Consider the typical HO setting: 2 countries, Colombia and Venezuela, produce two goods, manufactures and bread, with two factors, capital and labor. Both countries share the same tastes and the same technology. Manufactures' production is capital intensive. In Colombia there are 200 units of labor and 200 of capital, in Venezuela there are 40 units of labor and 100 of capital.

1. With free trade, in Colombia

a). Both capital owners and workers lose

b). Both capital owners and workers gain

c). Workers gain, but we cannot determine what happens to capital owners

d). Workers gain and capital owners lose

e). Capital owners gain and workers lose

2. If we were to draw the Production Possibilities Frontier (PPF) for Venezuela, which of the following would be true?

a). Opportunity cost along the PPF would be constant

b). The maximum amount of manufactures that can be produced is 100

c). All of the above

d). The PPF would be a straight line

e). In autarky the PPF would coincide with Venezuela's consumption possibilities

3. In the HO model, gains from trade are due to

a). Both countries being able to produce more with trade than in autarky

b). All of the above

c). Both countries being able to consume outside their production possibilities frontier

d). At least one country producing more efficiently than in autarky

e). At least one country being able to produce more with trade than in autarky

4. What does the Heckscher Ohlin model assume regarding technology?

a). Fixed coefficients (one way of combining factors of production)

b). Constant opportunity cost

c). Increasing returns to scale

d). Constant returns to scale

e). Increasing factor productivity along the production possibilities frontier