Grp05 S02 - Heckscher-ohlin Qn02

Seminar 2: International Trade Theory- Heckscher Ohlin Model A) The Heckscher- Ohlin Model 2) A difference in factor endowments will cause the production frontiers of two countries to be shaped differently. a) What else could cause their production frontiers to have different shapes? Production possibilities Frontier (PPF) is a graph that depicts the trade-off between any two items produced.

Apart from differences in factor endowments, main determinants of the curve are production functions (reflecting the available technology and management techniques) b) What assumption made by the H-O prevented this in the H-O model? The assumption made was that the production technologies are identical in both countries. This assumption means that producing the same output of either commodity could be done with the same level of capital and labour in either country.

c) What are other possible causes of difference in the relative good prices between the two nations in the absence of trade? • • • • • •

The technologies used to produce the two commodities differ Capital mobility within countries Capital immobility between countries Labour immobility between countries Perfect internal competition Commodities have the same price everywhere