Assume that Country A, in the absence of trade, finds itself relatively abundant in labor and relatively scarce in land.The factor endowment theory reasons that with free trade, the internal distribution of national income in Country A will change in favor of
A) labor.
B) land.
C) both labor and land.
D) neither labor nor land.

Question

Quizplus · Accepted Answer

According to the factor endowment theory, a country will specialize in producing goods and services that utilize its abundant factors of production and trade them for goods and services that utilize its scarce factors of production. In this case, Country A is relatively abundant in labor and relatively scarce in land. Therefore, it will specialize in producing goods and services that require more labor and trade them for goods and services that require more land. As a result, the internal distribution of national income will change in favor of labor.

Assume That Country A, in the Absence of Trade, Finds