The factor-price-equalization theorem tells us that free trade between two countries should result in:
A)all workers in the two countries earning the same wage rate.
B)all workers in the two countries having the same skill level.
C)all workers of the same skill level earning the same wage rate in the two countries.
D)all input prices being equal within each country.

Question

Quizplus · Accepted Answer

The factor-price-equalization theorem states that free trade will result in the equalization of factor prices (wages, rents, and returns to capital) between countries. This means that workers of the same skill level in the two countries will earn the same wage rate, but not necessarily that all workers in the two countries will earn the same wage rate (as in option A). Option B is incorrect because the theorem does not assume that all workers in the two countries have the same skill level. Option D is also incorrect because the theorem is concerned with factor prices, not input prices.

The Factor-Price-Equalization Theorem Tells Us That Free Trade Between Two