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111SCENARIO: TRADE IN GOODS BETWEEN CHINA AND

THE UNITED STATES

(1) China has 1,000 units of capital and 3,000 workers; (2) the

United States has 3,000 units of capital and 1,000 workers; (3)

clothing production is labor intensive; and (4) chemical production is capital intensive.

(Scenario: Trade in Goods Between China and the United States) Suppose that the United States eliminates all restrictions on immigration and Chinese workers are free to emigrate from China to the United States. How many Chinese workers must emigrate from China to the United States in order for factor price equalization to occur?

1,000

2,000

3,000  

4,000

112In the long run, returns to capital and wages do not change when FDI or labor immigration occurs because:

world prices of output are unchanged.

marginal productivities are unchanged.

there is no change in the capital–labor ratio in either industry.

world prices of output and marginal productivities are unchanged.

113In the long run, an increase in FDI in the manufacturing sector will __________ the return to capital in the ____________

sector.

decrease; agriculture

increase; manufacturing

decrease; manufacturing

not change; manufacturing or agriculture

114SCENARIO: TRADE IN GOODS BETWEEN MEXICO AND

THE UNITED STATES

(1) Mexico has 2,000 units of capital and 2,000 workers; (2) the United States has 6,000 units of capital and 4,000 workers; (3) clothing production is labor intensive; and (4) chemical production is capital intensive.

(Scenario: Trade in Goods Between Mexico and the United States) Suppose that the United States eliminates all restrictions on immigration from Mexico. How many Mexican workers must emigrate to the United States in order for factor price equalization to occur?

500

1,000

1,500  

2,000

115Which of the following is a key assumption in factor price insensitivity in response to a fall in FDI?

Technology is changing in the capital-intensive sector.

Technology is changing in the labor-intensive sector.

Prices are changing for the capital-intensive good.  

None of these answer choices are correct.

116FDI inflows to Singapore during the latter part of the twentieth century in the short run:

contradicted the specific-factors model because wages fell while the rental on capital rose.

confirmed the specific-factors model because wages rose while the rental on capital fell.

did not have any measurable effects on either wages or the rental on capital.

confounded economists because the rental on capital rose and wages rose as well.

117If FDI has “spillover” benefits for the recipient nation (such as spurring technological innovation, more FDI, or growth in

labor productivity), then it could explain why in Singapore:

wages fell in the short run.

in the long run, wages fell and returns to capital rose.

in the long run, contradicting the HO model, wages rose and returns to capital were close to original levels (depending on the calculation used).

absolutely nothing changed in either the short or long run.

118Without productivity growth, in the long run the effect of labor migration is:

an increase in production in the sector using labor (or capital) intensively.

clear gains to owners of capital versus labor.

clear gains to labor versus owners of capital.  

a shift of world resources toward the high-income nations.

119Without productivity growth, the long-run effect(s) of labor migration on the receiving country is(are):

an increase in production of the labor-intensive good.

lower wages.

higher returns to capital.

None of the answers listed are correct.

120Measuring the effects of labor immigration shows that:

as workers move, they disrupt their families and cause huge costs in the recipient nation.

most immigrants spend months trying to find work.

immigration benefits the recipient nation by raising the marginal  product of capital, expanding labor-intensive production, and lowering prices of labor-intensive goods.  

immigration is very harmful to the host nation because of a huge increase in the unemployment rate.

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