Assume that the United States is scarce in labor and abundant in capital.According to the Heckscher-Ohlin theory,which of the following would occur for the United States once trade opens
A) the price of capital should rise and the price of labor should fall
B) the price of capital should fall the price of labor should rise
C) the price of capital and labor should fall
D) the price of capital and labor should rise

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin theory, countries will export goods that use their abundant factors of production and import goods that use their scarce factors of production. In this case, the United States is scarce in labor and abundant in capital. Therefore, the United States will export capital-intensive goods and import labor-intensive goods. This will lead to an increase in the price of capital and a decrease in the price of labor in the United States.

Assume That the United States Is Scarce in Labor and Abundant