Computers are relatively capital intensive in their production, while wool is relatively labor intensive. Australia is relatively capital abundant and New Zealand is relatively labor abundant. According to the Heckscher-Ohlin theorem:
A) we would expect Australia to export computers to New Zealand and import wool from New Zealand.
B) we would expect Australia to export both computers and wool to New Zealand.
C) we would expect Australia to import both computers and wool from New Zealand.
D) we would expect Australia to import computers from New Zealand and export wool to New Zealand.

Question

Quizplus · Accepted Answer

The Heckscher-Ohlin theorem states that countries will export goods that use their abundant factor of production, while importing goods that use their scarce factor of production. Since Australia is capital abundant and computers are capital intensive, we would expect Australia to export computers to New Zealand. On the other hand, New Zealand is labor abundant and wool is labor intensive, so we would expect them to export wool to Australia.

Computers Are Relatively Capital Intensive in Their Production, While Wool