SCENARIO: TRADE IN GOODS BETWEEN MEXICO
AND THE UNITED STATES
(1) Mexico has 2,000 units of capital and 2,000
Workers; (2) the United States has 6,000 units of
Capital and 4,000 workers; (3) clothing production is
Labor intensive, and (4) chemical production is capital
Intensive.
Reference: Ref 52
(Scenario: Trade in Goods Between Mexico and the
United States) Suppose that the United States
Eliminates all restrictions on immigration from Mexico.
How many Mexican workers must emigrate to the
United States in order for factor price equalization to
Occur?

Question

SCENARIO: TRADE IN GOODS BETWEEN MEXICO
AND THE UNITED STATES
(1) Mexico has 2,000 units of capital and 2,000
Workers; (2) the United States has 6,000 units of
Capital and 4,000 workers; (3) clothing production is
Labor intensive, and (4) chemical production is capital
Intensive.
Reference: Ref 5­2
(Scenario: Trade in Goods Between Mexico and the
United States) Suppose that the United States
Eliminates all restrictions on immigration from Mexico.
How many Mexican workers must emigrate to the
United States in order for factor price equalization to
Occur?

Quizplus · Accepted Answer

If factor price equalization occurs, then the wage rate in Mexico will be equal to the wage rate in the United States. Since the wage rate in the United States is higher than the wage rate in Mexico, Mexican workers will emigrate to the United States until the wage rate in Mexico rises to the level of the wage rate in the United States. The number of Mexican workers who must emigrate to the United States in order for factor price equalization to occur is 500.