/ Cloth Food PMR KA POPt 16) Refer to above figure. Two countries exist in this

Question

/ Cloth Food PMR KA POPt 16) Refer to above figure. Two countries exist in this model, P and R. P is relatively labor (L) abundant, as is evident in the bottom right horizontal axis. If Country P were to be completely specialized in the labor-intensive product, C, it would be producing at point 4. In fact, it produces both C and F, at point 5. The (autarky) relative price of C (in terms of F) of Country P is at point 3; and of Country R at point 1. If trade were to open up between these two countries, which would export C and which would export F? Is this consistent with the Heckscher-Ohlin model? Explain.

Explanation / Answer

there are 2 countries in the model Pand R. country P is labour abundant and labour intrnsive in product Cloth,then it will be beneficial for country P to produce more cloth. since food is land intensive and country R is land abundant so, country R produces more cloth. if trade were to open between country P and country R then, country P exports cloth and import food form country R. similarly country R exports food and import cloth from country P.

YES, this model is consistent with the hickscher- ohlin model. because the above model examined the role of resource difference in international trade. the model shows that comparative advantage is influenced by interaction between an economy's resources ( that determine relative abundance of factor) and technology of production ( which determine relative intensity with which factors of production are used in production.) since, H.O model focus on interrelation between proportion in which different factors of production are available in different countries $ the proportion in which they are used in production. so, the above model is consistent with Hickscher- ohlin model.

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