00:01
Let's discuss the ho model.
00:04
So this model, in contrast to other simpler models like the ricardian theory, takes to account both labor and capital as factors of production.
00:18
The ricardian theory only takes into account one factor of production, and that would be labor.
00:36
So under this h .o.
00:38
Model, the capital abundant country would export capital -intensity.
00:44
Goods to a labor -abundant country, while labor -abundant country would export labor -intensive goods to the capital -abundant country.
00:57
The model explains the role of relative differences in resource endowments as the ultimate determinant of comparative advantage.
01:14
So the actual model takes into account both capital and labor.
01:28
So because of that, it gives us a better idea of how countries should trade based on comparative advantage.
01:50
Comparative advantage is an economy's ability to produce a good or service at a lower opportunity cost than its training partners.
02:09
So a capital abundant country would have a higher capital to labor ratio.
02:20
It has to give up less labor to use capital to produce capital intensive goods.
02:28
It has a comparative advantage when it comes to capital intensive goods versus the labor -abundant country.
02:41
The h .o...