Question

Concerning the influence that transportation costs have on the location of industry, which of the following industries is likely to have the greatest profit gain by locating the production facilities close to resource supplies?

	steel
	soft drinks
	autos
	valuable electronics goods

Which theory suggests that factor (resource) endowments determine a nation’s comparative advantage?

	the MacDougall theory
	the product life cycle theory
	the Linder theory
	the Heckscher-Ohlin theory

Answer 1

Answer

Steel

Among the four industries, the Steel industry is likely to have the greatest profit gain by locating the production facilities close to resource supplies.

The main resources, a steel industry requires, i.e., iron ore, coal, limestone, etc. are found in the mines. Lifting these resources from mines and then transportation to the production facilities of steel involves high cost that raises cost of production.

So, the cost of production may be reduced by locating the production facilities close to resource supplies.

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The Heckscher-Ohlin theory

The Heckscher-Ohlin theory suggests that factor (resource) endowments determine a nation’s comparative advantage.

According to the Heckscher-Ohlin theory, a country will produce and export that good in which it has comparative advantage, i.e., the good that can be produced by the factor which is abundant and cheap in the country. On the other hand, the country will import that good whose production is expensive and the country can not produce it efficiently.

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