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

question 27

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. According to the Heckscher-Ohlin model, free trade between the
United States and the Rest of the World would result in:

• A)an improvement in economic well-being in the United States but deterioration of economic well-being in the Rest of the World.
• B)no change in economic well-being in the United States but an improvement in economic well-being in the Rest of the World.
• C)an improvement in economic well-being in both the United States and the Rest of the World.
• D)deterioration of economic well-being in the United States but an improvement in economic well-being in the Rest of the World.

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Definitions:

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