HO Factor Proportions
Econ 500 International Economics
Carey Treado
Productivity: output per hour worked
Resource = 1 hour United States Canada
Bread Output 2 loaves 3 loaves
Steel Output 3 tons 1 ton
Opportunity Cost: relative prices
United States Canada
Price of Bread 1.5 tons of steel 1/3 ton of steel
Price of Steel 2/3 loaf of bread 3 loaves of bread
Ricardo’s Model and Comparative Advantage
Hours Required for United States Canada
1 loaf of Bread ½ hour 1/3 hour
1 ton of Steel 1/3 hour 1 hour
Heckscher-Ohlin Trade Model
• Comparative advantage is derived from differences
in factor endowments
• Factor endowment = relative abundance of each factor of
production (land, labor, capital)
