Question
According to the Heckscher-Ohlin model, if the taste between the two countries is homothetic, the relative amount of their expenditures allocated to each commodity would
According to the Heckscher-Ohlin model, if the taste between the two countries is homothetic, the relative amount of their expenditures allocated to each commodity would be the same.
i. Assume now that in each country, the taste has changed in favour of the commodity which the country has the comparative advantage. Determine the impact of this change in taste on the relationship between relative factor abundance, and the nature of the commodity (factor-intensity) each country export.
ii. Suppose now that the taste changed in favour of the commodity of their comparative disadvantage, would your answer be the same as in part i)? Explain,
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