Suppose that the Home country in the twosector
(manufacturing and agriculture) specificfactors model
Has a comparative advantage in manufacturing output.
What will happen to the return (rental) on land when
Trade occurs?
A)It will fall.
B)It will rise.
C)It will not change.
D)It will first fall, then rise.

Question

Suppose that the Home country in the two­sector
(manufacturing and agriculture) specific­factors model
Has a comparative advantage in manufacturing output.
What will happen to the return (rental) on land when
Trade occurs?
A)It will fall.
B)It will rise.
C)It will not change.
D)It will first fall, then rise.

Quizplus · Accepted Answer

In the specific-factors model, trade increases the demand for the country's manufacturing output, causing an increase in the demand for the specific factor used in manufacturing (usually capital). This leads to a decrease in demand for the specific factor used in agriculture (usually land) and therefore, a decrease in the rental return on land.

Suppose That the Home Country in the Two­sector

Suppose That the Home Country in the Twosector