Why is the PPF bowed out in the Heckscher-Ohlin model?
A) Capital is specific to the production of one good.
B) Labor is specific to the production of the other good.
C) There are increasing opportunity costs of producing more of each good.
D) Labor is not perfectly mobile between the production of the two goods.

Question

Quizplus · Accepted Answer

The PPF in the Heckscher-Ohlin model is bowed out because there are increasing opportunity costs of producing more of each good. This is due to the assumption that different factors of production (capital and labor) are not perfectly mobile between the production of the two goods. As more of one good is produced, more and more of the other factor must be shifted away from producing the other good, which results in increasing opportunity costs.

Why Is the PPF Bowed Out in the Heckscher-Ohlin Model