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International Trade 3rd Edition Feenstra Solutions Manual 1
International Trade 3rd Edition Feenstra Solutions Manual 1
1. This problem uses the Heckscher-Ohlin model to predict the direction of trade.
Consider the production of handmade rugs and assembly line robots in Canada and
India.
a. Which country would you expect to be relatively labor-abundant, and which is
capital-abundant? Why?
Answer Given Canada’s relatively small population (approximately 30 million
compared with more than 1 billion in India) and level of development, it is a
safe assumption that LCAN/KCAN , LIND/KIND. That is, there is more capital per
worker in Canada, making it capital-abundant compared with India. Similarly,
India would be labor-abundant.
b. Which industry would you expect to be relatively labor-intensive, and which is
capital-intensive? Why?
Answer: Given the amount of capital required to produce robots and the
amount of labor required to produce rugs, one would expect that LROBOT/
KROBOT , LRUG/KRUG, making robots capital intensive and rugs labor intensive.
c. Given your answers to (a) and (b), draw production possibilities frontiers for each
country. Assuming that consumer preferences are the same in both countries, add
indifference curves and relative price lines (without trade) to your PPF graphs.
What do the slopes of the price lines tell you about the direction of trade?
S-31
S-32 Solutions n Chapter 4
Solutions n Trade and 4Resources:
Chapter Trade andThe Heckscher-Ohlin
Resources: Model
The Heckscher-Ohlin Model S-32
slope = PRO/PRU
slope = P * /P *
RO RU
Exports
A*
Imports
A Imports
Exports
2. Leontief’s paradox is an example of testing a trade model using actual data observa-
tions. If Leontief had observed that the amount of labor needed per $1 million of U.S.
exports was 100 person-years instead of 182, would he have reached the same conclu-
sion? Explain.
Answer: If the amount of labor required for $1 million of U.S. exports was 100
person-years instead of 182, then the capital/labor ratio for exports would have been
$25,500 per person. Because this is larger than the corresponding ratio for imports,
this test would have provided support for the Heckscher-Ohlin theorem. That is, the
United States (which was assumed to be capital-abundant in both cases) would have
been shown to export capital-intensive goods. In actuality, however, Leontief’s test
showed exactly the opposite.
S-33 Solutions n Chapter 4
Solutions n Trade and 4Resources:
Chapter Trade andThe Heckscher-Ohlin
Resources: Model
The Heckscher-Ohlin Model S-33
in wage (–55%) and the prices of the outputs stayed the same for computers or
increased for shoes, labor loses in real terms. This is consistent with the Stolper-
Samuelson theorem: In the long run, when all factors are mobile, an increase in
the relative price of a good will cause the real earnings of labor and capital to
move in opposite directions, with a rise in the real earnings of the factor used
intensively in the industry whose relative price went up and a decrease in the
real earnings of the other factor.
4. Using the information in the chapter, suppose Home doubles in size and Foreign
remains the same. Show that an equal proportional increase in capital and labor at
Home will change the relative price of computers, wage, rental on capital, and the
amount traded but not the pattern of trade.
Answer: An equal proportional increase in Home’s capital and labor does not
change its relative factor endowments so that the labor/capital ratio is unchanged.
With constant factor prices, your graph should show that the no-trade equilibrium
doubles. Further, the no-trade equilibrium in Foreign is unaffected because its size
remained unchanged. At the original world relative price of computers, the quantity
exported by Home exceeds the quantity Foreign wants to import, leading to a drop
in the relative price. The lower free-trade relative price of computers decreases the
rental on capital. However, labor is better off in real terms as a result of the decrease
in the relative price of computers from free trade. The pattern of trade remains the
same although the amount traded has increased. The pattern of trade is consistent
with the Heckscher-Ohlin theorem. Despite the proportional increase in its endow-
ments, Home is still capital-abundant, and it continues to export capital-intensive
goods.
QS
A*
QC
5. Using a diagram similar to Figure 4-12, show the effect of a decrease in the relative
price of computers in Foreign. What happens to the wage relative to the rental? Is
there an increase in the labor/capital ratio in each industry? Explain.
Answer: With free trade the labor-abundant Foreign country will increase production
of the labor-intensive good (shoes), leading to a rightward shift of the relative demand
curve from RD * to RD * . At the new equilibrium point B *, computers are weighted
1 2
less, a fall in (K * /K ), whereas the shoe industry is weighted more, a rise in (K S /K
w ).
C w* * *
As a result of the rise in the relative demand for labor in the shoe industry, the relative
wage increases, which in turn lowers the labor/capital ratio in both industries.
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geologically equivalent to the greenish sandy bed to which the
appellation was originally applied.
