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Economics 342
Mr. Easton
All of these questions pertain only to the Heckscher-Ohlin model1. In all your answers be
careful to explain what you are holding constant.
1. Explain why constant factor prices imply constant factor proportions.
2. Explain why constant commodity prices imply constant factor prices.
3. In the Heckscher-Ohlin model, explain why, with relative commodity prices constant,
an increase in the stock of labour will increase output more than proportionately in
the labour intensive industry.
4. In the Heckscher-Ohlin model, when the stock of labour is increased by 10%, discuss
the effect on factor rewards. Explain.
5. Explain the HO theorem.
6. What is the importance of the factor price equalization theorem?
Of course this does not prevent you from thinking about how your answer to these questions would differ
in a different model……