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7. (5.0 pts) Discuss the significance of the assumption of “identical preferences and tastes” in the...

7. (5.0 pts) Discuss the significance of the assumption of “identical preferences and tastes” in the factor endowment theory. Will the H.O theory collapse if tastes and preferences are different between the two nations? For the latter question, draw a graph to show it graphically. Explain

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Answer #1

Under Factor Endowment theory, the assumption of "identical tastes & preferences":-

states that, benefited comparatively the two different nations is adamant by the Supply conditions.

However, In the case of Heckscher–Ohlin Theory it is not the same.

In H-O Theory the nation will have a comparative advantage with the commodity whose production is relatively intensive in the factor in which the country is relatively abundant.

Graphically, this can be explained as follows:-

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