(A) State the Heckscher-Ohlin Theorem

question 26

Essay

(a) State the Heckscher-Ohlin theorem. Then, in the context of a 2x2x2 model and using the "price definition" of relative factor abundance, illustrate and explain how this theorem is obtained.
(b) Continuing with the "price definition" of relative factor abundance in the 2x2x2 context, carefully explain what happens (and why) to the relative factor price difference between the two countries as the countries move from autarky to free trade.

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Definitions:

Privilege

A special right or advantage granted to a particular person or group.

Employment

The condition of having paid work, including the agreement between an employer and employee regarding the terms of work.

Imminent Battery

A situation where an immediate act of harmful or offensive contact is about to occur, justifying self-defense measures.

Apprehension

The fear or anticipation, especially of a future problem or trouble; in law, it can also refer to the arrest of a person.