Exam 2 Review Problems 2 Multiple Choice

The Ricardian model (with constant opportunity costs) predicts that a nation will ______________.

specialize completely

A country will benefit from trade if it is able to:

consume at a point along an indifference curve that lies above its PPF.

In the absence of trade, a nation is in equilibrium where an indifference curve:

is tangent to its production probabilities frontier.

In the two-sector (manufacturing and agriculture) specific-factors model, an increase in the price of manufactured goods will cause a(n):

increase in the real rental of capital

The two-sector (manufacturing and agriculture) specific-factors model assumes that there are:

diminishing returns to labor.

Compared with the specific-factors model, the Heckscher–Ohlin model illustrates:

a long-run case, because in the long run labor and capital are mobile between sectors.

Assume that strawberries are labor-intensive and cell phones are capital-intensive. A capital-abundant country’s PPF will be:

skewed toward cell phones.

Suppose that Home is a capital-abundant country. When Home trades with Foreign, a labor-abundant country, the Heckscher–Ohlin model predicts that the price of:

the labor-intensive good will rise in Foreign.