Which one of the following is NOT an assumption made in the standard 2x2x2 Hecks
ID: 1167096 • Letter: W
Question
Which one of the following is NOT an assumption made in the standard 2x2x2 Heckscher-Ohlin analysis?
1. A given relative commodity price ratio, say (PX/PY)1, can be associated with more than one relative factor price ratio, e.g., say with (w/r)1 as well as with (w/r)2.
2. The production function for a given good is the same in both countries.
3. Tastes and preferences (i.e., the community indifference curve maps) are identical in the two countries.
4. If a particular good is the relatively labor-intensive good at one set of relative factor prices, then it is also the relatively labor-intensive good at any other set of relative factor prices.
Explanation / Answer
The correct option is 1. A given relative commodity price ratio, say (PX/PY)1, can be associated with more than one relative factor price ratio, e.g., say with (w/r)1 as well as with (w/r)2. While all other assumptions are true. According to the hecksher ohlin analysis a nation exports the good intensive in its relatively abundant meaning can produce efficiently and it will import good intensive in its relatively scarce and expensive factor.