This document evaluates three statements about international trade models: 1) The Ricardian model leads to increased output and welfare in both countries through specialization and trade. 2) In the Ricardian model, increases in labor or technology have the same effect on production possibilities. 3) The Heckscher-Ohlin model determines trade patterns based on relative marginal productivity of labor versus capital between countries.

1. Evaluate whether the following statements are True or False, and provide a brief explanation
1. In the classic Ricardian model, international trade can lead to increases in the world output of
both products and increases in consumer welfare in both countries.
2. An increase in labor endowment will have the same effect of the Ricardian PPF as an
improvement in technology.
3. According to the H-O model, the patterns of trade are determined by the relative marginal
productivity of labor to capital.
Solution
1. The statement is True. since according to Ricardian model by trading and specializing in a
good for which it has a comparative advantage, each country can expand its consumption
possibilities. When the consumption possibilities increase the total output also increases. The
consumer welfare in both the countries will also directly increase.
2. Yes, the given statement is true since according to Ricardian model two countries can be
effective in International trade when one country has the required labor and technology to
produce a product which is in demand by the neighbouring country. As labor and technology
both are factors that have direct influence on production, a small increase in labor endowment
will definitely have the same effect of the Ricardian PPF as an improvement in technology.
When the labor endowment increases, people will earn more. This will motivate them and lead to
increased production.
3. Yes, The given statement is true since the H-O model explains the patters of trade based on the
assumptions that one country is rich in labor where as one country is rich in capital. Hence the
relative marginal productivity determines the productivity of labor to capital.