The Heckscher-Ohlin theory predicts that the opening of trade between a land-abundant country and a labor-abundant country should result in:
A)higher rents and wages in both countries.
B)lower rents and wages in both countries.
C)higher rents in the labor-abundant country and higher wages in the land-abundant country.
D)higher wages in the labor-abundant country and higher rents in the land-abundant country.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin theory, a land-abundant country has a comparative advantage in producing land-intensive goods, while a labor-abundant country has a comparative advantage in producing labor-intensive goods. When they open trade, the land-abundant country will export land-intensive goods and import labor-intensive goods, and the opposite will happen for the labor-abundant country. This will lead to an increase in demand for labor in the land-abundant country, leading to higher wages, and an increase in demand for land in the labor-abundant country, leading to higher rents. Therefore, the opening of trade should result in higher wages in the labor-abundant country and higher rents in the land-abundant country.

The Heckscher-Ohlin Theory Predicts That the Opening of Trade Between