Question

. Heckscher-Ohlin Model A. Assumptions of the model B. Factor abundance and the shape of the PPF C. Factor abundance and the pattern of trade D. Graphical representation of effect of trade on Production and consumption E. Effect of trade on labor demand and factor prices F. The Leontieff paradox

Answer 1

Assumption of the H-O model are:

1. it is a two by two model i.e. two countries(A &B) two goods(X&Y) and two factor of production(Capital & Labour).
2. there is a perfect competion in the commodity as well as factor market.
3. there is full employment of resources.
4. there are constant return to scale in production of each commodity in each region.

B. H-O explain richness in the factor endowment in terms of factor prices.According to their defination,if capital is relatively cheap in country A the country is abundant in capital and if labour is relatively cheap in country B the country is abundant in lanourthus country A will produce and export the capital intensive good and import labour intensive good and vice versa.

F. Leontieff paradox: Is the first empherical test of H-O model.He reached a paradoxical conclusion that the US-the most capital abundant country in the world by any criterion exported labour intensive commodities and imported capital intensive commodities.This result has come to be known as Leontief Paradox.