What features of the product cycle theory are at variance with the assumptions of the Heckscher-Ohlin model?  Explain.

2.

 

Suppose that you test the Linder hypothesis by comparing Germany’s absolute difference in per capita income from each of its trading partners with the size of Germany’s total trade with each respective partner.  You find a strongly negative correlation.  Do you thus conclude that the Linder hypothesis must necessarily offer a good explanation of Germany’s trade?  Why or why not?

3

Does the assumption in the Krugman model that demand becomes less elastic as consumption increases seem realistic to you?  Why or why not?  What would the PP schedule in Krugman’s basic diagram look like if demand became more elastic as per capita consumption increased?

4

Why is it difficult to analyze the welfare implications of growth in the neoclassical model?  What proxy is often used to reach a conclusion about the effects of growth?  What leads to the conclusion that, if welfare is to improve with growth in the labor force, there must be accompanying growth in the capital stock and/or improvements in labor productivity?

5

Developing countries often claim that growth and trade have left them no better off or perhaps worse off.  How might you explain this result theoretically?  Could this result obtain if the countries tended to be relatively small?  Why or why not?