The Heckscher-Ohlin model rules out the classical model’s basis for trade by assuming that ________ is (are) identical between countries.
Options:
| a. factor endowments b. factor intensities c. technology d. opportunity costs |
The Correct Answer Is:
- c. technology
The correct answer is option (c) – the Heckscher-Ohlin model rules out the classical model’s basis for trade by assuming that technology is (are) identical between countries. Let’s explore this concept in detail and then explain why the other options are not correct.
Heckscher-Ohlin Model and the Classical Model:
The Heckscher-Ohlin Model is a theory of international trade that was developed as an extension and refinement of the classical theory of comparative advantage.
The classical model, first proposed by David Ricardo, is primarily based on differences in labor productivity and comparative advantage as the main driver of international trade. In contrast, the Heckscher-Ohlin Model introduces a key assumption that distinguishes it from the classical model.
Explanation of the Correct Answer (Option c):
Technology (Productivity):
The Heckscher-Ohlin Model assumes that technology, or productivity, is identical between countries. This means that, in the absence of differences in technology, both countries have access to the same level of technological know-how and efficiency in producing goods.
This assumption serves to isolate the role of factor endowments (capital and labor) as the primary determinant of comparative advantage in the Heckscher-Ohlin Model.
In this context, when technology is considered identical, trade is explained by differences in factor endowments. Specifically, countries will specialize in producing goods that make the most efficient use of their abundant factor.
For example, if one country has a relative abundance of capital and another has a relative abundance of labor, they will specialize in goods that are intensive in their abundant factor.
Now, let’s examine why the other options are not correct:
a. Factor Endowments:
The Heckscher-Ohlin Model does not assume that factor endowments are identical between countries. In fact, it is precisely the differences in factor endowments (capital and labor) that are at the core of the model.
The model posits that trade occurs because countries have different factor endowments, and this drives comparative advantage. The model seeks to explain how these differences in factor endowments influence trade patterns.
b. Factor Intensities:
The Heckscher-Ohlin Model does not assume that factor intensities are identical between countries either. It recognizes that goods can vary in their factor intensities, meaning they can require different proportions of capital and labor in their production.
The model’s primary focus is on how factor intensities, in combination with factor endowments, influence trade. When factor intensities are not identical, countries will still have different comparative advantages based on their factor endowments and the factor intensities of goods.
d. Opportunity Costs:
The Heckscher-Ohlin Model doesn’t directly address the concept of opportunity costs. While opportunity costs are fundamental to the classical theory of comparative advantage, the Heckscher-Ohlin Model takes a different approach.
It emphasizes factor endowments and assumes that technology, in terms of productivity and efficiency, is the same in both countries. In this context, opportunity costs do not play the central role they do in the classical model.
In conclusion, the Heckscher-Ohlin Model rules out the classical model’s basis for trade by assuming that technology, specifically productivity and efficiency in production, is identical between countries. This assumption allows the model to isolate differences in factor endowments as the primary determinant of comparative advantage.
The other options are not correct because they misrepresent the fundamental assumptions and principles of the Heckscher-Ohlin Model, which is focused on factors like technology, factor endowments, and factor intensities to explain trade patterns.
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