Answer key to sample problems for test 2

Let me know if you think any of these is marked incorrectly.

1-D, 2-A, 3-A, 4-C, 5-A,
6-C, 7-B, 8-A, 9-D, 10-B,
11-C,12-C,13-D.

For the Heckscher-Ohlin material, you should also be able to determine factor abundance and factor intensity using hypothetical numbers, like the Utopia-Idealand problem.

You should be able to illustrate theorems and problems using appropriate diagrams. Bring multiple colored writing implements if you believe this will help you.

You are expected to draw clear diagrams. Please take time with your drawings. Remember, a test is an opportunity to display acquired knowledge and understanding.

Prof. Jack Julian’s Revised Office Hours Week of October 19, 2009

Monday, October 19, 2009

11:00 a.m. – 12:00 noon

Tuesday, October 20, 2009

12:45 – 1:45 p.m.
3:15 – 4:15 p.m.

Wednesday, October 21, 2009

11:00 a.m. – 1:00 p.m.

Thursday, October 22, 2009

No Office Hours

Friday, October 23, 2009

No Office Hours

I did this example for a classmate. it might help you

Suppose country A had 28 capital units and 36 labor units
Country B has 15 capital units and 45 labor units

compare the capital-labor ratio (K/L)

(28/36) >( 15/45)

since the K/L in A is greater than K/L for B, country A is capital abundant.

It follows that B is labor abundant

***********************************************************************************

Suppose for Good X it takes 6 units of capital and 4 units of labor to produce one unit of X.

Suppose for Good Y it takes 13 units of capital and 6 units of labor to produce one unit of Y.

compare capital-labor ratios

(6/4) < (13/6), Good Y is capital intensive in production

So Good X is labor intensive.

*****************************************************************************************

H-O says that under free trade Country A, being capital abundant will produce and export good Y, which is capital insensive.
And Country B being labor abundant will produce the labor intensive good, X.

Draw a diagram to show that.

The Hecksher-Ohlin Theorem

The Heckscher-Ohlin Theorem: A factor endowment theory of comparative advantage

A country tends to export goods which are relatively intensive in the use of factors in which the country is relatively abundant.


This helps explain the sources of comparative advantage. It is an extension of the Ricardian model explaining the sources of a country’s comparative advantage. Countries are argued to be better at producing certain goods because they have resources that are better suited to the production of certain goods. This would explain variations in opportunity costs, marginal rates of transformation, and absolute and comparative advantages.

More to come in class discussion.

Important content update for Test #1

On the review sheet distributed in class, the relevant test material was limited to chapters 1-3. However, we have gotten through the first part of chapter 4 as well and that is included on the test. Please make sure you study the parts up to the beginning of the "Heckscher-Ohlin (H-O) Theory". This begins on page 63 in the 14th edition. We will pick up on H-O beginning the next class, but the first part of the chapter includes the concave PPF and the indifference curve analysis. This is all on the test. I'm sorry for the misinformation on the review sheet, however, this should actually come as no surprise.

Thank you for understanding.

Test 1 Review Info

To clarify:

The first test for Econ 345 is Wednesday, October 7. (Not Monday the 5th as stated on the original handout for review for test 1.)

We will go over the problems on the review sheet in class on Monday. Please prepare these in advance. You should consider it a homework assignment (no, I'm not collecting it).

I will post the key to the sample multiple choice problems on this weblog. However, solutions to the non-multiple-choice problems will only be discussed in class. If you miss class you should get the information / solutions from a classmate.

Remember, you are responsible for all material discussed in class. I am unable to provide notes to anyone as my notes are written for myself. I do not think they are sufficiently detailed for general distribution. This has always been my course policy. (In the future, there may be some notes provided as a few technical lectures have been more formally written up.)

Have a great weekend.