Refer to above figure. Two countries exist in this model, P and R. P is relatively labor (L) abundant, as is evident in the bottom right horizontal axis
If Country P were to be completely specialized in the labor-intensive product, C, it would be producing at point 4. In fact, it produces both C and P, at point 5. The (autarky) relative price of C (in terms of F) of Country P is at point 3; and of Country R at point 1. If trade were to open up between these two countries, which would export C and which would export F? Is this consistent with the Heckscher-Ohlin model? Explain.
Country R would export F. This is consistent with the H-O model. The country which is relatively capital abundant exports the product which is relatively capital intensive.
You might also like to view...
Labor-saving technological advances decrease the marginal productivity of labor
a. True b. False Indicate whether the statement is true or false
Related to the Economics in Practice on page 26: Which one of the following occurs when an individual enters the paid work force?
A. The opportunity cost of time for housework decreases, because as more people enter the work force, businesses have greater incentives to develop innovations that make housework more efficient. B. The opportunity cost of time for housework increases, because time spent on housework could be spent on money-earning activities. C. The opportunity cost of time for housework increases, because money earned at a job can allow individuals to pay someone to do household chores that the individuals used to do themselves. D. The opportunity cost of time for housework decreases, because increased earning power makes individuals less likely to do their own housework.