In the Heckscher-Ohlin model with two goods and two factors, an increase in one factor will cause:
A) an increase in the production of the good that uses the factor intensively.
B) a decrease in the production of the good that use the factor intensively.
C) an increase in the production of the good that does not use the factor intensively.
D) no change in the production of either good.

Question

Quizplus · Accepted Answer

In the Heckscher-Ohlin model, an increase in the availability of one factor causes a decrease in the relative price of the good that uses the factor intensively, which in turn leads to an increase in the production of that good. Therefore, the increase in factor availability results in an increase in the production of the good that uses the factor intensively.

In the Heckscher-Ohlin Model with Two Goods and Two Factors