1. Which description does not correctly characterize the Hecksher-Ohlin (OH) trade model?

A country's factors of production (a country's endowments of inputs) are used to make each good give rise to productivity differences between countries.

When a country enjoys a relative abundance of a factor, the factor's relative cost is less than in countries where the factor is relatively scarce.

A country's comparative advantage lies in the production of goods that use relatively abundant factors.

A country's endowment of a specific factor plays a more critical role in determining comparative advantage because when trade opens, incomes rise for the owners of the abundant specific factor.

2. Which description does not correctly characterize the assumptions of the Ricardian trade model?

Markets are competitive and firms are price takers.

Technology is evolving and there are learning effects.

Labor is perfectly mobile and can easily move back and forth between industries.

Each country would have its own technology, climate, and resources.

3. According to the Stolper-Samuelson theorem, which one of the following is an incorrectstatement?

An increase in the price of a good raises the income earned by factors that are used intensively in its production.

The effects on income of an opening of trade depends on the flexibility of the affected factors.

If an output is in high demand, its price is high and the inputs used to produce it receive higher returns.

All factors used in the export industries will be better off, and no factors used in import competing industries get hurt.

4. Which one of the following is an incorrect statement?

One of the reasons for intra-firm trade is that firms try to take advantage of cross-country differences in the price of inputs.

One of the reasons for intra-firm trade is that firms may reduce distribution costs in a foreign market by operating through an affiliate.

Off-shoring means the movement of some or all of a firm's activities to a location outside the home country.

In the short-run, trade has little effect on the number of jobs.