Suppose that there are two factors,capital and land,and that the United States is relatively capital abundant while Canada is relatively land abundant.According to the HO model,
A)Canadian landowners should support Canada-U.S. free trade.
B)Canadian capital owners should oppose Canada-U.S. free trade.
C)U.S. capital owners should support Canada-U.S. free trade.
D)All of the above.

Question

Quizplus · Accepted Answer

The Heckscher-Ohlin (HO) model predicts that countries will export goods that use their abundant factors intensively. Since the U.S. is capital abundant, it will export capital-intensive goods, benefiting U.S. capital owners. Canada, being land abundant, will export land-intensive goods, benefiting Canadian landowners. Therefore, Canadian landowners and U.S. capital owners should support free trade. Canadian capital owners might oppose free trade because it could lead to increased competition from capital-intensive goods from the U.S., potentially harming their interests. However, the statement about Canadian capital owners opposing free trade is not directly derived from the HO model's predictions about trade patterns and factor benefits, making the explanation for choice B less straightforward in the context of the HO model's implications.

Suppose That There Are Two Factors,capital and Land,and That the United