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INT. Finance - Exam #1 - Ch.3

Terms in this set (105)

The immediate basis for trade is the difference between pre-trade relative product price of trading nations
H-O theory
Trade depends on demand conditions (possibility frontier)
H-O theory
H-O theory assumes that -------- and -------- are approximately the same in countries
technology and demand
export =
abundance
imports =
scares
A country's ration of capital inputs to labor inputs
capital labor ratio
capital = 100 labor = 200 what is the capital labor ratio and what does this mean
.5 = .5 machines per worker which means that capital is abundant and labor is scarce (cheap capital)
capital = 20 labor = 1000 what is the capital labor ratio and what does this mean
.02 = .02 machines per worker which means that labor is abundance and capital is scarce (cheap labor)
Difference in resource price (capital/labor) causes a difference in the price of the product, which causes a pattern of comparative advantage

True
False
true
Trade redirects demand away from relatively expensive, scare resources toward relatively cheap, abundant resources in each nation
factor price equalization
With factor price equalization, cheap resources become more expensive and expensive resources become cheaper until they equalize

Is the assumption:
True
Fasle
true
Assumption for factor price equalization is that labor and capital can move effortlessly among industries in the nation, but are immobile amount countries

true
false
true
Increase in price of a product increases income earned by resources used intensively in its production, Decrease in price of a product reduces income of resources used intensively in its production
SS theory
Based on the SS theory, imports drive prices down and income
and exports drive prices up and income

True
False
true
The Stopler-Samuelson theory suggests that their are only winners with trade

true
fasle
false (winners and losers)
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