In the Heckscher-Ohlin model, when there is international-trade equilibrium
A) the capital-rich country will charge more for the capital-intensive good than the price paid by the capital-poor country for the capital-intensive good.
B) workers in the capital-rich country will earn more than those in the poor country.
C) the workers in the capital-rich country will earn less than those in the poor country.
D) the relative price of the capital-intensive good in the capital-rich country will be the same as that in the capital-poor country.
E) the capital-rich country will charge less for the capital-intensive good than the price paid by the capital-poor country for the capital-intensive good.

Question

Quizplus · Accepted Answer

In the Heckscher-Ohlin model, when there is international-trade equilibrium, the relative price of a good will be the same in both the capital-rich and capital-poor countries. This is because, according to the model, each country will specialize in producing the good that uses its abundant factor of production more intensively, and this will lead to the same relative price for that good in both countries. Therefore, the answer is D.

In the Heckscher-Ohlin Model, When There Is International-Trade Equilibrium