The StolperSamuelson theorem suggests that, over time,
Free international trade should lead to:
A)equalization of real wages across the world.
B)greater divergences in real wages across the world.
C)equalization of prices across the world.
D)greater divergences in prices across the world.

Question

The Stolper­Samuelson theorem suggests that, over time,
Free international trade should lead to:
A)equalization of real wages across the world.
B)greater divergences in real wages across the world.
C)equalization of prices across the world.
D)greater divergences in prices across the world.

Quizplus · Accepted Answer

The Stolper-Samuelson theorem suggests that free international trade will lead to an equalization of real wages across the world. This is because as trade increases, the demand for factors of production such as labor in countries with a comparative advantage will increase, leading to an increase in the relative price of that factor of production. In countries with a comparative disadvantage, the demand for that factor of production will decrease, leading to a decrease in the relative price of that factor of production. This will result in an increase in the real wage in countries with a comparative advantage and a decrease in the real wage in countries with a comparative disadvantage, leading to an equalization of real wages across the world.

The Stolper­Samuelson Theorem Suggests That, Over Time

The StolperSamuelson Theorem Suggests That, Over Time