Considering the diagram below identify which sector is capital-intensive and which is labor-intensive given the reasoning provided. Select one – the most appropriate answer, considering provisions of Heckscher-Ohlin model of international trade.

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BlackTom AI · Accepted Answer

First, let's restate the problem in my own words: we are asked to identify, given the diagram, which sector is capital-intensive and which is labor-intensive, according to the Heckscher-Ohlin model, selecting the most appropriate option from the list.
Option A claims CC is labor-intensive because its labor-capital ratio is relatively low and FF is capital-intensive because its labor-labor ratio is relatively high. The reasoning here is inconsistent with the standard interpretation: a relatively low labor-capital ratio (L/K) means the sector uses more capital per unit of labor, i.e., is capital-intensive, not labor-intensive. The phrase "labor-labor ratio" is not a standard economic measure and doesn't clarify intensity. This option therefore misidentifies the intensities because it flips the capital-labor interpretation and introduces a nonstandard term.
Option B asserts CC is capital-intensive because its labor-capital ratio is relatively high, and FF is labor-intensive because its capital-labor ratio is relatively high. A high L/K ratio indicates more labor per unit of capital, i.e., labor-intensive, not capital-intensive. Also, saying FF is labor-intensive due to a high capital-labor ratio contradicts the meaning of L/K. This option contradicts the basic intuition of the L/K ratio in the HO framework and mixes up the implications.
Option C states No correct answer. Given the diagram, there is a clear interpretation of which curve corresponds to labor-intensive versus capital-intensive, so declaring no correct answer would ignore the standard reading of L/K in the HO model. This option would be appropriate only if none of the statements matched the diagram, which is not the case here.
Option D reads: CC is capital-intensive since its labor-capital ratio is relatively low, and FF is labor-intensive since its labor-labor ratio is relatively high. Here, a relatively low L/K ratio for CC means it uses less labor per unit of capital, i.e., more capital per unit of labor, which is precisely the definition of capital-intensive. The second part conveys that FF is labor-intensive, implying a higher L/K ratio, which aligns with more labor per unit of capital. Although the phrase "labor-labor ratio" is nonstandard, the intention appears to contrast labor intensity with capital intensity using L/K, and the overall statement matches the HO intuition about which sector uses more capital versus labor.
Option E claims CC is labor-intensive since its labor-capital ratio is relatively high, and FF is capital-intensive since its capital-labor ratio is relatively high. This option flips the interpretation of both intensity directions and assigns labor-intensive to a high L/K, which is inconsistent with the standard meaning of L/K in the HO framework. The second half similarly contradicts how capital intensity would be identified from L/K.
In summary, when we evaluate each choice against the Heckscher-Ohlin logic, the only option that consistently ties a low L/K to capital intensity for CC and a high L/K to labor intensity for FF is the one that states CC is capital-intensive due to low L/K and FF is labor-intensive due to high L/K. The nonstandard phrasing in some options ("labor-labor ratio") aside, this option best matches the standard interpretation of the diagram and the HO model’s intuition about factor intensity differences across sectors.

econ_420_120255_249094 Lesson 5 Quiz 1

Considering the diagram below identify which sector is capital-intensive and which is labor-intensive given the reasoning provided. Select one – the most appropriate answer, considering provisions of Heckscher-Ohlin model of international trade.

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