Assume that the U.S. is relatively capital abundant, and Mexico is relatively labor abundant. Further, assume that the production of wheat is capital intensive and the production of iron is labor intensive. Which of the following would be true?
A) Mexico would tend to export wheat.
B) Mexico would tend to import wheat.
C) The U.S. would tend to export iron.
D) The U.S. would tend to import wheat.
E) Mexico would import both iron and wheat.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin theorem, countries tend to export goods that use their abundant factors of production more intensively. Since the U.S. is capital abundant and wheat production is capital intensive, the U.S. would tend to export wheat. Conversely, Mexico, being labor abundant and iron production being labor intensive, would tend to export iron and import wheat, making option B correct.

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