Economics notes from business economics, Study notes of Economics

Download Economics notes from business economics and more Study notes Economics in PDF only on Docsity! Q3. Limitations of heckscher & olin theory. Ans. Limitations are as follows:- - Unrealistic assumptions:- 2 countries, 2 commodities, perfect competition, no transportation, no qualitative difference in factors of production, identical production function, constant returns to scale, etc makes the theory unrealistic. . Static in nature:- The story is based on given state of economy and with the given production function does not accept any change. - Demand conditions are neglected:- Demand is assumed to be the same. If change in demand is accepted that the position of abundance scarcity and factor prices would undergo a change. - Leontief paradox:- American economist w w leontief suggest that the things are always not the same as it seems to be. for example US exports labour intensive goods and imports capital intensive good the situation is leontief paradox which neglects H-O theory. Other factors neglected:- Only two factors are considered. There may be many other factors like technology, natural factors , different qualities of labour at etc which can be helpful in the cost of production.