Suppose that the Home country in the twosector
(manufacturing and agriculture) specificfactors model
Has a comparative advantage in manufactured output.
What will happen to the marginal product of capital used
In manufacturing production 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 manufactured output.
What will happen to the marginal product of capital used
In manufacturing production 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

When trade occurs, the Home country will specialize more in manufacturing due to its comparative advantage, increasing the demand for capital in manufacturing. This will lead to an increase in the marginal product of capital in manufacturing.

Suppose That the Home Country in the Two­sector

Suppose That the Home Country in the Twosector