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, Beta 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 will have a comparative advantage in the production of goods that intensively use the country's relatively abundant factor of production. Since Alpha is labor-abundant and drink is labor-intensive, Alpha would have a comparative advantage in drink. Conversely, Beta, being relatively land-abundant (by implication, since Alpha is labor-abundant), would have a comparative advantage in producing food, assuming food is relatively land-intensive.

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