Use the below mentioned table for the following question(s).
Suppose that all goods are made with two factors-labor and capital.The table below shows the total endowments of each factor in the United States and Canada.
Table 4.1
Endowment of Labor and Capital

-Based on Table 4.1,according to the Stolper-Samuelson Theorem,the income distribution effects of free trade in the United States are likely to favor
A)capital.
B)labor.
C)either capital or labor,depending on U.S.productivity.
D)neither capital nor labor.
E)Not enough information to tell.

Question

Use the below mentioned table for the following question(s).
Suppose that all goods are made with two factors-labor and capital.The table below shows the total endowments of each factor in the United States and Canada.
Table 4.1
Endowment of Labor and Capital
 
-Based on Table 4.1,according to the Stolper-Samuelson Theorem,the income distribution effects of free trade in the United States are likely to favor
A)capital. 
B)labor. 
C)either capital or labor,depending on U.S.productivity. 
D)neither capital nor labor. 
E)Not enough information to tell.

Quizplus · Accepted Answer

According to the Stolper-Samuelson Theorem, when a country opens up to free trade, it will experience an increase in the price of the factor of production that is used intensively in the production of the good that the country exports. In the case of the United States, which has a higher endowment of capital than labor, free trade is likely to increase the price of labor-intensive goods, which in turn will increase the relative price of capital-intensive goods. Therefore, the income distribution effects of free trade in the United States are likely to favor labor.

Use the Below Mentioned Table for the Following Question(s)