Economics Notes: Heckscher-Ohlin Model

Flashcards covering the key concepts and theories related to the Heckscher-Ohlin Model and international trade as presented in lecture notes.

Heckscher-Ohlin Model

A theory explaining international trade patterns based on countries' endowments of factors of production.

Factors of production

Resources used in the production of goods, including labor, land, and capital.

Production Possibility Frontier (PPF)

A graph showing the maximum feasible amount of two goods that can be produced with available resources.

Labor-abundant country

A country that has a higher ratio of labor to capital compared to another country.

Capital-intensive goods

Goods that require more capital than labor to produce.

Labor-intensive goods

Goods that require more labor than capital to produce.

Stolper-Samuelson Theorem

Theory stating that an increase in the price of a good enhances the returns of the factor used intensively in that good.

Rybczynski Theorem

Theory indicating that an increase in the endowment of one factor increases output of the good that uses it intensively.

Leontief Paradox

Observation that the U.S., a capital-abundant country, exports labor-intensive goods instead of capital-intensive goods, contradicting traditional theory.

Monopolistic Competition Model

Market structure where many firms sell differentiated products and have some market power.

Horizontal FDI

Investment in the same business abroad to replicate operations.

Vertical FDI

Investment that breaks up production processes across countries to reduce costs.

Dumping

Selling a product at a lower price abroad than its domestic price or production cost in order to gain market share.

Perfect competition

A market structure where no single firm can influence the market price, ensuring all firms are price takers.