Starting from an autarky (no-trade)situation with Heckscher-Ohlin model,if Country H is relatively labor abundant,then once trade begins
A) wages should rise and rents should fall in H.
B) wages and rents should rise in H.
C) wages and rents should fall in H.
D) wages should fall and rents should rise in H.
E) rent will be unchanged but wages will rise in H.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin model, a country will export the good that uses its abundant factor of production more intensively and import the good that uses its scarce factor of production more intensively. Therefore, if Country H is relatively labor abundant, it will specialize in producing the labor-intensive good and export it. This will increase the demand for labor in Country H, leading to higher wages. On the other hand, the demand for the other factor of production (in this case, capital) will decrease, leading to lower rents. Thus, wages should rise and rents should fall in Country H.

Starting from an Autarky (No-Trade)situation with Heckscher-Ohlin Model,if Country H