The Assumption of Diminishing Returns in the Heckscher-Ohlin Model Means

question 6

Multiple Choice

The assumption of diminishing returns in the Heckscher-Ohlin model means that, unlike in the Ricardian model, it is likely that

• A) countries will not be fully specialized in one product.
• B) countries will benefit from free international trade.
• C) countries will consume outside their production possibility frontier.
• D) comparative advantage will not determine the direction of trade.
• E) global production will decrease under trade.

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Definitions:

Original Bundle

In economics, this refers to a specific combination of goods that a consumer initially chooses given their budget and prices.

Price Rise

An increase in the cost of goods or services, typically signifying inflation or market changes.

Budget Line

A graphical representation that shows all possible combinations of two goods that can be purchased with a given income and prices.

Commodity 1

A generic term for a raw material or primary agricultural product that can be bought and sold, such as copper or coffee.