Answer :
The Heckscher-Ohlin model in the question describes how differences in labor and capital endowments between Portugal and France determine trade patterns, assuming identical technologies and preferences. The model serves to explain why each country exports goods produced using their abundant factor. Both options 1) Labor and 2) Capital are correct.
The question is about the Heckscher-Ohlin model, which is an economic theory used in international trade. According to the Heckscher-Ohlin (H-O) theorem, trade patterns are determined by differences in factor endowments of countries, such as labor and capital.
Specifically, it posits that a country will export goods that use its abundant factors more intensively. In the given scenario, Portugal and France have different amounts of labor and capital, and the model would predict that the country with relative labor abundance would export labor-intensive goods, while the country with capital abundance would export capital-intensive goods.
Initial assumptions of the model state that technology and preferences are identical across the countries, allowing us to focus on the effects of differing factor endowments. The production possibilities frontier (PPF) diagram can be used to identify how trade affects prices and outputs in each country. In the long run, both labor and capital are assumed to be freely mobile within each country but immobile between countries. Therefore, the correct answer are options 1) Labor and 2) Capital are correct.
