International Economics (10 MCQs on Heckscher-Ohlin Theory (with Answers)

 

10 MCQs on Heckscher-Ohlin Theory (with Answers)

1. The Heckscher-Ohlin theory of international trade suggests that countries will export goods which are:

 a) More expensive to produce domestically
 b) Abundant in factors they are relatively scarce in
 c) Less technologically advanced  
 d) In high demand globally

*Answer: c) Less technologically advanced (H-O theory focuses on factor endowments, not technology)

2. A country with a large and cheap labor force will, according to H-O theory, tend to:

 a) Export capital-intensive goods
 b) Import capital-intensive goods  
 c) Export labor-intensive goods
 d) Have no comparative advantage in trade

*Answer: c) Export labor-intensive goods (Cheap labor makes labor-intensive goods cheaper to produce)

3. The Heckscher-Ohlin theory assumes:

 a) Perfect competition in all markets
 b) No transportation costs
 c) Constant returns to scale 
 d) All of the above

*Answer: d) All of the above (These assumptions simplify the model)

4. The H-O theory can be used to explain why:

 a) Countries with similar factor endowments trade with each other
 b) Countries specialize in producing certain goods 
 c) Trade barriers can distort trade patterns
 d) Both b and c

*Answer: d) Both b and c (H-O explains specialization based on factor endowments, and trade barriers can affect these patterns)

5. The Heckscher-Ohlin theorem is an extension of the theory, stating that:

 a) Free trade benefits all countries involved
 b) Factor price equalization will occur in the long run
 c) Countries with similar factors will see higher trade volumes
 d) Technological advancements create new trade opportunities

*Answer: b) Factor price equalization will occur in the long run (Prices of factors like labor will become similar across trading countries)

6. Which of the following is NOT a criticism of the Heckscher-Ohlin theory?

 a) It ignores the role of technology in determining comparative advantage
 b) It assumes perfect competition, which may not hold true in reality 
 c) Transportation costs are not considered, which can impact trade patterns
 d) It does not account for economies of scale, which can influence production

*Answer: None of the above (All listed points are criticisms of the H-O theory)

7. The Leontief Paradox challenged the H-O theory by showing that:

 a) Developed countries exported more labor-intensive goods
 b) Trade liberalization always leads to job losses
 c) Transportation costs are a major barrier to international trade
 d) Factor endowments are not the only determinant of trade

*Answer: a) Developed countries exported more labor-intensive goods (This finding contradicted the H-O prediction)

8. Which of the following factors can weaken the Heckscher-Ohlin theory?

 a) Government intervention in trade (subsidies, tariffs)
 b) The existence of multinational corporations
 c) The increasing importance of human capital 
 d) All of the above

*Answer: d) All of the above (These factors can influence trade patterns beyond just factor endowments)

9. Despite its limitations, the Heckscher-Ohlin theory remains important because:

 a) It provides a clear framework for analyzing trade patterns
 b) It accurately predicts all trade flows between countries
 c) It emphasizes the importance of free trade for all nations
 d) It focuses solely on labor as a factor of production

*Answer: a) It provides a clear framework for analyzing trade patterns (The H-O theory offers a basic model to understand trade based on factor endowments)

10. How can the Heckscher-Ohlin theory be improved to better reflect real-world trade?

 a) Include transportation costs and economies of scale in the model
 b) Consider the role of technology and human capital in production
 c) Allow for imperfect competition in markets
 d) All of the above

*Answer: d) All of the above (By incorporating these factors, the H-O theory can provide a more nuanced understanding of international trade)