CA Foundation · Business Economics · International Trade
According to the Heckscher-Ohlin theory, a country with abundant labour and scarce capital will tend to:
A labour-abundant, capital-scarce country will export labour-intensive goods and import capital-intensive goods. The Heckscher-Ohlin theory explains trade by differences in factor endowments: countries export goods that use their abundant factor intensively and import goods that need their scarce factor.
- AExport capital-intensive goods and import labour-intensive goods
- BExport labour-intensive goods and import capital-intensive goodsCorrect
- CExport only primary goods regardless of factor endowment
- DNeither export nor import because factor prices equalise at once
Explanation
The Heckscher-Ohlin theory says a country exports goods that use intensively its abundant factor and imports goods that use intensively its scarce factor. A labour-abundant country therefore exports labour-intensive goods. Option A reverses this rule.
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