Please help the problem 3 ~ 7. 3. Mention if the following statements are True o

Question

Please help the problem 3 ~ 7.

3. Mention if the following statements are True or False. Explain clearly WHY it is true or false, using ideas and concepts explained in class a. The Neoclassical Trade Theory states that trade arises due to different amounts of labor and capital in a country The H-O theory states that trade arises due to different CICs (community indifference curves) in a country b. 4. If relatively capital-abundant country A opens trade with relatively labor-abundant country B and the trade takes place in accordance with the Heckscher-Ohlin theorem, what would be the consequence for factor prices (w/r) in the two countries? (chose one) a. b. c. d. (w/r) rises in A and falls in B (w/r) rises in A and also rises in B (w/r) falls in A and rises in B (w/r) falls in A and also falls in B 5. An implication of the Heckscher-Ohlin theorem is that: (chose one) if two countries have identical tastes, then no trade will occur between them. the relative price of a country's scarce factor of production will rise when the country is opened to trade income distribution in a country does not change when a country is opened to trade two countries with identical tastes can still have a basis for trade if factor endowments of the countries differ and if factor intensities of the commodities differ a. b. c, d. If a commodity is classified as "labor-intensive" at one set of relative factor prices but "capital- intensive" at another set of relative factor prices, this situation is known as 6. demand reversal factor price reversal a. b. c. factor-intensity reversal d. balance-of-payments reversal 7. If country A is defined as "relatively capital-abundant" in relation to country B by the "price" (or "economic") definition of factor abundance. Under autarky, the price of labor relative to the price of capital is suggest that country A would export relatively in country A than in country B. The Heckscher-Ohlin theorem would goods to country A. a. higher; capital-intensive b. higher; labor-intensive c. lower; capital-intensive d. lower; labor-intensive

Explanation / Answer

3) a. False

Neoclassical trade theory states that trade between two countries takes place on the basis of difference between opportunity cost of producing the good.

b. False.

H-O theory states that trade between two nations take place due to difference between intensities of inputs in the countries.

4) c is correct

Country A is capital abundant and country B is labor abundant. This implies that r is lower in A and W is lower in B. After trade demand for capital increases in A and demand for labor increases in B. This increases r in A and w in B.

Thus w/r falls in A and rises in B.

5) d is correct

According to heckscher ohlin model, country exports the good which uses its abundant input intensively. Thus if two countries have different factor intensities, they will trade.

6) c is correct.

Factor intensity reversal is a situation where a commodity is classified as labor intensive at one set of prices and capital intensive at another set of prices.

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