If the comparative advantage between Japan and Korea was due only to differences in relative capital and labor abundance, then trade would tend to

Question

Quizplus · Accepted Answer

When countries trade based on their comparative advantage, it leads to specialization, and hence, increased production efficiency. This increased production efficiency subsequently increases the demand for labor, leading to an increase in the wages of workers in the lower-wage country (Korea). Conversely, the demand for labor in the higher-wage country (Japan) decreases, leading to a decrease in the wages of workers. Therefore, trade tends to increase real wages in the lower-wage country and lower real wages in the higher-wage country, making option C the correct choice.

If the Comparative Advantage Between Japan and Korea Was Due