Assume that Home is relatively abundant in labor and relatively scarce in land. The Heckscher-Ohlin model predicts that trade with other countries will cause increased returns to:
A) Home's laborers.
B) Home's landowners.
C) neither Home's laborers nor landowners.
D) both Home's laborers and landowners.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin model, a country will export goods that use intensively the factors of production that are relatively abundant in that country, and will import goods that use intensively the factors of production that are relatively scarce in that country. In this case, Home is relatively abundant in labor and relatively scarce in land. Therefore, Home will export goods that use intensively labor (e.g. textiles, clothing) and will import goods that use intensively land (e.g. agricultural products). As a result, the demand for Home's labor will increase, driving up the returns to labor. On the other hand, the demand for Home's land will decrease, driving down the returns to land.

Assume That Home Is Relatively Abundant in Labor and Relatively