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Heckscher - country two good example d Be able to graph the...

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1. Heckscher-Ohlin Model of International Trade a. Know the assumptions of the H-O model. The HO model assumes: when specialization begins, factor prices change and there is an increase in demand for labor. Factor prices will equalize . Depending on what quantities of factor inputs there are in each country, the country will export the more abundant one. b. Why, according to this model, is trade a good thing? (Don’t forget to mention that factor prices tend to equalize) A capital-abundant country will export the capital-intensive good, while the labor- abundant country will export the labor-intensive good. Trade allows less inequality between factors within a country, which tends to factor prices equalizing. c. Be able to identify, in general, which country will specialize in which good in a two
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Unformatted text preview: country, two good example. d. Be able to graph the production possibilities frontier of a country in autarky and then with trade. e. How does this model apply to developing countries in general? Would we imagine that they would completely specialize in one good or another? For developing countries, the demand for labor will increase because they will specialize in only labor intensive goods. f. What are the differences between the model of comparative advantage and the Heckscher-Ohlin model in terms of the impact of opening a developing country to international trade relationships? HO model we are able to see equalization, however, not without trade manipulation. These models advocate the free trade without government intervention....
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