Assume that country is relatively abundant in labour and country is relatively abundant in land. Note that wages are the returns to labour and rents are the returns to land. According to the factor price equalization theorem, once country begins specializing according to comparative advantage and trading with country
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Assume that country A is relatively abundant in labour and country B is relatively abundant in land. Note that wages are the returns to labour and rents are the returns to land. According to the factor price equalization theorem, once country A begins specializing according to comparative advantage and trading with country B (A) wages and rents should fall in country A (B) wages and rents should rise in country A (C) wages should rise and rents should fall in country A (D) wages should fall and rents should rise in country A
Theories of international trade has come up 151 times in 6 exams since 2006.
This question is on Factor price equalisation and the Stolper-Samuelson theorem, part of Theories of international trade in International Economics.
How trade changes returns to factors and whether it equalises them across countries.
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Question from the JNU SSS 2012 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.