Assume a two-country, two-good, and two-input model. Let the two countries in this model be the United States and the Rest of the World and the two goods being produced by each of the countries be steel and wheat. The two factors of production used in producing the goods in each country are capital and land. If the United States is capital-abundant and steel production is capital-intensive, the Heckscher-Ohlin model would predict that the United States would:
A)export steel and import wheat.
B)export wheat and import steel.
C)import both the goods from the rest of the world.
D)export both the goods to the rest of the world.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin model, a capital-abundant country will specialize in producing the capital-intensive good. In this case, the United States is capital-abundant and steel is capital-intensive, so the United States would specialize in steel production and export it. Wheat is a land-intensive good, so the Rest of the World, which is land-abundant, would specialize in wheat production and export it to the United States. Therefore, the United States would import wheat and export steel.

Assume a Two-Country, Two-Good, and Two-Input Model