Question

In the traditional Heckscher-Ohlin model, the two countries differ in: Select one: O a. Technology O b. Their preferences for cloth and food. O c. Capital productivity. d. Relative abundance of production factors. Assume that two countries, Home and Foreign, are endowed with the following production factors. Countries Factor Endowments Home Foreign Labor (L) 9040 Capital (K) 30 20 Assume that food is capital-intensive and cloth is labor-intensive. Following the Heckscher-Ohlin Theory Select one: A. Foreign will export food. B. Home will export food. C. both countries will export food. D. both countries will import food.

Answer 1

1) Option D - Relative abundance of production factors
Heckscher-Ohlin model states that the countries do not have similar level of resources, and they differ in the availability of the factors which are required for the production. So one country might have abundant labor but it may not have capital. Similarly, any other country might have capital in abundance but labor or land scarcity. These countries will then export the products which could produced with abundant resources while import that produced by the factors which are in lower availability.

2) Option A - Foreign will export food.
Heckscher-Ohlin model emphasizes on the availability of the factors of production which in turn decides the goods to be produced. It takes into account the relative abundance of resources. A relatively abundant resources will be utilized by that country for production and that country will export that.
The home country has labor in abundance relative to the capital so it will use that resource to produce labor intensive product such as cloth. On the other hand, foreign country will produce food and will export it.