In the Heckscher-Ohlin model with two goods and two factors, an increase in either factor will be absorbed by the economy, changing the outputs of each good but leaving factor prices unaffected. What is the name of this result?
A) factor price insensitivity
B) factor price equalization
C) factor price theorem
D) factor price absorption

Question

Quizplus · Accepted Answer

This result is known as "factor price insensitivity," which states that in the Heckscher-Ohlin model, an increase in the supply of a factor will change the output levels of goods but will not affect the factor prices.

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