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（True or False questions) Consider the following Heckscher-Ohlin model. France and Italy produce wine and bread....

（True or False questions) Consider the following Heckscher-Ohlin model. France and Italy produce wine and bread. Bread is capital intensive, while wine is labor intensive. France is capital abundant, while Italy is labor abundant.

(1). Italy has a larger labor force than France. Italy has a comparative advantage for wine.

consider the movement from closed-economy to free trade

(2) The marginal product of labor for the wine industry increases in France.

(3). The labor-capital ratios of both industries increase in France.

(4). The capital owners in France support free trade.

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Answer #1

1) HO model- This model says international trade occurs because countries differ in their relative factor(labor, capital, land) endowment and commodities differ in their relative factor intensity. Countries have a comparative advantage in those goods in which the required factor of production is relatively abundant. So here France has a comparative advantage in making bread and Italy has a comparative advantage in making wine. (L/K) is greater in Italy for both the products than that of France. As labor is more in Italy, the marginal product of labor will be decreased in Italy and increases in France. As France is capital abundant, the capital owner in France supports free trade so that they can consume both at a cheap rate.

Therefore-

1. TRUE

2. TRUE

3. FALSE

4. TRUE

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