| Home » Economics Homework Help » International Economics » Factor Proportions Assumptions |
Factor Proportions Assumptions
The Heckscher-Ohlin factor proportions analysis exposing the basis of international trade rests on a number of explicit and implicit assumptions which are as follows:
(1) A “double” model system is considered, in which there are two countries, two commodities and two factors of production, labour and capital.
(2) The relative endowments of the two factors (labor and capital) are disproportionate in the two countries quantitatively, thus, factor supplies are differently fixed. But qualitatively each factor is homogeneous in both countries.
(3) Factors of production are perfectly mobile within their respective countries but immobile between countries.
(4) There is perfect competition in all markets – factor as well as commodity markets – and full employment of resources in both the countries.
(5) The producing functions are different for different goods but the same for each good in two countries.
(6) The production functions for different goods are such as can be distinguished by intensity of factor inputs. Thus, goods can be classified in terms of their factor intensity as labour-intensive and capital-intensive goods.
(7) In both countries, techniques of producing identical goods are the same. Thus, the production functions are homogeneous in two countries, implying that if one good is relatively labour intensive in one country, it is relatively labour-intensive in the other country too, irrespective of the relative factor prices (the price of labour relative to the price of capital) in the country.
(8) Each production function is subjected to the constant returns to scale, i.e. a given proportion of factor input results in the same proportionate output.
(9) Trade between two countries is free and costless. There are no tariffs or other barriers and no transport or similar costs.
(10) Consumer preferences, thus demand for goods, are identical in both the countries.
All such assumptions have been made in order to specify but at the same time, minimize the analytical differences between the two countries.
Given these assumptions, Ohlin’s thesis contends that, a country exports goods which use relatively a greater proportion of its relatively abundant thus cheap factors. It is implied that trade occurs because there are differences in relative commodity prices caused by differences in relative factor prices (thus a comparative advantage) as a result of differences in the factor endowments between the countries.
The “relative factor abundance” in the thesis has two conceptions: (i) the price criterion of relative factor abundance; and (ii) the physical criterion of relative factor abundance.
Services: - Factor Proportions Assumptions Homework | Factor Proportions Assumptions Homework Help | Factor Proportions Assumptions Homework Help Services | Live Factor Proportions Assumptions Homework Help | Factor Proportions Assumptions Homework Tutors | Online Factor Proportions Assumptions Homework Help | Factor Proportions Assumptions Tutors | Online Factor Proportions Assumptions Tutors | Factor Proportions Assumptions Homework Services | Factor Proportions Assumptions
(1) A “double” model system is considered, in which there are two countries, two commodities and two factors of production, labour and capital.
(2) The relative endowments of the two factors (labor and capital) are disproportionate in the two countries quantitatively, thus, factor supplies are differently fixed. But qualitatively each factor is homogeneous in both countries.
(3) Factors of production are perfectly mobile within their respective countries but immobile between countries.
(4) There is perfect competition in all markets – factor as well as commodity markets – and full employment of resources in both the countries.
(5) The producing functions are different for different goods but the same for each good in two countries.
(6) The production functions for different goods are such as can be distinguished by intensity of factor inputs. Thus, goods can be classified in terms of their factor intensity as labour-intensive and capital-intensive goods.
(7) In both countries, techniques of producing identical goods are the same. Thus, the production functions are homogeneous in two countries, implying that if one good is relatively labour intensive in one country, it is relatively labour-intensive in the other country too, irrespective of the relative factor prices (the price of labour relative to the price of capital) in the country.
(8) Each production function is subjected to the constant returns to scale, i.e. a given proportion of factor input results in the same proportionate output.
(9) Trade between two countries is free and costless. There are no tariffs or other barriers and no transport or similar costs.
(10) Consumer preferences, thus demand for goods, are identical in both the countries.
All such assumptions have been made in order to specify but at the same time, minimize the analytical differences between the two countries.
Given these assumptions, Ohlin’s thesis contends that, a country exports goods which use relatively a greater proportion of its relatively abundant thus cheap factors. It is implied that trade occurs because there are differences in relative commodity prices caused by differences in relative factor prices (thus a comparative advantage) as a result of differences in the factor endowments between the countries.
The “relative factor abundance” in the thesis has two conceptions: (i) the price criterion of relative factor abundance; and (ii) the physical criterion of relative factor abundance.
Services: - Factor Proportions Assumptions Homework | Factor Proportions Assumptions Homework Help | Factor Proportions Assumptions Homework Help Services | Live Factor Proportions Assumptions Homework Help | Factor Proportions Assumptions Homework Tutors | Online Factor Proportions Assumptions Homework Help | Factor Proportions Assumptions Tutors | Online Factor Proportions Assumptions Tutors | Factor Proportions Assumptions Homework Services | Factor Proportions Assumptions
Submit Your Query ???
Assignment Help
Microeconomics Help
Macroeconomics Help
International Economics
Business Economics Help
Topics
Comparative Costs-Goods
Comparative Costs-Countries
Economic Integration
Customs Union Equilibrium
Customs Union Dynamic Effect
Customs Union Pure Theory
Euro-Dollar Market
Euro-Dollar-Benefits, Effects
Exchange Control Effect
Exchange Control
Exchange Control Methods
Exchange Control Procedure
Price Equalization
Intra Industry Trade Factors
Ohlin- Two Country Model
Intra-Industry Trade
Foreign Direct Investment
Industry Argument Diversification
Free Trade
Infant Industry Argument
Non-Economic Arguments
Employment Promotion Argument
Protection As Trade Policy
Protection-Developing Countries
Non-Tariff Barriers
Origin Of Gatt
Tariff Negotiations
Effects Of Quotas
Quotas Vs Tariffs
Quotas- Nature, Purpose
Import Quotas Types
Heterogeneous Markets
Internal, International Trade
International Trade Theory
International Transactions
Trade- Pure, Monetary Theory
Capital Movement Factors
Capital Movements Role
Capital Movements
International Development Ass.
International Finance Corp.
The World Bank
International Liquidity Adequacy
IMF, International Liquidity
International Liquidity
Paper Gold
Revaluation Of Gold
SDRS Salient Features
SDRS Operations
Symmetry- Monetary System
Triffins Radical Transformation
IMF Achievements
IMF Objectives, Functions
IMF Structure
Quotas
IMF Nature
Modern International Trade
International Trade Development
Product Cycle Hypothesis
Constant Factor Supply
Product Price Increase Effect
Vent-for-Surplus Approach
Foreign Trade Gains
Trade Gains Nature
Factors Determining Gain Size
Sources Of Gain
Factor Proportion Theory
Factor Proportions Assumptions
Trade Modern Theory
Factors Proportions Shortcomings
Absolute Cost Advantage
Gold Standard Mechanism
Underdevelop Comparative Costs
Comparative Costs Doctrine
Comparative Advantage Doctrine
Gold Standard Advantages
International Gold Standard
Gold Standard Game Rules
International Cartels
Price Discrimination, Dumping
Homework Help, Online Tutor, Online Tutoring Available For All Subjects. Some useful topics are given below :