Suppose Portugal has 700 workers and 26,000 units of
Capital, and France has 18,000 workers and 700 units of
Capital.Technology is identical in both countries.Assume
That wine is the capitalintensive good and cloth is the
Laborintensive good.Which of the following statements is
CORRECT if the nations start trading with each other?

Question

Suppose Portugal has 700 workers and 26,000 units of
Capital, and France has 18,000 workers and 700 units of
Capital.Technology is identical in both countries.Assume
That wine is the capital­intensive good and cloth is the
Labor­intensive good.Which of the following statements is
CORRECT if the nations start trading with each other?

Quizplus · Accepted Answer

Portugal has a comparative advantage in producing wine, which is capital-intensive. This means that Portugal's rental rates for capital will increase as it increases wine production to export it to France. As a result, the wages in Portugal will not increase, but rental rates will increase. Conversely, France has a comparative advantage in producing cloth, which is labor-intensive, and will see a decrease in wages as it increases production to export it to Portugal.

Suppose Portugal Has 700 Workers and 26,000 Units of