ABSTRACT
The HO model illustrates the intuitive principle of comparative advantage. It also shows that international trade changes a country’s production mix, reallocates its resources, changes individuals’ incomes, and alters the country’s demand for goods and services. The HO model does not show that every individual’s real income in every economy is increased by international trade; it only shows that the total value of output, and thus total income, increases in all countries that engage in balanced international free trade. Under the convenient assumption, implicitly accepted in most orthodox economic analysis, that national welfare can be estimated by adding up individual welfare levels, the HO model shows that all economies increase aggregate national welfare when they open their borders to free trade.
