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theory. They are:
(a1) Constant return to scale
(a2) Perfect competition
(a3) Free trade and zero transport costs for goods and services
(a4) Factors of production are not mobile across borders but perfect mobile within borders
(a5) Homogeneous preferences across borders
which gives
(a6) Factor price equalization across borders.
Denmarks production in relation to factor endowment are described in formula 4, section 3
above. World production can be described similarly as in relation of worlds endowment:
Qw ' P&1Vw
5 World production
Note that P is the same matrix with factor intensities or production technology like number
of unskilled and number high educated labour for the production of one million value TV-sets
and one million value furniture. It comes from (a6): Factor price equalization that gives the
same points of equilibrium on the same production functions. The production functions are
made up by technology, capital equipment and intermediate goods and services, that are
available at the same prices because of assumption (a3).
Total absorption in Denmark is a share of worlds total absorption and production:
C%G%I ' s(Cw%Gw%Iw) ' sQw 6 Danish absorption
where s is a scalar for Denmarks share of worlds income (and absorption) adjusted for the
trade balance. s is a scalar for all kinds of commodities because of assumption (a5):
Homogeneous preferences.
As net export is the difference between production and absorption: X&M ' Q & (C%G%I), and
combining we have the Heckscher-Ohlin-Vanek model in which trade is expressed in factor
service: