According to the static Heckscher-Ohlin model of trade, when countries trade, they are able to reach points outside their production possibilities frontier (PPF) because of:
A) economies of scale.
B) foreign exploitation.
C) specialization and exchange.
D) technological progress.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin model, countries engage in trade because of their differences in factor endowments, such as labor and capital. This leads to specialization in producing goods that use relatively abundant factors of production, and trading with other countries for goods that use relatively scarce factors of production. This results in an increase in overall output, allowing countries to consume at points outside their PPF. Therefore, the correct answer is specialization and exchange.

According to the Static Heckscher-Ohlin Model of Trade, When Countries