Economics • Economic BasicsHard
What does the 'Heckscher-Ohlin Model' in international trade theory identify as the fundamental determinant of comparative advantage between nations?
A. Differences in labor productivity resulting from unilateral technological disparities
B. Differences in factor endowments, such as the relative abundance of labor versus capital✓ Correct Answer
C. Government subsidies provided to domestic export-oriented manufacturing units
D. Variations in consumer preferences and cultural tastes across borders
💡 Solution & Explanation
The Heckscher-Ohlin model asserts that comparative advantage arises from differences in national factor endowments, predicting that countries will export goods that intensively use their relatively abundant factors and import goods that use their scarce factors. This contrasts with the Ricardian model, which focuses solely on labor productivity differences. Stolper-Samuelson and Rybczynski theorems extend this framework to analyze factor price and output responses.
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