If country A is labor abundant and country B is capital abundant, then with trade wages will tend to _____ in country A and _____ in country B.
A) fall; fall
B) rise; rise
C) fall; rise
D) rise; fall
E) Factor prices would not change.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin model, when countries engage in trade, the country that is labor abundant (country A) will see its wages rise due to increased demand for its abundant factor (labor). Conversely, the country that is capital abundant (country B) will see a fall in the return to capital as it exports capital-intensive goods, leading to a relative decrease in the demand for capital.

If Country a Is Labor Abundant and Country B Is