Question

True or False

The Heckscher-Ohlin theory assumes differences in tastes and technology cause differences in relative prices

Please explain why the answer is True

Answer 1

The Heckscher-Ohlin theory assumes differences in factor endowments cause differences in relative prices. That is the economy with abundant resources will have relatively lower prices than the country with less abundant or scarce resources. This can also be said when the resources are more than the demand of the economy, the prices are likely to be lower than the country which has resources not enough to fulfill the demand of its consumers.

The statement therefore is FALSE.