Evaluate whether the following statements are true or false and provide brief ex

Question

Evaluate whether the following statements are true or false and provide brief explanations:

1) According to the welfare effect in the specific factor model, the owners of the specific factor in the import competing sector will lobby the government for trade protection.

2) In the specific factor model, a country will always export the good that uses the factor of production the country has more abundantly.

3) Supposed that inflation causes the prices of both goods to increase by 20%, as a result labor allocation between the two sectors changes (in the context of the specific factor model).

Explanation / Answer

2) False. The Heckscher- Ohlin model assumes that the technologies are same across countries and that a country will always export the good that uses the factor of production the country has more abundantly. They will import the other good.

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