The assumption of diminishing returns in the Heckscher-Ohlin model means that, unlike in the Ricardian model, it is likely that
A) countries will not be fully specialized in one product.
B) countries will benefit from free international trade.
C) countries will consume outside their production possibility frontier.
D) comparative advantage will not determine the direction of trade.
E) global production will decrease under trade.

Question

Quizplus · Accepted Answer

The assumption of diminishing returns in the Heckscher-Ohlin model suggests that as countries continue to specialize in one product, the marginal benefit from doing so will decrease, eventually leading to a point where it is no longer beneficial to specialize in only one product. This means that countries are likely to produce and trade in multiple products instead of fully specializing in one, unlike in the Ricardian model.

The Assumption of Diminishing Returns in the Heckscher-Ohlin Model Means