Happyland and Blueland are two countries producing children toys with perfect competition. There are no trade costs between these two countries. The market for children toys is characterized by the following demand and supply schedule in Happyland: Dh=40-2Ph, Sh=26+5Ph, and in Blueland: Db=42-2Pb, Sb=24+4Pb. Suppose that the importer country introduces an ad-valorem duty of 10% on imports of toys. What is the corresponding equilibrium traded quantity (Q) that occurs in the world market?
Select one:
a. Q=3
b. Q=6.4
c. Q=3.9
d. Q=2.5
What would happen in the Heckscher-Ohlin model if we wouldn't allow factor substitution?
a. Only one product would be produced.
b. The production possibility frontier would become a straight line.
c. None of the above,
d. There would be constant opportunity cost.
e. The production possibility frontier would be a combination of two straight lines.
Suppose that both the US and Canada have the factor endowments listed in the table below.
US=40 machines, Canada=10 machines; labor= US=200 workers, Canada=60 workers
Suppose that the production requirement for one unit of steel is two machines and 8 workers, while the production requirement for one of bread is one machine and 8 workers. What happens to the returns of capital and labor in the US and Canada after trade begins
a. Owners of capital in the US gain from trade, while owners of labor lose. The same happens in Canada.
b. Owners of capital in the US lose from trade, while owners of labor gain. The opposite happens in Canada.
c. None of the above
d. Owners of capital in the US lose from trade, while owners of labor are hurt. In Canada, capital gains and owners of labor are hurt.
e. Owners of capital in the US lose from trade, while owners of labor gain. The same happens in Canada.
In the specific factors model, when a country opens up for trade:
a. Workers (the mobile factor) will be unambiguously better off
b. None of the above
c. The fixed factor used in the comparative disadvantage sector will be unambiguously better off
d. Workers (the mobile factor) will be unambiguously worse off
e. The fixed factor used in the comparative advantage sector will be unambiguously worse off
At what point on the production possibility frontier does the country produce in the Heckscher-Ohlin model?
a. At the point that reflects maximizing the value of production.
b. At the point where the isovalue is tangent to the production possibility frontier.
c. At the point where output of both goods is the maximum.
d. At the point where the relative price curve is tangent to the production possibility frontier.
e. None of the above.
