Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. According to the Heckscher-Ohlin theory, Alpha has a comparative advantage in the production of:
A)drink.
B)food.
C)both goods.
D)neither good.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin theory, a country with a relatively abundant factor of production (in this case, labor) will have a comparative advantage in producing the good that uses that factor intensively (in this case, drink). Therefore, Alpha has a comparative advantage in the production of drink.

Assume the Standard Trade Model with Two Countries (Alpha and Beta)