Question

One of the commonly used assumptions in the Heckscher-Ohlin model is that tastes are homothetic, or that if the per capita incomes were the same in two countries, the proportions of their expenditures allocated to each product would be the same as it is in the other country. Imagine that this assumption is false, and that in fact, the tastes in each country are strongly biased in favor of the product in which it has a comparative advantage. How would this affect the relationship between relative factor abundance between the two countries, and the nature (factor-intensity) of the product each exports?

What would happen if instead tastes were biased toward the imported good?

Answer 1

In that case the nation may want to export goods in which its factor is scare. This is more so because other country will import mostly that country because that country prefers consumption of this commudity(in that country this commodity uses domestic abundant factor intensively which is scare in first country and tastes are strongly in favour of it). With the result relative prices will more move away from each other in these nations

If tastes were based towards imported goods then H-o theorem will hold more and prices will tend to equalise fast.