The factor-endowment theory predicts that because the United States is relatively abundant in capital and relatively scarce in labor, it will export capital-intensive goods, and its import-competing goods will be labor intensive

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The factor-endowment theory predicts that because the United States is relatively abundant in capital and relatively scarce in labor, it will export capital-intensive goods, and its import-competing goods will be labor intensive. In the 1950s, Wassily Leontief, a Russian-American economist, tested this proposition by analyzing the capital/labor ratios of export industries and import-competing industries, using U.S. data. He found that the capital/labor ratio for U.S. export industries was lower than that of the United States' import-competing industries, which means that U.S. exports were less capital intensive than import-competing goods. These findings appeared to contradict the predictions of the factor-endowment theory and became known as the Leontief paradox.

 

Replicate Leontief's test using the data shown in the following table. Compute the capital/labor ratio for exports and imports, and enter each value in the last column of the table.

 

 

Used to Produce $1 Million Worth of . . . Capital Labor Capital/Labor Ratio

(Dollars) (Person-years) (Dollars per person-year)

Exports 1,800,000 80 ___________

 

Imports 3,000,000 100 ___________

 

The numbers in the previous table show that U.S. exports are ______________  , and U.S. imports are _______________    .

 

What do the results of your test illustrate? Check all that apply.

 

 

___________-The Heckscher-Ohlin theory

____________The Leontief paradox

 

Which of the following explanations resolve the Leontief paradox? Check all that apply.

 

 

___________Leontief used the data on U.S. technology to calculate amounts of labor and capital used to produce imported goods.

___________The data Leontief used could have been influenced by World War II.

___________Leontief wrongly assumed that the United States was abundant in land.

___________U.S. and foreign technologies are not the same.