Question

1- In the Heckscher­ Ohlin model

A- countries have the same tastes, but different technologies.
B- trade is driven by differences in consumer preferences
C- countries have the same technologies, but different endowments of capital and labor.
D- there is a fixed amount of capital in each industry.

2- If in the specific factor model the price of manufactures and the price of food in Gambinia increase by 25%, then

a-Employment does not change
b-Gambinia fully specializes in production of food
c-Employment increases in food industry
d-Employment increases in manufacturing industry

Answer 1

1.

The Hecksher-Ohlin model hypothesizes that comparative advantage is based on national difference in factor endowments. Countries exports goods that have production requirement that are intensive in the nation’s relatively abundant factor. They imports good that require intensive input from the nation’s relatively scarce factors. The H-O model implies that the income of the abundant factor rises with the opening of the trade and it falls for the scarce factor.

Therefore, the correct option is: C

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2.

In the specific factor model, each good is produced with a specific factor, whose only use is in the production of that good, and a variable factor, which is used to produce both goods. The specific factors are immobile and cannot move between goods, while the variable factor is completely mobile between industries. Countries exports goods that have production requirement that are intensive in the nation’s relatively abundant factor. They imports good that require intensive input from the nation’s relatively scarce factors. At the time trade opens, each country follows its comparative advantage and moves towards greater specialization. The shift in production alters the demand for the specific factor that is used in the industry that shrinks. In each country, the specific factor in the declining industry experiences a fall in income.

Therefore, the correct option is: C