Assume a two-country, two-good, and two inputs model. Let the two countries in this model be the United States and the Rest of the World and the two goods being produced by each of the countries be steel and wheat. The two factors of production used in producing the goods in each country are capital and land. If the United States is capital-abundant and steel production is capital-intensive, the Heckscher-Ohlin model would predict that the Rest of the World would:
A)export steel and import wheat.
B)export wheat and import steel.
C)import both the goods from the United States.
D)export both the goods to the United States.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin model, a capital-abundant country like the United States specializes in producing capital-intensive goods like steel. On the other hand, a land-abundant country like the Rest of the World specializes in producing land-intensive goods like wheat. Therefore, the Rest of the World would export wheat and import steel.

Assume a Two-Country, Two-Good, and Two Inputs Model