One of the predictions of the HO model is that
A)countries with different factor endowments but similar technologies and preferences will have a strong basis for trade with each other.
B)countries will tend to specialize, but not completely, in their comparative advantage good.
C)reciprocal demand leads to an equilibrium terms of trade by inducing changes in both demand and supply.
D)All of the above.

Question

Quizplus · Accepted Answer

All of the above predictions are consistent with the HO model. The model suggests that countries with different factor endowments but similar technologies and preferences will have a strong basis for trade with each other because they can produce goods that are relatively more efficient given their factor endowments. The model also predicts that countries will tend to specialize in their comparative advantage good, but not completely, because trade allows them to consume a variety of goods. Finally, the model suggests that reciprocal demand, which arises from differences in factor endowments, will lead to an equilibrium terms of trade by inducing changes in both demand and supply.

One of the Predictions of the HO Model Is That