This document discusses the Heckscher-Ohlin theorem of international trade. It begins by listing the four main factors of production: land, labor, capital, and natural resources. It then outlines the eight key assumptions of the Heckscher-Ohlin theorem, including that countries have different relative abundances of factors that are fixed, technologies and tastes are the same between countries, and competition and no trade barriers exist. The document provides sample exercises comparing the capital and labor endowments of the US and PH to determine which goods and countries are respectively capital- and labor-abundant. It concludes with assignments on explaining graphs of perfect and monopoly competition.

1. FACTOR ENDOWMENTS AND THE
HECKSCHER-OHLIN THEOREM
Michael A. Alonzo

4. FACTORS OF PRODUCTION
1. LAND
2. LABOR
3. CAPITAL
4. NATURAL RESOURCES

5. ASSUMPTIONSOFHECKSCHER-OHLINTHEOREM
1. There are two countries, two homogeneous goods, and two
homogeneous factors of production whose initial levels are fixed
and assumed to be relatively different for each country.
2. Technology is identical in both countries; that is, production
functions are the same in both countries.
3. The two commodities have different relative factor intensities,
and the respective commodity factor intensities are the same for
all factor price ratios.
4. Tastes and preferences are the same in both countries.
5. Perfect competition exists in both countries.
6. Factors are perfectly mobile within each country and not mobile
between countries.
7. There are no transportation costs.
8. There are no policies restricting the movement of goods between
countries or interfering with the market determination of prices
and output.

11. Sample Exercise
US PH
Capital 2000 1000
Labor 500 400
Which of the following countries is capital
abundant? Labor abundant?

12. Sample Exercise
Which of the following products is capital
intensive good? Labor intensive good?
Wheat Rice
Capital 900 1000
Labor 50 100

13. Sample Exercise
Conclusion:
US will ______ wheat and _____ rice
while PH will _______ rice and ______
wheat.

14. ASSIGNMENT
1. ILLUSTRATE AND EXPLAIN THE GRAPH OF PERFECT
COMPETITION.
2. ILLUSTRATE AND EXPLAIN THE GRAPH OF MONOPOLY.
3. COMPARE THE TWO GRAPH IN TERMS OF PROFIT
MAXIMIZATION AND PRICE DETERMINATION.

15. THANK YOU!
Michael A. Alonzo
Instructor @IGCFI