In the 2x2x2 Heckscher-Ohlin Analysis, If an Relatively Labor-Abundant Country

question 2

Multiple Choice

In the 2x2x2 Heckscher-Ohlin analysis, if an relatively labor-abundant country is opened To trade, then, as the movement to trade takes place, the capital/labor ratio used in the Country's export industry will __________ and the capital/labor ratio used in the Country's import-competing industry __________.

• A) increase; will decrease
• B) increase; also will increase
• C) decrease; also will decrease
• D) decrease; will increase

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Definitions:

Opportunity Cost

The act of selecting one alternative leads to the loss of possible gains that could have been obtained from other options.

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than others, leading to more efficient trade possibilities.

Absolute Advantage

The ability of a country or entity to produce a good more efficiently (using fewer resources) than another country or entity.

Economic Efficiency

A condition where resources are allocated in a way that maximizes the production of goods and services at the lowest cost to society.