When factors of production move to better-paying sectors of the economy following the opening of trade in the country, wages and rents will be bid back to their pre-trade levels.

Question

Quizplus · Accepted Answer

The statement is incorrect. When factors of production move to better-paying sectors due to trade, wages and rents may not necessarily return to their pre-trade levels. The outcome depends on several factors, such as the level of competition, the comparative advantage, and the efficiency of the sectors in utilizing the factors of production. Also, the opening of trade may lead to the creation of new industries or expansion of existing ones, which can alter the relative demand and supply for factors of production, leading to different wage and rent levels.

When Factors of Production Move to Better-Paying Sectors of the Economy