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B1. Suppose with 2000 = 100.0m Japan’s export price index for 2004 was 89.5 and Japan’s import price index for 2004 was 79.1. Further, China’s import index (with 2000 = 100.0) for 2004 was 107.3 and China’s export price index for2004 was 103.0. China’s commodity terms of trade ( ) and Japan’s commodity terms of trade ( ).

A. deteriorated; also deteriorated.
B. deteriorated; improved.
C. improved; deteriorated
D. improved; also improved

C2. Which of the following is not an assumption of the Heckscher-Ohlin model?

A. Markets are competitive.
B. Technology is the same across countries.
C. The supply of factors of production grows over time.
D. Factors of production can be used in different industries.

A3. Which of the following is not an assumption of the Heckscher-Ohlin model?

A. Imperfect competition.
B. Constant returns to scale.
C. Identical tastes across countries.
D. Identical production functions across countries.

A4. If country A is defined as “relatively capital-abundant” in relation to country B by the “price” definition of factor abundance, then the price of labor relative to the price of capital is ( ) in country A than in country B, and the Heckscher-Ohlin theorem would suggest that country A would export relatively ( )goods to country B.

A. higher; capital-intensive
B. higher; labor-intensive
C. lower; capital-intensive
D. lower; labor-intensive

A5. What is the main difference between the H-O model and the Ricardo model?

A. Unlike in the Ricardo model, endowments of factors of production affect trade pattern in the H-O model.
B. Unlike in the Ricardo model, factors are mobile across industries in the H-O model.
C. Unlike in the Ricardo model, trade is not assumed to be free in the H-O model.
D. Unlike in the Ricardo model, all factors of production gain as a result of trade in the H-O model.

D6. What does the H-O model predict about the patter of trade?

A. Each country sells abundant factors of production.
B. The pattern of trade depends on the size of the economy.
C. Each country specializes in the production of goods that use available technology efficiently.
D. Each country specializes in the production of goods that use its abundant factors intensively.

C7. If relatively capital abundant country A opens trade with relatively labor abundant country B and the trade takes place in accordance with the H-O theorem, what would be the consequences for factor price (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.

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