Question

According to Heckscher-Ohlin (H-O) model, a country will export those goods: Group of answer choices That are intensive in its relatively abundant factors for which the world price is below the domestic price. That are produced at a relatively high opportunity cost In which it does not have a comparative advantage?

Answer 1

Answer:

Both options are incorrect, since the Heckscher-Ohlin (H-O) model assumes that countries will trade goods that are intensive in its relatively abundant factors, but it the world price is below the domestic price then the trade doesn't make sense. This model explains why the costs of factors of production will tend to be similar between countries that engage in trade.

The second option makes even less sense since the countries should export goods that are produced at a relatively low opportunity cost.

Explanation:

According to the Heckscher-Ohlin (H-O) model, countries differ in the relative abundance of factors of production, and their exports are going to be based on those abundant factors. But it makes the mistake of assuming that technology is similar and available in all countries. The (H-O) model is also based on the study of just two factors of production, and the factors of production are four (land, labor, capital and entrepreneurship), and they can all be traded or changed from one country to another. For example, the founders of Google, Amazon, Tesla, and others are all immigrants that came to the US and they were all entrepreneurs. The (H-O) model also states that no country can have abundance of all the factors of production, but the US is unique in the sense that all the factors of production are abundant here.