Question

The Heckscher-Ohlin theory states that the trade arises due to difference in

• A. Technology
• B. Tastes
• C. Factor Endowments
• D. Government Policies

Hint:

Heckscher-Ohlin theory explains trade through differences in factor endowments, not mainly through technology or tastes.

Answer 1

The Correct Option is C

Concept: The Heckscher-Ohlin theory explains international trade on the basis of differences in factor endowments between countries.

Step 1: Understand factor endowments.
Factor endowments mean the availability of factors of production such as land, labour, capital, and natural resources. \[ \text{Factor Endowments} = \text{Land + Labour + Capital + Resources} \]

Step 2: Understand the Heckscher-Ohlin argument.
According to this theory, a country exports goods that use its abundant factor intensively and imports goods that use its scarce factor intensively. \[ \text{Labour abundant country} \Rightarrow \text{Exports labour-intensive goods} \] \[ \text{Capital abundant country} \Rightarrow \text{Exports capital-intensive goods} \]

Step 3: Select the correct answer.
The theory says that trade arises because countries differ in factor endowments. Therefore, the correct answer is option (C).