Botanists have not been content with fixing the meaning of their terms
by verbal definition, but have also illustrated them by figures, which
address the eye. Of these, as excellent modern examples, may be
mentioned those which occur in the works of Mirbel 21 , and Lindley 22 .
21
Élémens de Botanique.
22
Elements of Botany.
A VI.
A VII.
It is better to form new words as technical terms, than to employ old
ones in which the last three Aphorisms cannot be complied with.
The subject of the Tides is, in like manner, destitute of any name
which designates the science concerned about it. I have ventured to
employ the term Tidology, having been much engaged in tidological
researches.
A VIII.
A IX.
A X.
New terms and changes of terms, which are not needed in order to
express truth, are to be avoided.
The great bulk which the Synonymy of botany and of mineralogy have
attained, shows us that this maxim has not been universally attended to.
In these cases, however, the multiplication of different names for the
same kind of object has arisen in general from ignorance of the identity
of it under different circumstances, or from the want of a system which
might assign to it its proper place. But there are other instances, in which
the multiplication of names has arisen not from defect, but from excess,
of the spirit of system. The love which speculative men bear towards
symmetry and completeness is constantly at work, to make them create
systems of classification more regular and more perfect than can be
verified by the facts: and as good systems are closely connected with a
good nomenclature, systems thus erroneous and superfluous lead to a
nomenclature which is prejudicial to science. For although such a
nomenclature is finally expelled, when it is found not to aid us in
expressing the true laws of nature, it may obtain some temporary sway,
during which, and even afterwards, it may be a source of much
confusion.
I may remark, in general, that the only persons who succeed in making
great alterations in the language of science, are not those who make
names arbitrarily and as an exercise of ingenuity, but those who have
much new knowledge to communicate; so that the vehicle is commended
to general reception by the value of what it contains. It is only eminent
discoverers to whom the authority is conceded of introducing a new
system of names; just as it is only the highest authority in the state which
has the power of putting a new coinage in circulation.
I will here quote some judicious remarks of Mr. Howard, which fall
partly under this Aphorism, and partly under some which follow. He had
proposed, as names for the kinds of clouds, the following: Cirrus,
Cirrocumulus, Cirrostratus, Cumulostratus, Cumulus, Nimbus, Stratus.
In an abridgment of his views, given in the Supplement to the
Encyclopædia Britannica, English names were proposed as the
equivalents of these; Curlcloud, Sondercloud, Wanecloud, Twaincloud,
Stackencloud, Raincloud, Fallcloud. Upon these Mr. Howard observes:
‘I mention these, in order to have the opportunity of saying that I do not
adopt them. The names for the clouds which I deduced from the Latin,
are but seven in number, and very easy to remember. They were intended
as arbitrary terms for the structure of clouds, and the meaning of them
was carefully fixed by a definition. The observer having once made
himself master of this, was able to apply the term with correctness, after
a little experience, to the subject under all its varieties of form, colour, or
position. The 294 new names, if meant to be another set of arbitrary
terms, are superfluous; if intended to convey in themselves an
explanation in English, they fail in this, by applying to some part or
circumstance only of the definition; the whole of which must be kept in
view to study the subject with success. To take for an example the first of
the modifications. The term cirrus very readily takes an abstract
meaning, equally applicable to the rectilinear as to the flexuous forms of
the subject. But the name of curl-cloud will not, without some violence
to its obvious sense, acquire this more extensive one: and will therefore
be apt to mislead the reader rather than further his progress. Others of
these names are as devoid of a meaning obvious to the English reader, as
the Latin terms themselves. But the principal objection to English or any
other local terms, remains to be stated. They take away from the
nomenclature its general advantage of constituting, as far as it goes, an
universal language, by means of which the intelligent of every country
may convey to each other their ideas without the necessity of
translation.’
A XI.
I need hardly add the caution, that names involving theoretical views
not in accordance with facts are to be rejected. The following instances
exemplify both the positive and the negative application of this maxim.
This is not the place to discuss the reasons for the form of scientific
terms; otherwise we might ask, in reference to the objections to the
Lavoisierian nomenclature, if such forms as aurum and aura are good to
represent the absence or presence of oxygen, why such forms as sulphite
and sulphate are not equally good to represent the presence of what we
may call a smaller or larger dose of oxygen, so long as the oxygen theory
is admitted in its present form; and to indicate still the difference of the
same substances, if under any change of theory it should come to be
interpreted in a new manner.
