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    Heckscher-Ohlin theory

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    (a) Explain what is meant in the Heckscher-Ohlin theory by

    (i) The relative factor intensity of a commodity,

    (ii) the relative factor abundance of a country.

    (b) How are these concepts used to explain the commodity composition of trade?

    (c) Demonstrate that under this analysis commodity movement and factor movement are substitutes for each other.

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    i. In a world of two goods and two factors of production, one good's production is factor intensive if the ratio of the factors used in the production of that good is greater than that used in the production of the other good.

    ii. This means that the factors are more abundant in that country than in any other. This is determined by constructing a ratio of this factor to other factors, and comparing these ratios between two countries. The country with the higher ratio has the relative factor abundance. Or, we can say that a county is relatively abundant in a ...

    Solution Summary

    Factor intensity and the commodity composition of trade