Assume that Trinbago is a small country that produces wine and motor vehicles, where motor vehicles are capital-intensive. Trinbago is also capital intensive, and the standard Heckscher -Ohlin (H-O) assumptions hold. The other country in the model is Vincyland. Questions: Give a short background on the Heckscher-Ohlin Trade model and then answer the following questions. (a) Based on the H-O assumptions, which good should Vincyland export, and why? (b) What trade pattern would occur if the Leontief Paradox holds? Which two (2) explanations of the Leontief Paradox most strongly
Assume that Trinbago is a small country that produces wine and motor vehicles, where motor
vehicles are capital-intensive. Trinbago is also capital intensive, and the standard Heckscher -Ohlin
(H-O) assumptions hold. The other country in the model is Vincyland.
Questions:
Give a short background on the Heckscher-Ohlin Trade model and then answer the following
questions.
(a) Based on the H-O assumptions, which good should Vincyland export, and why?
(b) What trade pattern would occur if the Leontief Paradox holds?
Which two (2) explanations of the Leontief Paradox most strongly support the H-O theory? Give the
reasons.
(c) In autarky, according to Ohlin, how does Trinbago’s relative price of labor compare to
Vincyland’s?
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