According to the factor price equalization theorem, if A is labor abundant, then once trade opens
A) wages and rents should fall in A.
B) rents and rents should rise in A.
C) wages should rise and rents should fall in A.
D) wages should fall and rents should rise in A.

Question

Quizplus · Accepted Answer

According to the factor price equalization theorem, when trade opens, the price of the abundant factor in a country should rise. Since A is labor abundant, wages (the price of labor) should rise, and rents (the price of capital) should fall.

According to the Factor Price Equalization Theorem, If a Is