Heckscher Ohlin model

Question 1

Assumptions of Heckscher Ohlin (part 1)

Answer 1

• 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

Question 2

Assumptions of Heckscher Ohlin (part 2)

Answer 2

• Two goods: Computers (C) and Shoes (S)
• Shoes are labour intensively produced
• computers are capital intensively produced
• Wages and rental are equal between sectors

Question 3

Assumptions of Heckscher Ohlin (part 3)

Answer 3

• 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

Question 4

Labour/capital Ratios

Answer 4

• Lower labour-to-capital ratio means more machines per worker
• thus the marginal product of capital and the real rental must be
  lower.

Question 5

Heckschar Ohlin (Fig 1)

Question 6

Heckschar Ohlin (Fig 2)

Question 7

Heckschar Ohlin (Fig 3)

Question 8

Heckschar Ohlin (Fig 4)