INTERNATIONAL TRADE EXAM SCRIPT ECON
436 2026 QUESTIONS WITH VERIFIED
ANSWERS FULL SOLUTION
◉ In fixed factor proportions, the unit factor requirements in each
industry are exogenous but the capital output or labor output ratios
are endogenous. Answer:False*
◉ In the fixed proportions HeckscherOhlin (HO) model, only those
output combinations which lie inside both factor constraint lines are
feasible production points within the production possibility set.
Answer:A) True*
◉ In the fixed proportions HeckscherOhlin (HO) model, only those
output combinations which lie inside both factor constraint lines are
feasible production points within the production possibility set.
Answer:A) True*
◉ The HO model demonstrates that when countries move to free
trade, they will experience an increase in:
a. technological knowhow.
b. purchasing power.
c. aggregate efficiency
,d. the standard of living.
e. the cost of living. Answer:c.
◉ Assume that the 20 laborers each working for only an hour in
Country A, can produce 60 racks of clothing or 30 gallons of fuel.
This implies:
a the unit labor requirement in clothing production is 3 labor hours
per rack of clothing.
b the unit labor requirement in fuel production is 3/2 labor hours
per gallon of fuel.
c the unit labor requirement in fuel production is 2 labor hours per
gallon of fuel.
d. the unit labor requirement in clothing production is 2 labor hours
per rack of clothing.
e the unit labor requirement in clothing production is 1/3 labor
hours per rack of clothing. Answer:e
◉ Assume that a country experiences an increase in capital
endowment and a decrease in labor endowment. This implies:
a the output of the labor intensive good will increase.
b the return to capital will increase.
c. the price of the labor intensive good will decrease.
d. the price of the capital intensive good will increase.
e. the output of the capital intensive good will increase. Answer:E
, ◉ Which of the following is true of the Heckscher Ohlin theorem?
a Differences in factor productivity motivate trade between nations.
b Each country specializes in the production of its comparative
advantage good.
c. Each country specializes in the production of its absolute
advantage good.
d. Each country imports the good that is intensive in its abundant
factor.
e. Each country exports the good that is intensive in its abundant
factor Answer:E
◉ Gains from trade can only be realized if the trading nations have
different technologies or endowments. Answer:A. True B. False*
◉ Intraindustry trade is usually common between developed
countries like the U.S. and Japan. Answer:A. True* B. False
◉ During the fiscal 2008 09, Delta Inc., a steel company, increased
capital usage by 5 percent as a result of which output expanded by
8.5 percent. This implies the company was witnessing constant
returns to scale. Answer:A. True B. False*
436 2026 QUESTIONS WITH VERIFIED
ANSWERS FULL SOLUTION
◉ In fixed factor proportions, the unit factor requirements in each
industry are exogenous but the capital output or labor output ratios
are endogenous. Answer:False*
◉ In the fixed proportions HeckscherOhlin (HO) model, only those
output combinations which lie inside both factor constraint lines are
feasible production points within the production possibility set.
Answer:A) True*
◉ In the fixed proportions HeckscherOhlin (HO) model, only those
output combinations which lie inside both factor constraint lines are
feasible production points within the production possibility set.
Answer:A) True*
◉ The HO model demonstrates that when countries move to free
trade, they will experience an increase in:
a. technological knowhow.
b. purchasing power.
c. aggregate efficiency
,d. the standard of living.
e. the cost of living. Answer:c.
◉ Assume that the 20 laborers each working for only an hour in
Country A, can produce 60 racks of clothing or 30 gallons of fuel.
This implies:
a the unit labor requirement in clothing production is 3 labor hours
per rack of clothing.
b the unit labor requirement in fuel production is 3/2 labor hours
per gallon of fuel.
c the unit labor requirement in fuel production is 2 labor hours per
gallon of fuel.
d. the unit labor requirement in clothing production is 2 labor hours
per rack of clothing.
e the unit labor requirement in clothing production is 1/3 labor
hours per rack of clothing. Answer:e
◉ Assume that a country experiences an increase in capital
endowment and a decrease in labor endowment. This implies:
a the output of the labor intensive good will increase.
b the return to capital will increase.
c. the price of the labor intensive good will decrease.
d. the price of the capital intensive good will increase.
e. the output of the capital intensive good will increase. Answer:E
, ◉ Which of the following is true of the Heckscher Ohlin theorem?
a Differences in factor productivity motivate trade between nations.
b Each country specializes in the production of its comparative
advantage good.
c. Each country specializes in the production of its absolute
advantage good.
d. Each country imports the good that is intensive in its abundant
factor.
e. Each country exports the good that is intensive in its abundant
factor Answer:E
◉ Gains from trade can only be realized if the trading nations have
different technologies or endowments. Answer:A. True B. False*
◉ Intraindustry trade is usually common between developed
countries like the U.S. and Japan. Answer:A. True* B. False
◉ During the fiscal 2008 09, Delta Inc., a steel company, increased
capital usage by 5 percent as a result of which output expanded by
8.5 percent. This implies the company was witnessing constant
returns to scale. Answer:A. True B. False*
