Chapter 5: The Political Economy of Trade
MULTIPLE CHOICE
1. In a two-product, comparative advantage model involving wheat and computers, which
of the following statements is true?
a. The country with an absolute advantage in wheat should export wheat because the
country is land intensive.
b. It should export wheat because wheat is land intensive and the country is
abundant in land.
c. It should export computers because the country is capital intensive.
d. None of the above.
2. In a two-product, comparative advantage model involving wheat and computers, which
of these statements in true?
a. The country with an absolute advantage in computers should export computers
because the country is capital intensive.
b. It should export wheat because the country is land intensive.
c. It should export computers because computers are capital intensive and the country is
abundant in capital.
d. None of the above.
3. In a two-product, comparative advantage model involving wheat and computers, how
does the export of wheat by country A affect the employment of factors of product in A?
a. More wheat will be produced.
b. There will be an increase in demand for land.
c. There will be an increase in demand for capital.
d. All of the above.
4. In a two-product, comparative advantage model involving wheat and computers, how
does the export of computers by country B affect the employment of factors of
production in B?
a. There will be an increase in demand for capital.
b. There will be a decrease in the price of (rental rate for) capital.
c. There will be a decrease in the production of computers.
d. All of the above.
5. The notion of a specific factor can be defined as follows:
a. A factor of production that can move from one sector to another.
b. A factor of production that can move from one country to another.
c. A factor of production that cannot move from one sector to another.
d. A factor of production that specifically requires other factors.
6. The Stolper-Samuelson theorem states the following:
a. As a result of trade, a country’s abundant factor gains.
b. As a result of trade, a country’s abundant factor loses.
c. As a result of trade, a country’s scarce factor gains.
d. As a result of trade, both of a country’s factors gain.
TRUE/FALSE
1. Wheat tends to be land intensive and computers tend to be capital intensive.
2. Countries with a relative abundance of capital should export capital-intensive goods.
3. In a two-product, comparative advantage model with A having comparative advantage in
wheat and B in computers, owners of capital in B and owners of land in A would oppose
trade.
4. In a two-product, comparative advantage model with A having comparative advantage in
wheat and B in computers, owners of capital in A and land in B would experience
increased demand for their factors.
5. In a two-product, comparative advantage model with A having comparative advantage in
wheat and B in computers, owners of land in A would lose and owners of capital in
would win.
6. If factor of production a fully mobile, the abundant factor of production (used intensively
in the export sector) gains, while the scarce factor of production (used intensively in the
import sector) loses.
7. Factors of production specific to import sectors tend to gain as a result of trade, while
factors of production specific to export sectors tend to lose.
SHORT ANSWER
1. What does the Heckscher-Ohlin model say about the nature of international trade.
2. What do we mean when we say that, compared to country B, country A is land abundant?
3. What do we mean when we say that, compared to country A, country B is capital
abundant?
4. How does the Stolper-Samuelson theorem complement the Heckscher-Ohlin model?
5. In what situations might the Stolper-Samuelson theorem not be relevant?
6. How can the Stolper-Samuelson theorem be applied to trade between “developed” and
“developing” countries?
7. If, as research suggests, “developing” countries have a comparative advantage in
unskilled labor intensive goods and “developed” countries have a comparative advantage
in skilled labor intensive goods, how might that affect the wages of unskilled labor in
developed countries?
8. How do specific factors of production affect the Stolper-Samuelson theorem?
9. Why would capitalists in a capital abundant country oppose increased trade in violation
of the Stolper-Samuelson theorem?