If Home is capital abundant, then when it begins to freely trade with the rest of the world, the return to capital in Home should _________ and the real wage in Home should _______.
A) fall; rise
B) fall; fall
C) rise; rise
D) rise; fall

Question

Quizplus · Accepted Answer

When a capital-abundant country begins to freely trade, the return to capital should rise due to increased demand for capital-intensive goods, and the real wage should fall as labor shifts to more capital-intensive industries where it is relatively less productive.

If Home Is Capital Abundant, Then When It Begins to Freely