Explain why positive economies of scale in one (of two) sectors ...

[Mr3Hunna]

Explain why positive economies of scale in one (of two) sectors may establish a comparative advantage for the large (as compared to the small) country in the production of the commodity which exhibits positive scale economies.
 
  What will be an ideal response?

Question 2

The HO theorem states that a country will have comparative advantage in the good whose production is relatively intensive in the ________ with which the country is relatively abundant.
 
  A) tastes
  B) technology
  C) factor
  D) opportunity costs

[chloejackso]

Answer to Question 1

In the case of the H-O model, the actual size of the country is irrelevant in the determination of the direction of trade (though it may affect the equilibrium terms of trade). When positive scale economies apply to the production of one product, the country that can devote more resources (in absolute terms) will be able to sell that product cheaper, and therefore will be more likely to gain a revealed comparative advantage in that product. This will be the country with more factors (both labor and capital)-the larger country.

Answer to Question 2

C