Econ Final Exam Review
1. (5 pts)What is the Hecksher-Ohlin Theory of Comparative Advantage?
This is a theory developed by two Swedish economists to explain how countries develop comparative advantage in certain areas rather than others.
The model works as follows:
1) Assume every country, for the most part, has access to the same technology.
2) Still, factors of production are difficult to move across national boundaries.
3) It follows from (2) that factors of production are relatively bound by geography and national borders, and that not every country can obtain the proportions need to maximize production.
4) Because the amount of productive resources differs between each country, it follows that countries will have comparative advantages in products that are intensive in factors that they have an abundance of.
(5 pts) Apply this model to explain trade between Great Britain and the United States in mid-nineteenth century.
Applying the model to U.S.-Great Britain trade:
1) Great Britain had a relative abundance of labor and scarcity of land.
2) The U.S. had an abundance of land and scarcity of labor.
3) Great Britain should develop a comparative advantage in sectors that were labor intensive and not very land-using such as factory production, cotton, and ironworking.
4) The U.S. should develop a comparative advantage in goods that require lots of land but little labor, such as wheat and corn.
5) Great Britain and the U.S. did develop comparative advantage in their expected areas, and the theory is supported by historical data.
2. (2 pts) What were the Corn Laws?
The Corn Laws were laws that created high tariffs on foreign grains
(3 pts) Explain how and why they were finally repealed.
These laws were repealed for several reasons. For one, the arguments of David Ricardo showed the economic benefits of free trade. Another was the fact that industrialization in Britain had much to gain by repealing these laws. As such, they, particularly represented by the
This is a theory developed by two Swedish economists to explain how countries develop comparative advantage in certain areas rather than others.
The model works as follows:
1) Assume every country, for the most part, has access to the same technology.
2) Still, factors of production are difficult to move across national boundaries.
3) It follows from (2) that factors of production are relatively bound by geography and national borders, and that not every country can obtain the proportions need to maximize production.
4) Because the amount of productive resources differs between each country, it follows that countries will have comparative advantages in products that are intensive in factors that they have an abundance of.
(5 pts) Apply this model to explain trade between Great Britain and the United States in mid-nineteenth century.
Applying the model to U.S.-Great Britain trade:
1) Great Britain had a relative abundance of labor and scarcity of land.
2) The U.S. had an abundance of land and scarcity of labor.
3) Great Britain should develop a comparative advantage in sectors that were labor intensive and not very land-using such as factory production, cotton, and ironworking.
4) The U.S. should develop a comparative advantage in goods that require lots of land but little labor, such as wheat and corn.
5) Great Britain and the U.S. did develop comparative advantage in their expected areas, and the theory is supported by historical data.
2. (2 pts) What were the Corn Laws?
The Corn Laws were laws that created high tariffs on foreign grains
(3 pts) Explain how and why they were finally repealed.
These laws were repealed for several reasons. For one, the arguments of David Ricardo showed the economic benefits of free trade. Another was the fact that industrialization in Britain had much to gain by repealing these laws. As such, they, particularly represented by the