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Unformatted text preview: Application Week 2: Within the Heckscher-Ohlin framework, complete factor price equalization cannot be achieved in the presence of transportation costs. Based on your review of the Learning Resources for this week, do you agree or disagree with this statement? Answer: I would have to agree with the statement that in the Heckscher – Ohlin framework, complete factor price equalization could not be achieved in the presence of transportation cost. Factor price equalization is the second important contribution to the H-O analysis. “Transportation cost, tariffs, subsidies, or other economic policies contribute to different product prices between countries. If product prices are not the same, then relative factor prices certainly cannot be expected to be the same although the tendency to equalize can still be present” (Appleyard, Field, & Cobb, 2010). Transportation costs are valid in the real world. A perfect example is online shopping. In most online stores, the shipping price depends on your world....
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This note was uploaded on 04/10/2011 for the course ECON 2001-1 taught by Professor Nickeyturner during the Spring '11 term at Walden University.
- Spring '11
- International Economics