In the 2-factor, 2-good Heckscher-Ohlin model, the two countries differ in
A) tastes and preferences.
B) military capabilities.
C) the size of their economies.
D) relative abundance of factors of production.
E) labor productivities.

Question

Quizplus · Accepted Answer

In this specific model, the two countries differ in terms of their relative abundance of factors of production. One country is assumed to have a relatively larger endowment of one of the factors (e.g. capital) compared to the other country, which has a relatively larger endowment of the other factor (e.g. labor). This difference in factor endowments leads to differences in the relative prices of the two goods, which in turn determines their trade patterns. Tastes and preferences, military capabilities, the size of the economies, and labor productivities are not explicitly considered in this model.

In the 2-Factor, 2-Good Heckscher-Ohlin Model, the Two Countries Differ