# Heckscher-Ohlin Model and International Trade

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## 29 Questions

### What does Factor Price Insensitivity (Leamer, 1995) in the H-O model highlight?

The complex relationship between factor prices and factor endowments

### What is one of the main questions the H-O model aims to answer?

What are the equilibrium factor prices?

### According to the H-O model, what happens when Factor Intensity Reversals (FIRs) occur?

The factor intensity rankings of goods change with changing factor prices

Prices (p1, p2)

### Which concept in the H-O model asserts that factor endowments have no direct impact on determining factor prices?

Factor Price Insensitivity

### What effect does a steeper slope of the PPF relative to the relative price have in the H-O model?

Increases relative abundance of labor over capital

### Which condition in the H-O model ensures that there is no involuntary unemployment or underutilization of labor and capital?

Equilibrium Production Condition

### What is one of the outcomes when FIRs occur in the H-O model?

'Factor Price Equalization' fails to hold true

### 'Resources are limited' in the context of the H-O model implies what?

'Factor endowments are fixed'

### 'FOC implies Equilibrium production occurs where the slope of the PPF equals the relative price' in the H-O model. What does FOC stand for?

'First-Order Condition'

### According to the Factor Price Equalization (FPE) theorem, under what conditions do factor prices become equal between two countries in free trade?

Both goods are produced in both countries without any Foreign Direct Investment (FDI).

### What does the Stolper-Samuelson Theorem suggest regarding the effect of an increase in the relative price of a good on factor returns?

It increases the real return to the factor used intensively in the production of that good.

Rybczynski

### In a perfect specialization scenario according to the Heckscher-Ohlin (H-O) Model, what does each country export?

The good using its abundant factor intensively.

### What is one of the factors that contribute to observed deviations from Factor Price Equalization (FPE) in practice?

Market imperfections and factor mobility constraints.

### Which theory suggests that not everyone gains from trade when there is an increase in the relative price of a good?

Stolper-Samuelson Theorem

### What does Leontief's paradox attempt to explain regarding international trade patterns?

'Heckscher-Ohlin' model predictions compared to actual trade data.

### 'Dutch disease' can be linked to which theorem based on the text provided?

'Rybczynski Theorem'

### 'Leontief's paradox' is explained by factors such as:

'Protectionism' and 'tech differences.'

### What is one reason countries trade according to the text?

Due to differences in endowments

### In the specific factors model, why does China export textiles according to the text?

Due to abundant labor supply

### Why does Germany export machinery according to the text?

Due to a lack of capital

Trade is due to both resource endowments and differences in factor abundance

### What determines the trade pattern in the H-O model?

Differences in factor abundance and factor intensity

### How does Samuelson contribute to the trade model discussed?

He formalized the model developed by Heckscher and Ohlin

### What differentiates countries in the H-O model?

Differences in factor intensity

### Why can China efficiently produce textiles according to the text?

Due to an abundance of labor

### What is one reason for China's exports of textiles according to the text?

Its abundant supply of labor

Explore the Heckscher-Ohlin model in international trade theory and how it explains trade patterns based on differences in factor endowments between countries. Understand how this model complements the Ricardian and specific factors models in explaining comparative advantage and trade flows.

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