10) The demand for labor is said to be a derived demand because it comes from the demand for
goods that labor produces.
Suppose that strawberries are a labor-intensive good. An increase in the price of strawberries will
________ the demand for strawberries, which will ________ the demand for strawberry pickers.
A) increase, increase
B) increase, decrease
C) decrease, increase
D) decrease, decrease
11) Nations that have only a single abundant resource face significant risks, even when that
resource is highly valued.
12) Which types of workers are most likely to favor lowering trade barriers in the United States?
13) How would the opening of trade affect the incomes of workers in the U.S. and China? Use
the case studies in the chapter on U.S. trade with China to support your answer.
4.4 Empirical Tests of the Theory of Comparative Advantage
1) Empirical tests of the theory of comparative advantage have provided
A) strong support for both the Ricardian and Heckscher-Ohlin models.
B) mixed support for the Ricardian model and strong support for the Heckscher-Ohlin model.
C) strong support for the Ricardian model and mixed support for the Heckscher-Ohlin model.
D) mixed support for both Ricardian and Heckscher-Ohlin models.
E) no support for either the Ricardian or the Heckscher-Ohlin models.
2) Empirical tests of the HO model have had mixed results. One explanation for this is that
A) the Ricardian model is more detailed.
B) it is difficult to measure factor endowments.
C) it does not explain the effects of trade on income.
D) it assumes that countries have different technologies.
3) Test of the HO theory have clearly been successful.
4) Since empirical tests of the HO theory have given mixed results, the theory has little value.
5) Explain some of the reasons why the HO model is difficult to test empirically. Does this mean
that it is not a useful model of trade?
4.5 Extension of the Heckscher-Ohlin Model
1) Tijuana, Mexico is across the border from San Diego, California. It has become a world-
leading producer and exporter of television sets and computer monitors, which it assembles in
modern factories owned by multinational consumer electronics firms such as Sony. Initially,
these electronics were produced in the industrialized countries of their parent companies, and
after several years, the production moved to Tijuana. This is an example of
A) the product cycle.
B) intraindustry trade.
C) the specific factors model.
D) the magnification effect.
2) Which of the following would NOT be associated with the LATE PHASE of the product
cycle?
A) Consumption in high income countries begins to exceed production.
B) Increasing share of output is moving to developing countries where abundant low skilled and
semi-skilled labor keep production costs low.
C) Consumption continues to grow in low income countries.
D) There is experimentation and improvement in design and manufacturing.
3) Which of the following would be associated with the early phase of the product cycle?
A) Large amounts of production in low-income, developing countries
B) A standardized product with an assembly-line style production process
C) Sophisticated marketing and customer feedback mechanisms
D) More consumption in low-income, developing countries
4) Which of the following is true according to the case study on U.S. / China trade presented in
the chapter?
A) China has relative abundance in capital.
B) China has relative abundance in skilled labor.
C) The United States has relative scarcity in unskilled labor.
D) The United States has relative scarcity in capital.
5) If the case study on U.S. / China trade is correct in its analysis of factor abundance,
A) Chinese capital owners should see their income rise as trade increases.
B) U.S. skilled labor inputs should see their incomes fall as trade increases.
C) U.S. capital owners should see their income fall as trade increases.
D) Chinese unskilled labor should see their income rise as trade increases.
6) The opportunity cost of producing in low-income, developing countries rises over the product
cycle, according to theory.
7) Chinese exports of toys and footwear can be explained by factor endowments, while Chinese
exports of telecommunications equipment and computers and accessories can be explained by
product-cycle analysis.
8) The O in OLI theory stands for ownership, and the asset owned can be tangible or intangible.
9) The L in OLI theory stands for loyalty, and this factor makes it more difficult for firms to
substitute foreign operations for domestic as they fear a loss of sales due to negative publicity.
10) According to OLI theory, a firm might be unwilling to license its production to a foreign firm
for fear that its technology may be stolen or its brand name harmed, which leads the firm to
internalize control over its asset and set up its own foreign subsidiary.
11) OLI theory is a direct contradiction of trade theory, especially trade theory based on
comparative advantage.
12) Offshoring became a concern in the 1980s when modern communication and transport
technology made it possible for firms to relocate production abroad.
13) Offshoring by domestic firms causes job losses rather than job expansion in the home
market.
14) The bulk of offshoring is vertical, relating to producing a component piece in an overall
supply chain production.
15) The primary interest of firms engaging in offshoring is to find lower wages and to decrease
production costs.
16) Most migrants move from developing to developed nations.
17) The United States has the largest percentage of foreigners in its overall population of any
nation.
18) How is offshoring of services different from past trade patterns?
19) Offshoring required which types of advances?
20) What does research thus far suggest about job loss and offshoring?
21) Forces inside a nation that cause people to think about leaving that nation are called what in
migration theory?
22) The relocation of service industry functions to another country is called what?
23) If General Motors imports parts from its plants in Canada and Mexico for finished trucks that
it will sell across the NAFTA region, what type of trade does this represent?
24) Describe the product cycle, including addressing the various inputs that are required over
time and the resulting production location decisions.
25) What are the factors that have been identified that affect a migration decision? Give
examples of each.
4.6 The Impact of Trade on Wages and Jobs
1) Wage inequality has been on the rise in virtually all high-income industrial economies since
the 1970s. The causes are probably numerous, but the leading explanation for the greatest share
of the increase in inequality is
A) the growth of trade with developing countries.
B) the growth of trade with other high income industrial countries.
C) technological change which increased the relative demand for skilled workers.
D) technological change which increased the relative demand for unskilled workers.
2) Most economists attribute the growing income inequality in the United States to
A) trade.
B) macroeconomic policies.
C) technological change.
D) changing values.
E) taxes.
3) Which of the following is NOT a primary determinant of the number of jobs in a nation in the
long run?
A) Age and size of the population
B) Labor market policies
C) Macroeconomics policies
D) International trade
4) International trade is the major cause of rising income inequality in the United States.
5) In the long run, the number of jobs in country is primarily determined by macroeconomic
factors, not international trade.
6) Carefully explain the relationship between the number of jobs in a country and international
trade.