Question

Ricardo’s  theory  of  trade  suggests  that  it  makes  sense  for  a  country  to  specialize  in  the 

production  of  those  products  that  it  produces  most  efficiently  and  to  buy  the  products  that  it 

produces  less  efficiently  from  other  countries,  even  if  this  means  that  the  country  is  buying 

products that in reality,  it could produce more efficiently itself. This means that Ricardo showed 

that  a  country  can  derive  advantages  by  trade  even  though  it  has  an  absolute  advantage  in 

producing  all  products.  The  Heckscher-Ohlin  theory  of  trade  suggests  that  comparative 

advantage for a country arises from differences in national factor endowments (i.e., the extent to 

which a country is endowed with such resources as land, labor, and capital). Ricardo’s argument 

focused  on  relative  productivity,  while  Heckscher-Ohlin’s  argument  focused  on  having 

important resources. 

Question

a.  you can only have one of the two— better relative productivity or lots of resources such 

as land, labor, and capital—which would you prefer, and why?