Question

In the Ricardian model with a continuum of goods (Dornbusch et al), an increase in the relative size of the foreign country's labor force will: a. raise the foreign wage and reduce the range of goods produced in Foreign. b. raise the home relative wage and expand the range of goods produced in Foreign c. have no effect on the pattern of trade d. expand the range of goods produced at home In the 2-factor (labor and capital), 2 good Heckscher-Ohlin model (and assuming the country is already open to trade and world product prices remain constant), capital inflows from abroad into one country would a. b. c. d. shift the PPF outward, and increase the production of both goods. shift the PPF outward and only increase the production of the labor-intensive product. shift the PPF outward and decrease production of the labor-intensive good. move the point of production along the production possibility curve

Answer 1

Ans

1 B is right since relative wage falls in foreig

n country

2 A is right. This is what economists predict. Specialization will however depend on factor prices