Q. Two countries exist in this model, R and P. P is relatively labor (L) abundant, as is evident in the bottom right horizontal axis. If Country P were to be totally specialized in the labor-intensive product, C, it could be producing at point 4. In fact, it produces both C and P, at point 5. The (autarky) relative price of C ( in terms of F) of Country P is at point 3; and of Country R at point If trade were to open up between these two countries, which could export C and which would export F? Is this consistent with the Heckscher-Ohlin model? Explain.

Answer: Country R would export F and this is consistent with the H-O model. The country which is comparatively capital abundant exports the product which is comparatively capital intensive.