively labour-abundant, and China is relatively capital abundant.

12. Considering Figure 3.1, what are the terms of trade represented?
A. The terms of trade are 1½ aircraft per textile.
B. The terms of trade are 1½ textiles per aircraft.
C. The terms of trade are 1 textile per aircraft.
D. The terms of trade are 2/3 textile per aircraft.

13. According to the Heckscher-Ohlin Theory, ______ constitutes the major source of comparative advantage
A. research and development
B. innovation
C. endowments of factors of production
D. acquired advantages in labour productivity
14. The Heckscher-Ohlin theory rules out the basis for the trade of the David Ricardo model by assuming that
…………is (are) the same for all countries.
A. expenditures on advertising and sales promotion
B. transportation costs
C. technology
D. levels of personal income

15. If tastes and preferences are identical for two trading nations, then the comparative advantage is the result of
A. technological conditions of the two nations
B. income levels of the two nations
C. demand conditions of the two nations
D. supply conditions of the two nations

16. If jetliners are a capital-intensive product for the United States, then in terms of the Heckscher-Ohlin theory,
the United States should be
A. a labour-abundant country
B. a land-abundant country
C. a capital-abundant country
D. an energy-abundant country

17. Which of the following trade theories predicts that countries with similar preferences and technologies, but
dissimilar factor endowments, will have a pronounced basis for trade with each other
A. Linder theory
B. Stolper-Samuelson theory
C. Raymond Vernon’s theory
D. Heckscher-Ohlin theory

18. Assume that the United States is scarce in labour and abundant in the capital. According to the Heckscher-
Ohlin theory, which of the following would occur for the United States once trade opens
A. the price of capital should rise, and the price of labour should fall
B. the price of capital should fall the price of labour should rise
C. the price of capital and labour should fall
D. the price of capital and labour should rise

19. Assume that the United States is scarce in labour and abundant in capital. According to the factor price
equalization theory, free trade policies would tend to be opposed by ………. in the United States.
A. labour
B. capital
C. both labour and capital
D. neither labour nor capital

20. In terms of the factor-endowment model of Heckscher and Ohlin

A. the abundant factor gains from trade
B. the scarce factor gains from trade
C. those disadvantaged by trade outnumber those advantaged by trade
D. everyone necessarily benefits from trade

21. In the factor-endowment model, the production possibility curve is assumed to be bowed outward. This is the
result of
A. economies of large-scale production
B. constant opportunity cost
C. all factors of production are perfectly substitutable for each other
D. different factor endowments and different factor intensities in the production of the two products