Question

The country A has an endowment (total supply) of 160 units of labor and 14 units of land, whereas country B has 40 units of labor and 6 units of land. Is country B labor or land abundant? If wheat is land-intensive and cloth is labor-intensive, what is the Heckscher-Ohlin prediction for the pattern of trade between country A and country B?

Answer 1

Answer:

Given that

country A has 160 units of labor and 14 units of land

country B has 40 units of labor and 6 units of land.

According to Heckscher - Ohlin theory, a labor abundant country will specialize in Labor intensive good and thus will export Labor intensive good. Similarly is with other inputs as well .

Labor/ Land of Country A = 160/14 = 11.4.

Labor/ Land of Country B = 40/6 = 6.67.

Hence, Labor/ Land of Country A is higher and hence, Country A is Labor abundant. Hence, Country A will export Labor intensive good i.e., Cloth and Country B will import labor intensive good i.e., Cloth.

land/Labor of Country A = 14/160 = 0.0875

Land/Labor of Country B = 6/40 = 0.15

Hence, Land /Labor of Country B is higher and hence, Country B is Land abundant. Hence, Country B will export Land intensive good i.e., Wheat and Country A will import land intensive good i.e., wheat.

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