In the factor-proportions theory, international trade tends to reduce country differences in:
A) relative but not absolute factor prices.
B) absolute but not relative factor prices.
C) relative and absolute factor prices.
D) neither relative nor absolute factor prices.
E) transportation costs.

Question

Quizplus · Accepted Answer

The factor-proportions theory, also known as the Heckscher-Ohlin theory, suggests that international trade will lead to a convergence in both relative and absolute factor prices across countries. This is because countries will specialize in and export goods that use their abundant factors intensively, leading to an increase in the demand for these factors and a rise in their prices, thereby reducing differences in factor prices between countries.

In the Factor-Proportions Theory, International Trade Tends to Reduce Country