HOS Model - Factor Endowments and Comparative Advantage (Sec 6)

Question 1

Germany and China produce bicycles (good 1) and cars (good 2) using the production factors
labor and capital. Car production is always more capital intensive than the production of bicycles. Germany is relatively well-endowed with capital; China is relatively well-endowed with
labour.

Answer 1

Questions to follow

Question 2

List and interpret the assumptions of the HOS model, in particular distinguish between the current model and the model of specific factors

Answer 2

• Identical technologies, countries only differ in their factor endowments (as opposed to Ricardo)
• Factors are mobile between sectors and no longer specific to a sector (more long-term oriented than specific factor models)
• Factor view (not sectorial view)

Question 2

Germany and China produce bicycles (good 1) and cars (good 2) using the production factors
labor and capital. Car production is always more capital intensive than the production of bicycles. Germany is relatively well-endowed with capital; China is relatively well-endowed with
labour.

Answer 2

Questions to follow