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. If the countries engage in free trade, Beta will:
A)import both food and drink.
B)import drink and export food.
C)export both food and drink.
D)export drink and import food.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin theorem, a country will export the good that intensively uses its abundant factor of production and import the good that intensively uses its scarce factor. Since Alpha is labor-abundant and drink is labor-intensive, Alpha will export drink. Conversely, Beta, being relatively land-abundant, will export food, which is presumably land-intensive, and import drink.

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