In the HO model,the production possibility frontier is bowed out due to the assumption of
A)identical tastes.
B)different factor intensities in the production of the two goods.
C)increasing returns to scale.
D)Two of the above.

Question

Quizplus · Accepted Answer

The production possibility frontier is bowed out in the HO model due to the assumption that the two goods being produced have different factor intensities, meaning that they use different amounts of factors of production (e.g. labor, capital, land). This causes the more intensive good to have a higher opportunity cost in terms of the other good, leading to the bowed-out shape of the production possibility frontier. The assumptions of identical tastes or increasing returns to scale do not directly lead to this result.

In the HO Model,the Production Possibility Frontier Is Bowed Out