Economics • Economic BasicsMedium
In international trade theory, what does the 'Heckscher-Ohlin Theorem' predict about trade patterns?
A. Countries will export goods that make intensive use of their abundant factors of production.✓ Correct Answer
B. Trade is driven exclusively by economies of scale and product differentiation.
C. Tariffs always improve the domestic terms of trade at the expense of trading partners.
D. Economic growth will always immiserize the developing nation.
💡 Solution & Explanation
The Heckscher-Ohlin model explains that countries possess different factor endowments of capital and labor, leading them to specialize in producing goods that utilize their most abundant factor. Incorrect alternatives focus on product differentiation or arbitrary terms of trade effects rather than factor proportions. Comparative advantage theory was further refined by Paul Samuelson through the factor-price equalization theorem.
More Economics Economic Basics questions
- What does the 'Kinked Demand Curve' model attempt to explain in oligopoly markets?
- In the context of Arunachal Pradesh's economic geography, what is the term traditionally used for the…
- What does the 'Quantity Theory of Money' (in its classical formulation, MV=PY) assert when velocity (V) and…
- In international trade theory, what does the 'Heckscher-Ohlin model' predict regarding trade patterns?
- Consider the following statements regarding the inflation dynamics and Consumer Price Index (CPI) trends in…