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

To begin, let's restate the core elements of the question and the given option.
- Question: Within the Heckscher-Ohlin framework, identify which sector is capital-intensive and which is labor-intensive based on the diagram showing labor-capital ratios.
- Answer option: 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.

Now, analyze the logic of the option in light of the diagram and the HO intuition.
- Step 1: Understand what the axes convey. The horizontal axis represents the labor-capital ratio (L/K). A higher position on this axis means a higher L/K ratio, i.e., a greater use of labor relative to capital. Conversely, a lower L/K ratio implies a relatively capital-intensive production.
- Step 2: Interpret the curves. In the HO framework, sectors that are more labor-intensive will be associated with higher L/K usage and thus lie toward higher values along the x-axis; sectors that are more capital-intensive will be associated with lower L/K usage and lie toward lower values on the x-axis. The diagram labels CC and FF along respective curves, suggesting a difference in factor intensities.
- Step 3: Apply the logic of the option. The statement claims CC is labor-intensive because its labor-capital ratio is relatively high (i.e., CC sits at a higher L/K value). It also claims FF is capital-intensive because its capital-labor ratio is relatively high (i.e., FF sits at a lower L/K value, or equivalently a higher K/L). This is consistent with the HO intuition: sectors with higher L/K are labor-intensive, and sectors with higher K/L are capital-intensive.
- Step 4: Check for potential confusion. If one misreads the diagram and assumes the red curve (FF) or the blue curve (CC) inherently maps to a single factor intensity without comparing L/K values, one might mislabel the sectors. However, the explicit use of L/K on the horizontal axis clarifies that higher L/K corresponds to labor intensity, while lower L/K corresponds to capital intensity.
- Step 5: Distinguish from possible alternate interpretations. If someone argued that the labels CC or FF denote similar intensities or failed to map both ratios (L/K and K/L) consistently, that would be a misconception. The HO model requires comparing the two sectors on the same axis, which this option does by referencing higher L/K for labor intensity and higher K/L for capital intensity.
- Step 6: Summarize the reasoning in plain terms. The option correctly captures the HO logic: CC uses more labor relative to capital (labor-intensive), while FF uses more capital relative to labor (capital-intensive), as indicated by their relative positions along the L/K axis and the implied K/L implications.

In short, the option aligns with Heckscher-Ohlin predictions by associating higher L/K with labor intensity and higher K/L with capital intensity, assigning CC to labor-intensive and FF to capital-intensive. The explanation hinges on correctly reading the diagram’s L/K axis and interpreting the implied factor intensities accordingly.

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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