Which trade theory is tantamount to a short-run version of the factor price equalization theory?
A) Specific factors theory
B) Product life cycle theory
C) Economies of scale theory
D) Overlapping demand theory

Question

Quizplus · Accepted Answer

The specific factors theory focuses on short-run effects of changes in trade on the allocation of specific factors of production, assuming that some factors are specific to certain industries and cannot easily move between sectors. This theory is often seen as a short-run version of the factor price equalization theory, which argues that trade will eventually lead to equalization of factor prices across countries. Therefore, choice A, the specific factors theory, is the most tantamount to a short-run version of the factor price equalization theory.

Which Trade Theory Is Tantamount to a Short-Run Version of the Factor