Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. The pre-trade wage rate relative to land rents in Alpha is _____ the relative wage rate in Beta.
A)greater than
B)less than
C)equal to
D)double

Question

Quizplus · Accepted Answer

Since Alpha is relatively labor-abundant and drink is relatively labor-intensive, the wage rate in Alpha would be lower than in Beta, because the demand for labor in Alpha is lower due to the abundance of labor. Therefore, the pre-trade wage rate relative to land rents in Alpha is less than the relative wage rate in Beta.

Assume the Standard Trade Model with Two Countries (Alpha and Beta)