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. Which of the following is most likely to happen in the long run following the opening of free trade between the countries?
A)The workers in Alpha will be better off but the land owners will be worse off.
B)The workers in Beta will be better off while the land owners will be worse off.
C)The workers and land owners in the food industry in Beta will be better off while the workers and landowners in the drink industry will be worse off.
D)The workers and land owners in the food industry in Alpha will be better off while the workers and landowners in the drink industry will be worse off.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin theorem, a country will export goods that use its abundant factors intensively. Since Alpha is labor-abundant and drink is labor-intensive, Alpha will likely specialize in and export drinks. This increases the demand for labor, benefiting workers, but may decrease the demand for land, potentially harming landowners.

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