EC 340 -- Exam 2 with correct answers
100% 2026
Trade is motivated by ___________________ - Correct Answers Cross country differences in
opportunity cost
The country with the lowest ________________ for producing a certain good has
________________ and will be the exporter of that good. - Correct Answers Opportunity cost;
comparative advantage
List the assumptions of the Heckscher-Ohlin Model - Correct Answers 1.) Two goods (ex: food
and clothing)
2.) Two factors of production (ex: capital and labor)
3.) Two countries
4.) Labor can easily move between sectors within a country but CANNOT move between
countries
5.) Capital can easily move between sectors within a country but cannot move between
countries
6.) Both countries have access to the same technology
7.) Technology is characterized by CONSTANT RETURNS TO SCALE
- increase/decrease inputs by a given proportion, output will increase/decrease by same
proportion
8.) Ratio of demand for clothing relative to food does not depend on income and is the same in
both countries
9.) All markets are perfectly competitive
- zero profit if a good is produced. If a good is not produced, it's because doing so would result
in negative profit
, Labor Intensity - Correct Answers The amount of labor per unit of capital
Capital intensity - Correct Answers The amount of capital used per worker to produce a unit of
output
A good is said to be ________________ intensive relative to another if production of that good
requires more _____________ per worker compared with production of the other good. -
Correct Answers Capital, labor, land, etc.
^they have to be the same
Capital Abundance - Correct Answers Refers to the amount of capital per worker that the
country has
(opposite of abundance is scarce)
A country is said to be _____________ abundant relative to another if the supply of
____________ per worker in that country is higher than it is in another - Correct Answers
capital, labor, land, etc.
^again, they have to be the same
Heckscher-Ohlin Theorem - Correct Answers The capital abundant country has the comparative
advantage in the capital-intensive good
Stolper-Samuelson Theorem - Correct Answers An increase in the price of the capital-intensive
good relative to the labor-intensive good increases the income of capital and reduces the
income of labor.
100% 2026
Trade is motivated by ___________________ - Correct Answers Cross country differences in
opportunity cost
The country with the lowest ________________ for producing a certain good has
________________ and will be the exporter of that good. - Correct Answers Opportunity cost;
comparative advantage
List the assumptions of the Heckscher-Ohlin Model - Correct Answers 1.) Two goods (ex: food
and clothing)
2.) Two factors of production (ex: capital and labor)
3.) Two countries
4.) Labor can easily move between sectors within a country but CANNOT move between
countries
5.) Capital can easily move between sectors within a country but cannot move between
countries
6.) Both countries have access to the same technology
7.) Technology is characterized by CONSTANT RETURNS TO SCALE
- increase/decrease inputs by a given proportion, output will increase/decrease by same
proportion
8.) Ratio of demand for clothing relative to food does not depend on income and is the same in
both countries
9.) All markets are perfectly competitive
- zero profit if a good is produced. If a good is not produced, it's because doing so would result
in negative profit
, Labor Intensity - Correct Answers The amount of labor per unit of capital
Capital intensity - Correct Answers The amount of capital used per worker to produce a unit of
output
A good is said to be ________________ intensive relative to another if production of that good
requires more _____________ per worker compared with production of the other good. -
Correct Answers Capital, labor, land, etc.
^they have to be the same
Capital Abundance - Correct Answers Refers to the amount of capital per worker that the
country has
(opposite of abundance is scarce)
A country is said to be _____________ abundant relative to another if the supply of
____________ per worker in that country is higher than it is in another - Correct Answers
capital, labor, land, etc.
^again, they have to be the same
Heckscher-Ohlin Theorem - Correct Answers The capital abundant country has the comparative
advantage in the capital-intensive good
Stolper-Samuelson Theorem - Correct Answers An increase in the price of the capital-intensive
good relative to the labor-intensive good increases the income of capital and reduces the
income of labor.
