1- In the Heckscher­ Ohlin mod

1- In the Heckscher­ Ohlin model

A- countries have the same tastes, but differenttechnologies.B- trade is driven by differences in consumer preferencesC- countries have the same technologies, but different endowmentsof capital and labor.D- there is a fixed amount of capital in each industry.

2- If in the specific factor model the price of manufactures andthe price of food in Gambinia increase by 25%, then

a-Employment does not changeb-Gambinia fully specializes in production of foodc-Employment increases in food industryd-Employment increases in manufacturing industry

Answer:

1.

The Hecksher-Ohlin modelhypothesizes that comparative advantage is based on nationaldifference in factor endowments. Countries exports goods that haveproduction requirement that are intensive in the nation’srelatively abundant factor. They imports good that requireintensive input from the nation’s relatively scarce factors. TheH-O model implies that the income of the abundant factor rises withthe opening of the trade and it falls for the scarce factor.

Therefore, the correct option is:C

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2.

In the specific factor model, eachgood is produced with a specific factor, whose only use is in theproduction of that good, and a variable factor, which is used toproduce both goods. The specific factors are immobile and cannotmove between goods, while the variable factor is completely mobilebetween industries. Countries exports goods that have productionrequirement that are intensive in the nation’s relatively abundantfactor. They imports good that require intensive input from thenation’s relatively scarce factors. At the time trade opens, eachcountry follows its comparative advantage and moves towards greaterspecialization. The shift in production alters the demand for thespecific factor that is used in the industry that shrinks. In eachcountry, the specific factor in the declining industry experiencesa fall in income.

Therefore, the correct option is:C


 
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