International Economics MCQs and Notes

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📊 International Economics
Q. An implication of the Heckscher-Ohlin Theorem is that
  • (A) if two countries have identical tsetse, then no trade will occur between them.
  • (B) the relative price of a country's scarce factor of production will rise when the country is opened to trade.
  • (C) income distribution in a country does not change when a country is opened to trade.
  • (D) two countries with identical tastes can still have a basis for trade if factor endowments of the countries differ and if the factor intensities of the commodities differ.
💬 Discuss
✅ Correct Answer: (D) two countries with identical tastes can still have a basis for trade if factor endowments of the countries differ and if the factor intensities of the commodities differ.
📊 International Economics
Q. If relatively capital-abundant country A opens trade with relatively labor- abundant country B an 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?
  • (A) (w/r) rises in A and falls in B
  • (B) (w/r) rises in A and also rises in B
  • (C) (w/r) falls in A and rises in B
  • (D) (w/r) falls in A and also falls in B
💬 Discuss
✅ Correct Answer: (C) (w/r) falls in A and rises in B
📊 International Economics
Q. If a commodity is classified as "labor-intensive" at one set of relative factor prices but "capital-intensive" at another set of relative prices, this situation is known as
  • (A) demand reversal.
  • (B) factor-intensity reversal.
  • (C) balance of payment reversal
  • (D) factor price reversal
💬 Discuss
✅ Correct Answer: (B) factor-intensity reversal.
📊 International Economics
Q. Which of the following is false (for the Heckscher-Ohlin model)?
  • (A) Differences in technologies could be the source of gains from trade
  • (B) Some groups may gain and some may lose due to trade
  • (C) Gains for the trade-related winners will tend to be larger than losses of losers.
  • (D) None of the above.
💬 Discuss
✅ Correct Answer: (A) Differences in technologies could be the source of gains from trade
📊 International Economics
Q. As opposed to the Ricardian model of comparative advantage, the assumption of diminishing returns in the Heckscher-Ohlin model means that the probability is greater that with trade
  • (A) Countries will not be fully specialized in one product
  • (B) Countries will benefit from free international trade.
  • (C) Countries will consume outside their production possibility frontier.
  • (D) Comparative advantage is primarily supply related.
💬 Discuss
✅ Correct Answer: (A) Countries will not be fully specialized in one product
📊 International Economics
Q. The Heckscher-Ohlin model assumes that _____ are identical in all trading countries
  • (A) Gross domestic product
  • (B) Technologies
  • (C) Factor endowments
  • (D) Both A. and B
💬 Discuss
✅ Correct Answer: (B) Technologies
📊 International Economics
Q. One way in which the Heckscher-Ohlin model differs from the Ricardo model of comparative advantage is by assuming that __________ is (are) identical in all countries.
  • (A) Factor of production endowments
  • (B) Scale economies
  • (C) Factor of production intensities
  • (D) Technology
💬 Discuss
✅ Correct Answer: (D) Technology
📊 International Economics
Q. According to the Heckscher-Ohlin model, the source of comparative advantage is a country's
  • (A) Technology
  • (B) Advertising.
  • (C) Factor endowments
  • (D) Both A and B.
💬 Discuss
✅ Correct Answer: (C) Factor endowments
📊 International Economics
Q. In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in
  • (A) Tastes
  • (B) Military capabilities
  • (C) Size
  • (D) Relative availabilities of factors of production
💬 Discuss
✅ Correct Answer: (D) Relative availabilities of factors of production
📊 International Economics
Q. In the 2-factor, 2 good Heckscher-Ohlin model, an influx of workers from across the border would
  • (A) Moves the point of production along the production possibility curve
  • (B) Shifts the production possibility curve outward, and increase the production of both good
  • (C) Shift the production possibility curve outward and decrease the production of the Labor-intensive product
  • (D) Shift the production possibility curve outward and decrease the production of the capital-intensive product.
💬 Discuss
✅ Correct Answer: (D) Shift the production possibility curve outward and decrease the production of the capital-intensive product.

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