The H-O model extends the classical trade model by:
A)explaining the basis for comparative advantage
B)examining the effect of trade on factor prices
C)both a and b
D)neither a nor b

Question

Quizplus · Accepted Answer

The H-O model explains the basis for comparative advantage by examining the relative abundance of factors of production (capital, land, and labor) across countries and showing how trade can benefit both countries by allowing them to specialize in their relatively abundant factor(s). It also examines the effect of trade on factor prices, which can lead to wage and income inequality within and between countries. Therefore, both options A and B are correct.

The H-O Model Extends the Classical Trade Model By