But I do not now dwell upon such arguments, my object in this place
being to show that terms involving theory are not only allowable, if
understood so far as the theory is proved, but of great value, and indeed
of indispensable use, in science. The objection to them is inconsistent
with the objects of science. If, after all that has been done in chemistry or
any other science, we have arrived at no solid knowledge, no permanent
truth;—if all that we believe now may be proved to be false to-morrow;
—then indeed our opinions and theories are corruptible elements, on
which it would be unwise to rest any thing important, and which we
might wish to exclude, even from our names. But if 299 our knowledge
has no more security than this, we can find no reason why we should
wish at all to have names of things, since the names are needed mainly
that we may reason upon and increase our knowledge such as it is. If we
are condemned to endless alternations of varying opinions, then, no
doubt, our theoretical terms may be a source of confusion; but then,
where would be the advantage of their being otherwise? what would be
the value of words which should express in a more precise manner
opinions equally fleeting? It will perhaps be said, our terms must express
facts, not theories: but of this distinction so applied we have repeatedly
shown the futility. Theories firmly established are facts. Is it not a fact
that the rusting of iron arises from the metal combining with the oxygen
of the atmosphere? Is it not a fact that a combination of oxygen and
hydrogen produces water? That our terms should express such facts, is
precisely what we are here inculcating.
In this way the language of Natural History not only expresses, but
inevitably implies, general laws of nature; and words are thus fitted to
aid the progress of knowledge in this, as in other provinces of science.
A XII.
All attempts to act upon the maxim opposite to this, and to make our
scientific names properly descriptive of the objects, have failed and must
fail. For the marks which really distinguish the natural classes of objects,
are by no means obvious. The discovery of them is one of the most
important steps in science; and when they are discovered, they are
constantly liable to exceptions, because they do not contain the essential
differences of the classes. The natural order Umbellatæ, in order to be a
natural order, must contain some plants which have not umbels, as
Eryngium 37 . ‘In such cases,’ said Linnæus, ‘it is of small import what
you call the order, if you take a proper series of plants, and give it some
name which is clearly understood to apply to the plants you have
associated.’ ‘I have,’ he adds, ‘followed the rule of borrowing the name
à fortiori, from the principal feature.’
37
See Hist. Ind. Sc. b. xvi. c. iv. sect. 5.
The maxim on which we are now insisting, that we are not to be too
scrupulous about the etymology of scientific terms, may, at first sight,
appear to be at variance with our Fourth Aphorism, that words used
technically are to retain their common meaning as far as possible. But it
must be recollected, that in the Fourth Aphorism we spoke of common
words appropriated as technical terms; we here speak of words
constructed for scientific purposes. And although it is, perhaps,
impossible to draw a broad line between these two classes of terms, still
the rule of propriety may be stated thus: In technical terms, deviations
from the usual meaning of words are bad in proportion as the words are
more familiar in our own language. Thus we may apply the term Cirrus
to a cloud composed of filaments, even if these filaments are straight; but
to call such a cloud a Curl cloud would be much more harsh.
A XIII.
The fundamental terms of a system of Nomenclature may be
conveniently borrowed from casual or arbitrary circumstances.
Many other modes of Nomenclature have been tried, but no other has
at all taken root. Linnæus himself appears at first to have intended
marking each species by the Generic Name, accompanied by a
characteristic Descriptive Phrase; and to have proposed the employment
of a Trivial Specific Name, as he termed it, only as a method of
occasional convenience. The use of these trivial names, however, has
become universal, as we have said; and is by many persons considered
the greatest improvement introduced at the Linnæan reform.
A XV.
The Maxims of Linnæus concerning the Names to be used in Botany,
(Philosophia Botanica, Nomina. Sections 210 to 255) are good examples
of Aphorisms on this subject.
[3rd ed. It may serve to show how sensitive botanists are to the
allusions contained in such names, that it has been charged against
Linnæus, as a proof of malignity towards Buffon, that he changed the
name of the genus Buffonia, established by Sauvages, into Bufonia,
which suggested a derivation from Bufo, a toad. It appears to be proved
that the spelling was not Linnæus’s doing.]
Another Linnæan maxim is (Art. 219), that the generic name must be
fixed before we attempt to form a specific name; ‘the latter without the
former is like the clapper without the bell.’
The name of the genus being fixed, the species may be marked (Art.
257) by adding to it ‘a single word taken at will from any quarter;’ that
is, it need not involve a description or any essential property of the plant,
but may be a casual or arbitrary appellation. Thus the various species of
Hieracium 44 are Hieracium Alpinum, H. Halleri, H. Pilosella, H.
dubium, H. murorum, &c., where we see how different may be the kind
of origin of the words.
44
Hooker, Fl. Scot. 228.
A XVI.
Numerical names in Classification are bad; and the same may be said
of other names of kinds, depending upon any fixed series of notes of
order.
A XVII.