Heckscher Ohlin model Flashcards
1
Q
Assumptions of Heckscher Ohlin (part 1)
A
- Two countries: Home and Foreign (marked with *)
- Two factors of production: Labour (L) and Capital ( K )
- Each country has a fixed supply of each factor
2
Q
Assumptions of Heckscher Ohlin (part 2)
A
- Two goods: Computers (C) and Shoes (S)
- Shoes are labour intensively produced
- computers are capital intensively produced
- Wages and rental are equal between sectors
3
Q
Assumptions of Heckscher Ohlin (part 3)
A
- Constant return to scale for labour and capital - mobile
- Home and Foreign share the same production technologies
- Home & Foreign consumers have the same preferences for shoes and
computers
4
Q
Labour/capital Ratios
A
- Lower labour-to-capital ratio means more machines per worker
- thus the marginal product of capital and the real rental must be
lower.
5
Q
Heckschar Ohlin (Fig 1)
A
6
Q
Heckschar Ohlin (Fig 2)
A
7
Q
Heckschar Ohlin (Fig 3)
A
8
Q
Heckschar Ohlin (Fig 4)
A