Chapter 4 - The Heckscher-Ohlin Model

Question 1

Heckscher-Ohlin model

Answer 1

assumes trade occurs because countries have different resources

Question 2

reversal of factor intensities

Answer 2

When the factor intensities for two countries are reversed, ie producing something in country A is labor intensive, but in country B it is capital intensive

Question 3

free-trade equilibrium

Answer 3

exports equal imports, so no reason for a relative price change

Question 4

abundant in that factor

Answer 4

if a country’s share of a factor exceeds its share of the world GDP

Question 5

scarce in that factor

Answer 5

if a country’s share of a factor is less than its share of the world GDP

Question 6

effective labor force

Answer 6

labor forces x productivity is larger than it would seem if you just counted people

Question 7

effective factor endowment

Answer 7

actual factor endowment x factor productivity

Question 8

abundant in that effective factor

Answer 8

a country’s share of an effective factor exceeds its share of world GDP

Question 9

scarce in that effective factor

Answer 9

a country’s share of an effective factor is less than its share of world GDP

Question 10

Stolper-Samuelson theorem

Answer 10

describes the relationship between relative prices of output and relative factor rewards - specifically real wages and real returns to capital