Consider the problem of wage inequality gap in the USA. How would you explain this problem accepting provisions of Heckscher-Ohlin model? Select one – the most appropriate answer.

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The question asks to explain the wage inequality gap in the USA using the Heckscher-Ohlin framework and to select the most appropriate statement.
Option 1: 'It may result from international trade with less advanced economies.' While trade with less advanced economies can affect relative wages through factor price movements, this statement is too broad and doesn’t tie directly to the core Heckscher-Ohlin mechanism, which centers on factor endowments (capital and labor) rather than the developmental status of trading partners alone.
Option 2: 'It may result from international trade with economies having relatively high wage.' This is problematic because higher wages in a trading partner don’t automatically translate into wage gaps in the USA; under Heckscher-Ohlin, outcomes depend on relative scarcities and productivities tied to factor endowments, not the partner’s wage level per se. The phrasing also confuses causality with correlational observation.
Option 3: 'It may result from low level of labor-to-capital ratio.' A country’s own factor intensity profile matters, but the Heckscher-Ohlin framework emphasizes relative endowments across countries rather than the absolute labor-to-capital ratio of a single country. While a low labor-to-capital ratio could influence comparative advantages, this statement is incomplete in explaining cross-country wage dispersion through trade.
Option 4: 'It may result from international trade with developed economies.' Similar to Option 2, the identity of trading partners being developed or not is not the central mechanism. The model focuses on relative endowments and the resulting pattern of trade, which then affects factor prices; simply labeling partners as developed does not capture the endowment-based explanation.
Option 5: 'It may result from different level of capital endowment.' This aligns with the Heckscher-Ohlin insight: countries with different relative supplies of capital and labor trade to exploit comparative advantages, and trade can drive factor price equalization tendencies, thereby influencing wages and income distribution within countries. Variations in a country’s capital endowment relative to its trading partners can generate wage differentials and observable inequality through the mechanism of factor price changes.
In summary, each option attempts to connect trade to wage outcomes, but only the last option directly invokes the Heckscher-Ohlin core idea: differential capital endowments across countries shape trade patterns and, through pricing of factors, can influence wage inequality. The other choices misattribute causality, overlook the endowment-based mechanism, or rely on auxiliary concepts clouding the Heckscher-Ohlin logic.

econ_420_120255_249094 Lesson 5 Quiz 2

Consider the problem of wage inequality gap in the USA. How would you explain this problem accepting provisions of Heckscher-Ohlin model? Select one – the most appropriate answer.

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