In the 2-factor, 2-good Heckscher-Ohlin model, the production possibility frontier is kinked when
A) there is no factor substitution in production.
B) the opportunity cost of production is constant.
C) there are unemployed factor resources.
D) a country does not engage in trade.
E) transportation costs are very high.

Question

Quizplus · Accepted Answer

In the 2-factor, 2-good Heckscher-Ohlin model, the production possibility frontier is kinked when there is no factor substitution in production, which means that the factors of production cannot be easily interchanged between the production of the two goods. This leads to a situation where the production possibility frontier has a kink, as the economy approaches the limit of its capacity to produce one good or the other. Therefore, the correct answer is A.

In the 2-Factor, 2-Good Heckscher-Ohlin Model, the Production Possibility Frontier