SCENARIO: FRANCE AND ITALY
(1) France and Italy only trade with each other; (2) each
Produces wine and bread; (3) The production of bread is
Relatively capital intensive, and the production of wine is
Relatively labor intensive, and (4) France is relatively
Abundant in capital, while Italy is relatively abundant in
Labor.
Reference: Ref 46
(Scenario: France and Italy) According to the HO model,
Free trade between France and Italy should result in

Question

SCENARIO: FRANCE AND ITALY
(1) France and Italy only trade with each other; (2) each
Produces wine and bread; (3) The production of bread is
Relatively capital intensive, and the production of wine is
Relatively labor intensive, and (4) France is relatively
Abundant in capital, while Italy is relatively abundant in
Labor.
Reference: Ref 4­6
(Scenario: France and Italy) According to the HO model,
Free trade between France and Italy should result in

Quizplus · Accepted Answer

According to the HO model, free trade results in each country specializing in the production of goods that use their abundant factor of production. In this scenario, France is abundant in capital and Italy is abundant in labor. Therefore, France will specialize in producing bread, which is capital-intensive, and Italy will specialize in producing wine, which is labor-intensive. This will lead to an increase in the returns to capital in France and an increase in wages in Italy.