Canada and the United States produce computers and chemicals using labor and capital as the only inputs in production. The United States is capital abundant, and Canada is labor abundant. Computer production is more labor intensive than chemical production in both countries. What does the HeckscherOhlin model predict will happen to prices of computers or chemicals in the two countries?
a. The price of chemicals should rise in the United States.
b. The price of chemicals should fall in the United States.
c. The price of computers should fall in Canada.
d. The price of chemicals should rise in Canada.
Answer: a. The price of chemicals should rise in the United States.
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In labor markets, risk taking accounts for some income differences.
Answer the following statement true (T) or false (F)
The self-correcting tendency of the economy means that falling inflation eventually eliminates:
A. unemployment. B. expansionary gaps. C. recessionary gaps. D. exogenous spending.
Refer to Figure 10.9. Other things equal, a decrease in the nominal money supply by the Fed is best represented as a change in equilibrium from
A) point A to point B. B) point A to point D. C) point C to point B. D) point C to point D.
Demand sensitivity depends on all of the following except:
a. how low is the price of the good. b. the sensitivity of firms' output to changes in its price. c. the consumer's income. d. the availability and closeness of substitutes. e. the amount of time a consumer has to adjust to price changes.