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    Heckscher-Ohlin theory

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    As an international economist you have been asked to prepare a short speech which answers the following questions:

    1. How does the Heckscher-Ohlin theory differ from Ricardian theory in explaining international trade patterns?

    2. The Heckscher-Ohlin theory demonstrates how trade affects the distribution of income within trading partners. Explain.

    3. How does the Leontief paradox challenge the overall applicability of the factor-endowment model?

    4. According to Staffan Linder, there are two explanations of international trade patterns?one for manufacturers and another for primary (agricultural) goods. Explain.

    Following that speech, the audience asks you to respond to the following question:

    Describe a specific tariff, an ad valorem tariff, and a compound tariff. What are the advantages and disadvantages of each?

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    Solution Preview

    As an international economist you have been asked to prepare a short speech which answers the following questions:
    1. How does the Heckscher-Ohlin theory differ from Ricardian theory in explaining international trade patterns?
    Heckscher-Ohlin theory predicts patterns of commerce an production on the basis of factor gifts of a particular region that is involved in trade. Countries will trade in products (export) that use the resources in which the country is well endowed. On the other hand countries will trade (import) in those resources in which the countries' resources are scarce.
    The Ricardian model however, focuses on the difference in labor productivity using different technologies. In the Heckscher-Ohlin theory the economists do not consider that technology varies among countries. The assume that technology is similar everywhere. In other words, Ricardo focused on one factor of production, namely labor whereas Heckscher-Ohlin theory introduced variations in "other" factors of production or capital or capital endowment.
    From a different perspective the Heckscher-Ohlin theory assumes that the production function in each country is ...

    Solution Summary

    This answer provides you an excellent discussion on Heckscher-Ohlin theory

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