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...
A bond that is currently selling at $1,000 offers to pay $50 annually. What is the percentage rate of return on the bond?
A. 10% B. 50% C. 5% D. 20%
A consumer has $20 that he wants to spend on two goods: pens priced at $2 each, and pencils priced at $1 each. Which of the following correctly represents his budget constraint?
A) $20 = ($2/Quantity of pens) + ($1/Quantity of pencils) B) $20 = ($2 × Quantity of pens) + ($1 × Quantity of pencils) C) $20 = ($3/Quantity of pens + Quantity of pencils) D) $20 = $3 × (Quantity of pens - Quantity of pencils)
Refer to Figure 13-4. Given the economy is at point A in year 1, what is the inflation rate between year 1 and year 2?
A) 0.9% B) 1.8% C) 2.7% D) 3.0%
In 1981-1983, the world economy suffered a steep recession. Naturally, the fall in industrial countries' aggregate demand had a direct negative impact on the developing countries
What other mechanism was an even more important contributor to this event? A) the immediate steep inflation that followed the recession B) the dollar's sharp depreciation in the foreign exchange market C) the increase in primary commodity prices, increasing terms of trade in many poor countries D) the collapse in primary commodity prices and the immediate, large rise in the interest burden that debtors had to pay E) the influx of defaulting credit