Assume that the United States is relatively scarce in labor and relatively abundant in capital.According to the Heckscher-Ohlin theory, which of the following will occur in the United States in the presence of trade?
A) The price of capital will rise and the price of labor will fall.
B) The price of capital will fall and the price of labor will rise.
C) The price of both capital and labor will fall.
D) The price of both capital and labor will rise.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin theory, a country will export goods that use its abundant factor intensively and import goods that use its scarce factor intensively. In the U.S., capital is abundant, so it will export capital-intensive goods, increasing the demand and price of capital, while importing labor-intensive goods, decreasing the demand and price of labor.

Assume That the United States Is Relatively Scarce in Labor