Assume a Two-Country Two-Good Two-Input Model Where the Following Relationships

question 18

Multiple Choice

Assume a two-country two-good two-input model where the following relationships hold: (K/L) _U.S. > (K/L) _ROW
(K/L) _automobiles > (K/L) _shoes
Where (K/L) _U.S. is the capital-labor ratio in the United States, (K/L) _ROW is the capital-labor ratio in the Rest of the World, (K/L) _automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L) _shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. If trade opens up between the United States and the Rest of the World, according to the Heckscher-Ohlin model, the United States will export _____ and import _____.

• A)both the goods; neither good
• B)shoes; automobiles
• C)automobiles; shoes
• D)neither good; both of the goods

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Definitions:

Magazine Subscription

A purchase agreement in which a customer pays in advance to receive periodic issues of a magazine.

Exchange Rate

The exchange value of one currency against another.

Canadian Dollars

The official currency of Canada, symbolized as CAD or $.

Mexican Pesos

The official currency of Mexico, symbolized as MXN.