Consider the typical HO setting: 2 countries, Colombia and Venezuela, produce tw

Question

Consider the typical HO setting: 2 countries, Colombia and Venezuela, produce two goods, manufactures and bread, with two factors, capital and labor. Both countries share the same tastes and the same technology. Manufactures’ production is capital intensive. In Colombia there are 200 units of labor and 200 of capital, in Venezuela there are 40 units of labor and 100 of capital.

1.

What does the Heckscher Ohlin model assume regarding technology?

Increasing factor productivity along the production possibilities frontier

2.

Which of the following is NOT an assumption of the Heckscher Ohlin model?

Same tastes.

3.

In the Heckscher Ohlin model, whether an individual gains or loses from trade

Explanation / Answer

1.The H-O model assumes that there is constant returns to scale in the production of both goods

Answer-A

2.The model assumes that there is perfect mobility of factors between industries but international mobility is not possible

Answer-C.

3.Whether an individual gains or losses depends on the inputs they supply because price of factors change after trade.

Answer-d

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