3-1a The Factor-Endowment Theory

1. What is the factor endowment theory (H-O theory) and who developed this theory?
2. What is the capital-labor ratio? Give an example of the capital-labor ratio and explain the answer.
3. What is the effect of resource endowments on comparative advantage?
4. Name the products the United States has a comparative advantage in and name the products the United States has a comparative disadvantage in.

3-1b Visualizing the Factor-Endowment Theory

1. Draw Figure 3.1 and explain it. What is the MRT for each country, what is happening at point A, B, and C? (6 points)

3-1 c Factor-Price Equalization: The Stolper-Samuelson Theorem

1. What is thefactor-price equalization theory?
2. What is the Stolper-Samuelson theory and who developed this theory?

3-1d Specific-Factors Theory: Trade and the Distribution of Income in the Short Run

1. What is the key assumption of the factor-endowment model and the Stolper-Samuelson theorem?
2. What is the specific-factors theory and give an example of this theory.

3-1e Does Trade Make the Poor Even Poorer?

1. What are the factors that have held down wages for unskilled American workers?

3-2a Internal Economies of Scale

1. What are internal economies of scale and give an example?

3-2b External Economies of Scale

1. What situations can external economies of scale occur in?

3-3 Overlapping Demands as a Basis for Trade

1. What did Linder believe about the theory of overlapping demands and the factor-endowment theory?
2. What is the product life cycle and the stages many manufactured goods go through?

3-7 Government Regulatory Policies and Comparative Advantage

1. Draw Figure 3.4 and explain the trade effects of governmental regulations (3 points)

3-8 Transportation Costs and Comparative Advantage

1. Draw Figure 3.5 and explain free trade under increasing-cost conditions. (3 points)