Suppose that the United States and China each produce steel and cloth. In the Heckscher-Ohlin model, if the United States enjoys a comparative advantage in steel production, then:

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Quizplus · Accepted Answer

According to the Heckscher-Ohlin model, countries will specialize in the production of goods that use relatively abundant factors of production, and this will lead to comparative advantage. If the United States enjoys a comparative advantage in steel production, it must have a relative abundance of the factor of production used intensively in steel production, which is likely to be capital. This implies that China, which has a lower capital/labor ratio than the United States, will have a comparative advantage in the production of the other good, which is cloth. So, option C is the correct answer. Option A is incorrect because while China could have an absolute advantage in cloth production, it is not a necessary condition for the United States to have a comparative advantage in steel production. Option B is incorrect because the comparative advantage of the United States in steel production does not necessarily imply that it will have a comparative advantage in cloth production. Option D is incorrect because the United States having an absolute advantage in steel production is not a necessary condition for it to have a comparative advantage in steel production.

Suppose That the United States and China Each Produce Steel