Which of the following can lead to a reversal of the country's trade pattern(that is a shift in which a previously exported good becomes an imported good or vis versa)?
1. Growth in the country's total supply of the factor that initially is scarce in the country
2. International diffusion of technology
3. Shifting tastes of the country's consumers
Answer:
1. Growth in the country's total supply of the factor that initially is scarce in the country.
This can lead to a reversal of the trade pattern. If the initially scarce factor grows by enough, then it will become the relatively abundant factor in the country, and Heckscher-Ohlin theory predicts that the trade pattern will reverse.
2. International diffusion of technology
This can lead to a reversal of the trade pattern. If a country initially exported a product because it had a technological advantage in that product, then diffusion of the technology to other countries could result in these other countries' becoming the low-cost producers, so the first country becomes an importer of the product. This pattern is stressed in the product cycle approach.
3. Shifting tastes of the country's consumers
This can lead to a reversal of the trade pattern. Consider a country that initially exports wheat. If local consumers shift their tastes strongly toward consuming more wheat, they may demand so much wheat that none is left for export, and some amount of imports may be needed to satisfy the increased domestic demand.
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