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Correct Answer: the heckscher-ohlin model.
the heckscher-ohlin model, developed by eli heckscher and bertil ohlin, is a fundamental theory in international trade that diverges from the ricardian model by incorporating the neoclassical price mechanism. this model, also known as the factor proportions theory, explains patterns of international trade based on the differences in factor endowments of different countries.
the ricardian model primarily focuses on technological differences between countries as the basis for comparative advantage and trade. in stark contrast, the heckscher-ohlin model posits that countries will export goods that use their abundant factors intensively and import goods that use their scarce factors intensively. it is grounded in neoclassical economics, where prices are determined by the interaction of supply and demand, reflecting the cost of factor inputs like labor and capital.
the inclusion of the neoclassical price mechanism in the heckscher-ohlin model allows for a more dynamic analysis of prices and output than the ricardian model, which assumes labor as the only input in production with constant returns to scale. the heckscher-ohlin model introduces the notion that factors of production are not only limited but also vary in their proportions across countries, affecting the relative prices of goods and, consequently, the direction and volume of trade.
although the heckscher-ohlin model was a significant advancement in international trade theory, it has faced criticism and refinement. the empirical validity of the model was notably challenged by the leontief paradox, which found that the u.s. (an abundantly capital-endowed country) exported more labor-intensive goods contrary to the model's predictions. this led to further developments in trade theories, including the specific factors model and the new trade theory, which incorporate additional complexities such as economies of scale and product differentiation.
in summary, the heckscher-ohlin model extended the ricardian framework by integrating the neoclassical mechanisms of price and output determination based on countries’ relative factor endowments. this approach provided a broader understanding of the patterns and effects of international trade compared to earlier models, though it also highlighted the need for theories that address more complex and realistic trade dynamics.
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